Trading Lessons To Keep You In The Game

Is your preferred trading strategy systematic? Rules based? Discretionary?

Here’s the thing…

There are never any guarantees.

Even though marketers and spruikers will tell you otherwise.

Here’s the thing: throughout your trading career, you are going to be wrong, and often.

I have always liked two statements when it comes to trading:

1) Trading is 80% psychology and 20% methodology

2) Many successful traders have only a 50/50 win / loss ratio. They are successful because they understand risk management and correct position sizing.

Here’s a few quick lessons to keep you on the right side of the profit curve.

i) Assess what the longer term trend is doing first. Up, down or sideways?

ii) Are any low risk chart patterns forming on the daily chart? Some common ones to look out for are triangles, flags & head & shoulders. Or cup & handles, ending diagonals & box patterns. (Members of The Chartist get free access to Building a Profitable Trading Plan Using Technical Analysis where these patterns are described in details).

iii) Understand that no matter how good a pattern or trade set up looks, there are no guarantees of success.

iv) Calculate your stop loss before the trade. Adhere to the stop loss to protect your downside.

v) Big trends can happen at any time. Take a look at CSL, Cochlear, or even Bitcoin during its 2017 rise. Trailing your stop whilst staying away from the noise is where the big money is.

vi) Stay out of any market that starts to chop.

vii) Don’t panic during drawdowns. It’s part of the journey – like catching a red light when driving across town.

viii) Risk no more than 1% – 1.5% of your trading capital on any given trade. 

ix) Don’t rely on the fundamentals. Markets tend to efficiently price them in.

x) Admit you have no idea what markets are going to do from one day to the next – and neither does anyone else.