As a trader I have come to understand that there is a lot more to trading than just simple buying or selling, there is a lot more to trading than analysis, whether it’s technical or fundamental or trading setups. These are only tools available to a trader, the rest is up to the individual trader, each trader is a unique individual and no two traders have the same trading style and as such each trader has his or her own strengths and weaknesses. Below I have outlined a number of guidelines that are part of my personal Golden Rules of Trading which I have compiled over a number of years through personal trial and error.
I welcome you to the complete edition that contains the entire Trader’s Corner series that has been appearing on the front page of Daily Technicals report. Please feel free to email me at [u][email protected][/u] with your comments.
Meditations of a Trader
I’m a trader, that what defines me as me. In order to become a trader, a person must identify him or herself as a trader. In order to be a trader one must become one with the market, with the price, with one’s self. As I meditate on the price there is nothing else, no time, no distractions, and no world outside of the purity of the price. As I mediate on the direction of the price and ask market for guidance, I remain humble and thankful for every lesson the market is willing to teach me for I’m a willing student, a trader and myself. As I become one with the price and seek the future path, I’m a trader and understand that there is no direct route where I want to get, but I’m not lost because I follow the price. Only the price knows where it wants to go, it speaks and I listen, and if I listen correctly I will be rewarded and if I make a mistake I will be punished, but I remain a patient and willing student, a trader and myself. And I thank the market for every lesson that I learned, continue to learn and will learn in the future, for I’m a trader and that is my true self.
Traders Corner
It’s hard to take a loss, but as a trader that what you do, you take losses along with profits, its how you handle them, that is the ultimate resolve. Cut your losses and let your profit run, but over 95% of traders tend to grab a quick profit and let the losses run, and in the long run they run out of trading capital and move on with their lives. It’s easy to take profits and hard to let them run and it’s easy to let the losses run and hard to take them, because psychologically it’s not a loss if it’s not taken, but reality dictates otherwise. In order to become a successful trader you must go against the human nature of hopes and dreams and learn how to face reality.
It is psychologically hard to take a loss, most traders try not to take losses and let them run, but an unrealized loss is still a loss and by not covering it a trader will face a dilemma of shirking capital. Capital is trader’s inventory, something to be deployed when the right opportunity comes around, but by letting the loses run and hanging to such notions as hopes and dreams, which do not exist in a market, something that this trader learned the hard way, the trader will eventually run out of trading capital and will face a dilemma of taking a loss or adding more money to a losing position. In order to become a successful, a trader must first learn how to take the loss, loses are inevitable no matter if you are professional or a novice, its how the trader deals with them that what separates novices from professionals.
What fascinates me the most about traders is how they deploy their capital, they will nurse losses and quickly grab profits, but that just negates the risk/reward ratio. Risk/reward ratio is something a trader must establish before he or she enters and exits the trade. Always keep the risk/reward at least at one, because if the trader takes a loss it will take one successful trade to recover the loss. If the risk/reward is below one it becomes negative and unfavorable as trader need to make a higher number successful trades to make up the loss and by doing so once again exposes the capital to a higher loss. I as a trader I never enter a trade unless I can have at least between 4 to 10 risk/reward, but I do not trade often and wait for extended periods of time for a potential trade to surface. The tradeoff is this, if the trader trades short-term keep the risk/reward lower, anywhere between 2 and 3 to 1 when entering a large number of trades. The reason behind the lower risk reward is lower profit targets and shorter holding period because it’s very hard to make more than you can within lower timeframe. This trader trades long-term, I can be in a position for weeks and months at a time, that is why I seek a higher risk reward, but once again the downside is I trade less frequently and my stops sometimes exceed over 100 pips.
As a trader one of the hardest lessons I learned is humility and how to be humble when trading the market. When the trader becomes successful he or she feels invulnerable that is when the market will remind you who you are. The best trade sometimes is the one not taken. The best thing to do sometimes is to walk away. Always be humble, no matter if you are running a $10,000 mini account or a multi-billion dollar hedge fund, the market will take your money equally, and it does not discriminate. As a trader I always treat the market with respect, because if you respect and listen to the market it will give you the answers that you seek, always remember that in a market you are alone, its only you and the market no matter what happens the market is always right, it’s the trader who can be on the wrong side of it. Learn humility and be humble, respect and listen to the market and in turn you will be a successful trader, but never let success go into your head because the market will punish you for your arrogance and always be thankful for the lessons the market teaches you, no matter what the price is.
Why do we trade? Money, financial freedom, recognition, success, maybe. Those all good reasons to trade, but they ultimately lead to vanity and greed and that leads to devastation. Greed is the worst motivation for trading; market will always punish greed and will always reward moderation. Never try to make all of the money in one trade; you can’t place everything on the outcome of one trade, if the trader does that, than I see no future for that trader, because he or she is not trading, but gambling. There is a fine line between traders and gamblers, because when there is money there are always those taking blind chances. If you want to succeed as a trader, do not think like a gambler, do not take blind chances and do not rely on luck because luck comes and goes just like a gambler, it’s the trader who remains.
As a trader I learned never to add to a losing position, a common mistake made by most traders. Yes I will agree with critics that will say that is will lower the breakeven level for the trade, but that only works when the price reverses its direction and heads in the direction of the trade. But what if the price continues to go against the trader, what now, losses are beginning to mount at a greater pace because trader increased the size, most traders just add to the position and hope for a break and a reversal, and that is where they get their break, its called a margin call, not the best stop a trader can use. The worst is seeing the market reverse direction and “runaway” from the trader. So the trader is now sitting with a big loss, being right in his or her initial judgment and seeing the market move their way adding an insult to the injury. DON’T BLAME THE MARKET FOR YOUR MISTAKES, BLAME YOURSELF. Mistake number one is adding size to a losing position, (if you are long/short and wrong don’t add size until position shows you a profit) and next mistake blaming the market for your own mistakes.
As a trader I’m the only one responsible for my own decisions and for my own actions, because I’m the only one who has to live with the consequences of the decisions that are made by me. It does not matter whether you will be right or will be wrong, eventually you will be proven to be either way, the trick is to understand and accept the consequence of the decision. When I trade I know that there are two outcomes, a gain or a loss and mentally ready for both, because if you can’t accept the responsibility for your own actions that you should not be in the market to begin with. As a trader I rely on my own choices and draw my own conclusions, I will listen for an advice but will act according to my own judgment; I never let someone else make decision for me. Why do most traders instantly turn to someone else for help when their trades go bad, the answer is simple, it’s a human trait, shift the blame on someone else, let someone else make the decision for you. What happens when there is no one around to stop you, learn to make your own mistakes, learn how to learn from them and learn to make your own decisions, only than you will become a real trader.
Reality or wishful thinking, it’s a very delicate balance when it comes to trading. As a trader I always learned not to let the wishful thinking cloud my judgment. I never let such notions as hopes and dreams distort the reality of the market. At one point when I found myself grasping at straws in a sinking trade I realized that no matter what I think, wish or hope, the market will do what its need to do, the only thing I can do is accept reality of being wrong, close the trade, take a loss and stay out until I can get myself to think rationally. Most traders instantly feel the urge to get their money back from the market and start trading with a vengeance and by doing so make even more mistakes and sink their account deeper into loss. Never let emotions cloud your judgment, never try to instantly make your money back, you will only lose more. The best thing to do is to walk away and try again after clearing your head no matter how long it takes, that what separates professionals from amateurs.
As a trader, I learned not to force trades. I learned the hard way not to push the trades just because I’m bored and there is nothing to do. Market does not always have a trade available, so the best thing to do in situation like this is not to do anything and be patient. Sometimes the best action is the one not taken. But what happens when you go ahead and push anyway, answer is simple, you lose and if you push again you will lose again. The key to becoming a successful trader, knowing when to stop yourself. A trader must, MUST, know how and when to stop trading and stay out of the market. It’s hard to stop, but it’s important to stop and walk away for sometime when the trades are not going your way, because losing on a couple of trades can turn into a losing streak. If the trader can’t stop trading, he or she will stop eventually when the account runs out of the money.
One of the most common mistakes traders seem to make is position size. Most traders instantly size up their positions after only few successful trades that they were lucky to be involved in, and that is a bad mistake. Size is a double-edged sword, which can cut the trader with either edge, because size will not only magnify profits, but will also magnify loses. Another common mistake is increasing the size of the next position after a losing trade in an attempt to recover the losses. That is when the trader is most vulnerable, because he or she is not only emotional because of the loss, but also an increased size can push the account deeper into loss. As a trader I learned the hard way to bring my size down when my trades are not going my way, not the other way around, because when my trading is suffering, my account should not. Loss of capital will hinder the trader’s ability to recover the losses and eventually will force the trader out of the market. Size does matter when it comes to trading; initial position size must always reflect the size of the account.
As a trader I learned that it is always important to understand the failure of success and I mean exactly the failure of success. As trader becomes more and more successful in his or her trading, there is a moment when the trader believes that he or she is a great trader and nothing will ever again go wrong, WRONG, that is when the trader is most vulnerable to him or herself, because that is when the trader has the biggest position size he or she ever traded. But that’s is where disaster might strike because the trader’s success can cloud the judgment by what I call a self-proclaimed invulnerability, a thought that the trader knows everything that he or she needs to know about trading the market. A thought such as this is ultimately will lead to the trader’s demise, because if something stops working or the market conditions change and trader still believes in his own hype, he or she will become a victim of own success. Never think that if you are that good, you can always be better, there is always room for improvement. Markets change and in order to remain successful, the trader must change as well, remain humble, never become a victim of a self-proclaimed invulnerability and remember to learn from the market and be thankful for the lessons.
As a trader, one of the lessons I learned the hard way is to not overtrade. Overtrading will lead to a substantial loss, because every time the trader enters the market, he or she exposes the capital to the market, because an increased number of trades will not instantly translate into profits and may increase the amount of losses the trader will sustain. Also with an increased amount of trading activity, increases the amount of execution cost, which includes spread, commissions and slippage. The most common misconception amongst the novice traders is that the trader has to be constantly in the market, but by being in the market all the time the trader does not give him or herself a chance to pause and will eventually lose because of the unfavorable market conditions. There are times when I trade, and there are times when I stay out, because if I don’t see any trades I will not trade. Trading out of boredom is the worst reason to be in the market. Patience, patience, patience. Patience is one of the keys to becoming successful trader, patience will keep the trader from overtrading and by being patient a trader has enough time to observe and look for a potential setup for the next trade. Remember it’s not the quantity of trades, but the quality of a trade.
A lesson that I learned as a trader is never to chase trades, because by chasing the trade and entering at another level alters the original risk/reward and violates the trade setup. Traders who chase the trade will most of the time find the price going against them, which instantly increases the probability of being stopped out or even taking a larger than anticipated loss, and its all due to the eagerness of the trader to establish a position. Never chase trades, because by the time you catch it, the trade is not the same that your original setup called for, and that makes the risk/reward unfavorable. Other mistake traders make is becoming “hang-up” on a missed trade. Key to success in trading is not to pay attention to the trades that the trader has missed, but rather keep the attention focused for the potential trades that will occur in the future. A missed trade serves as a confirmation that the trader is correct in his or her analysis and missed setup should be used to look for potential trade in the future. Remember: “Loss of Opportunity is Better than the Loss Of Capital”.
As a trader I learned how to learn from my own mistakes and from the mistakes made by other traders. The most common mistake is not to admit that you are wrong, accept the consequence of the wrong decision and close the trade. Instead what most traders do, they let their pride takes over and they hang on to a losing position because they are afraid to admit that they were wrong. Pride has no place in the market, pride can lead to devastating losses, especially when the trader had a successful run and feels invincible. I’m only proud of one thing, that I have no problem admitting when I’m wrong and move on to another trade, which is why I use stop loss to minimize the damage of my mistakes. Mistakes should be used as a learning experience, I may not know all of the things that work, but I do know what does not work and will not repeat the same mistake twice, or at least not the third time.
As a trader I have learned that size of the position does matter, because size is a double-edged sword, it magnifies both profits and losses. The most common mistake made by the novice traders is to instantly increase the size of their positions in an attempt to magnify their profits, but instead they mishandle the size and increase the loses, and by doing so the trader gets aggravated and yet once again increases the position size of the next trade in an attempt to bring back the account balance, thus exposing the account to a bigger potential loss. Another downfall of an increased position size is that any normal price fluctuations will be magnified proportionally by the size of the position, and if the trader has leveraged his of her account in an attempt to maximize the profits, he or she will face a possibility of a margin call, loss of capital and loss of a position. The worst outcome of overleveraging and sizing up is a margin call, a loss of capital and subsequent move in the right direction, thus leaving the trader to blame him or herself for the mistake. The key to trading is to know that profits do not happen instantly and by increasing size of the position, the trader will not only maximize profits, but will also maximize losses. In order to stay in the market and withstand the short-term volatility, a trader must learn how to adjust the position size according to the account. In order to maximize the profits and minimize the losses, this trader uses a “perfect” leverage technique, where the size of each individual position will not affect the overall account, even in times of extreme volatility.
As a trader I learned that one of the cornerstones in trading, and I mean successful trading is money management, and what fascinates me about most traders is how they trade without protective stops. A stop is not an option when it comes to trading, its mandatory for preserving the capital and must be used to take out the guessing of should I close the losing trade or maybe it will turnaround, This type of thinking can sink trader’s account deeper into loss, because no stop and no decision combined with hesitation and wishful thinking is a recipe for disaster. Stop is a hard loss, a trader MUST NEVER TRADE WITHOUT THE STOP LOSS. Trading without a stop exposes trader’s capital to an unlimited loss; trader must never enter a trade with potentially unlimited loss. Key to trading is to keep the losses to the minimum, while maximizing profits. Losses are inevitable; it’s how soon the trader is willing to deal with them, because a small loss without the stop can easily snowball into an avalanche and wipeout the trader’s account. Do not be proud, use stops; no one is right 100 percent of the time, NO ONE, including myself. Every time I enter the trade, I already have a predetermined stop; because the only known in a trade is how much I’m willing to lose, and I never lose more than I risk. A trader must never lose more that he or she risks on a trade while keeping the risk/reward positive.
As a trader, the most valuable lesson I have learned is to adapt to changing market conditions, because what worked yesterday will not necessarily work today or tomorrow. Most common mistake made by traders is to stick to the strategy that stopped working, it does not matter is the strategy produced favorable returns in the past, now is the present and tomorrow is the future. As traders we do not trade the past, we trade the future. As time progresses market participants change, rules change, price action changes, so why does the trader persists on doing something that does not work anymore, answer is simple human pride, do not be proud, admit that you are wrong and change what does not work. My advice has always been to traders, “If it works use it, if it does not change it”. I utilize an adaptable and self-learning fully discretionary trading system, which I constantly adjust to changing market conditions, because if the trader does not change with the market, he or she will be left behind. My advice for my readers is to follow the 3C’s and 3L’s of trading and you will be successful. “3C’s: Confidence, Consistency and Compounding and 3L’s: Levels, Leverage and Liquidity”.
As with any markets there are times for action and there are times for inaction. This trader believes that in order to be successful, trader must remain vigilant and not tire him or herself out by chasing everything single price tick. Price chasing must be replaced with caution, patience and vigilance. As a trader I learned that it’s impossible to trade every day, I do not trade every day, I trade when there are trades and I stay out of the market when I do not see any. Trader must not be in the market when there is nothing going on, do not trade if you do not see any trade setups or the market conditions do not conform with your trading methodology. Trade only when you see something; do not trade when you don’t see anything.
NEVER TRADE JUST TO BE IN THE MARKET.
As a trader I’m constantly reminded by the market to remain humble and respectful, because when I forget and fall into a trap of thinking that I’m better and more skillful than I’m actually am the market will remind me and give me a warning. Most common mistake made by traders after they make just a few successful trades is to fall into a mental trap and think that they are good, really good and that they can do anything and the market is their playground. WRONG. The market has a tendency to warn and remind you of whom you are, the key to becoming successful trader is to listen to the market and heed to the warning. It’s important for the trader to remain humble and learn the limits and capabilities that he of she posses. Because going beyond individual limits and capabilities will only lead to a loss, or even worse a series of losses, which can have a devastating impact on a trader both emotionally and psychologically.
NEVER THINK THAT YOU ARE BETTER THAN YOU ACTUALLY ARE, NOBODY IS THAT GOOD, NO ONE, NOT ME, NOT YOU, NO ONE.
Always be humble and you will become successful.
As a trader one of the lessons I learned is how to take losses. Learning how to take losses is one of the most important lessons a trader must learn if he or she wants to remain in the market. Losses are inevitable, no one is 100 percent right all the time. There will be trading streaks where trade can have a number of successful consecutive trades, but sooner or later the streak comes to an end and he or she will take a loss. As that point it’s very important not to lose one’s head, a trader must remain in control of him or herself. After taking a loss, take a break and after regaining clear mind and an ability to think logically only than trader can choose to reenter the market. Don’t hang up on a loss and never carry a prejudice against a loss, the key to handle losses is to cut them quickly before a small loss becomes a large one. Never think that you will escape losses, losses are just like profits, it’s all part of the trader’s universe.
LOSSES ARE INEVITABLE, GET OVER THE LOSS AND MOVE ON TO THE NEXT TRADE.
As a trader one of the lessons I learned the hard way never to be eager to enter the market. Eagerness tends to lead to excitement and in turn it tends to cloud rational thinking, which can lead to a loss or a series of losses as trader did not allow him or herself enough time to asses the market for potential trades and just entered the market because it’s moving and the trader does not want to be left behind. Its ok to miss a trade, in order to be successful a trader must learn how to control his or her emotions, never be eager to establish positions and never enter the market on a whim, just because it’s moving. Trader’s strongest asset is patience to wait for a high probability setup to materialize, because if the trader is not patient, he or she will not be trading for very long. If you feel the urge to trade just because you are bored, get a cheaper hobby. Be patient and listen to the market and you will be successful.
PATIENCE IS A CORNERSTONE OF SUCCESS FOR A TRADER.
As a trader I learned the hard way that not every trade will be profitable there will be losses, it’s inevitable. One of the most common mistakes made by amateur traders is that profits are easy to come by; WRONG losses are easy to come by, not profits. Every time when I enter a trade I know that I can and will lose on some of my trades and I accept the reality of trading. Key to successful trading is to differentiate what kind of trades dominate your trading, losing trades or wining trades. If my losers exceed my winners I stop trading because its obvious that something is not working or my trading strategy is not in tune with the market. If I’m wrong on high number of my trades I liquidate everything, because if I hold on to the positions in a situation where my losers exceed winners, it’s only a matter of short period of time before my winners will also turn into losers. The best thing to do is to take a break and start with a clean slate.
IN THE MARKET LOSSES ARE EASY, PROFITS ARE HARD.
As a trader I learned the hard way that if I want to become a trader I must first unlearn everything I knew about the market. As I began my trading career my first lesson was never assume anything or take anything for granted in the market. Most common mistake made by novice traders is to think that trading is easy and fun, WRONG; trading is hard and grueling task. Yes, I agree with my critics that trading can be extremely rewarding, but it can also be devastating, both financially and emotionally, for both experienced and inexperienced traders. In market only the strong survive, and by strong I mean consistent traders, consistency is one of the pillars of successful traders. By being consistent trader will overtime build up his or her confidence as well as the trading account. It’s important to remember that it’s not how big the profits are its how consistent the trader is.
Always remember 3 C's of trading: CONFIDENCE, COMPOUNDING AND CONSISTENCY.
As a trader I learned through my experience that there is no bull or bear side of the market, there is only one side, which is the correct side. Most of the novice traders lock themselves into one way thinking, they make the most common mistake of choosing a side. As a trader I’m neither bull nor bear, but a trader, I do not have a favorite side, I trade the side that moves, and it does not matter whether the price is heading up or down, as long as it moves in one direction and has a follow through. As a trader I’m constantly on both sides of the market at the same time, because in order to succeed I always maintain a buy and sell scenario. I do not sell when the market goes up and do not buy when the market goes down; I trade with the market and never against it. In order to become successful a trader must remember:
THERE IS NO BULL OR BEAR SIDE IN THE MARKET, BUT THE CORRECT SIDE.
As a trader I learned the hard way that there is no instant gratification in the market. The most common mistakes made by novice traders are that they expect constant price action and instant profits. Market does not always move and there are periods where the price action is almost non-existent, and as a trader I learned to stay out of the dull market or at least not to carry a large position during those periods. But what a novice trader does, he or she instantly sizes up the position in order to maximize the potential return, because the market is not moving and there is a need for gratification, price action and instant profits. That is where the trader becomes a danger to him or herself, because if there is an unexpected move against the trader, he or she will be devastated by the size of the position. A trader must remember that bigger size not only magnifies potential profits, but also magnifies losses; never trade size in a dull market, patience is a key to success because nothing ever happens instantly.
THERE IS NO SUCH THING AS INSTANT PROFITS, ONLY INSTANT LOSSES.
As a trader one of the lessons I learned the hard way is never try to trade everything I see and to keep my trading universe limited. Most common mistake made by novice traders is trying to take on too many positions at once. A danger of trading too many positions at one time is losing one’s focus thus increasing a chance of a loss. A trader must understand that he or she is only human and must focus on a limited number of opportunities. A higher number of instruments traded does not necessarily translate into higher profit, instead as trader adds more and more positions while trying to keep track of the previously opened positions and the price action, he or she will eventually burnout and lose focus. A loss of focus for a trader will translate into a loss in the account because if he or she can’t keep track of positions no one else will, remember only you as a trader have vested interest in your own success.
REMEMBER: KEEP YOUR TRADING UNIVERSE LIMITED AND DON’T LOSE FOCUS.
As a trader one of the lessons I learned is to keep my trading strategy as simple as possible. The most common mistake made by novice traders is to use everything they learn at once and to keep strategies that do not work. Another mistake is to make strategies to complicated, which can be compared to a mechanism that has too many parts. A strategy that has too many rules does not necessarily translates into a profitable strategy, on the contrary the more moving parts the mechanism has the more it’s prone to failure. I personally keep my trading strategies simple; I just don’t deploy them all at once. The key to successful trading is to know which strategy is appropriate in particular market conditions and to discard the strategies that do not work. Never keep a strategy that does not work, if it works use it, if it doesn’t discard it, keep it simple and don’t make things more complicated than they are.
REMEMBER: KEY TO SUCCESSFUL TRADING IS SIMPLICITY.
As a trader one of the lessons I learned the hard way is to never move my stops against the position. One of the most common mistakes made by the novice traders is to move the stop against the position once the trade start going against him or her. As the trade keeps going against the trader and once again approaches the stop, what do most of traders do, they move the stop again, thus increasing an unrealized loss, but unrealized loss is still a loss and a real one at that. In order to become successful, a trader must learn that the initial stop most of the time is a correct stop, because if the stop is triggered it usually means that the trader is on the wrong side of the market and by moving the stop he or she only increases the loss. The reason why traders move stops is hope that the market turns around and goes in the direction of the trade, but hope has no place in the market, protective stops do.
REMEMBER: NEVER MOVE THE STOP AGAINST THE POSITION, BECAUSE BY MOVING STOPS AGAINST YOUR POSITION YOU ONLY INCREASE THE SIZE OF YOUR LOSS.
As a trader one of the lessons I learned the hard way is to never let my emotions and feelings interfere with my trading. Trading can be emotionally draining experience for those who are not prepared for what can happen in the market. A trader is constantly subjected to an avalanche of data, price action, volatility, emotions and feelings of greed, fear, elation, joy and pain. Emotions and feelings are an integral part of human nature, but can be very expensive luxuries a trader can ill afford to hold on to, especially for a novice trader. In order to become successful, a trader must learn self-control, he or she must put aside all of the feelings and prejudices one had before becoming a trader. A successful trader must always be in control of oneself, one’s emotions and feelings. It is always important to remember that it is a trader who runs a position, not the other way around, because when the position begins to run a trader instead, that is where trader is lost to the emotions and feelings and in turn that will lead to a devastating loss.
REMEMBER: SELF-CONTROL IS KEY TO SUCCESS.
As a trader I have come to understand that trading setups do not always exist in the market and during those periods I stay out of the price action. The most common mistake made by novice traders is to “imagine” a setup that is not there, just because a trader wants to get involved in a price action. Many traders have fallen into a trap of their imaginations, which is further a bolstered by wishful thinking and lack of patience, and lost on trades where they thought was potentially great trading setup, when in fact there was nothing there. Another common mistake that costs dearly is anticipating a potential setup, bad mistake. I personally follow a rule; it is not a trade setup until it becomes one, never anticipate the price action, instead react to it and act upon it.
REMEMBER: TRADE WHAT YOU SEE NOT WHAT YOU THINK.
As a trader I have learned to keep hard stops instead of mental stops, because mental stop is not a stop until it’s executed by the trader. Most common mistake made by the novice traders is to keep a mental stop instead of a hard stop, because an inexperienced trader lacks the discipline to follow-through with the original mental stop when facing a possibility of a loss. It’s psychologically hard to take a loss, but an unrealized loss is still a loss and a real one at that. Hard stops take the hard decision of taking a loss out of the trader’s hands, but with mental stop, trader must make his or her own decision to take a loss, and that is where most traders will let their loss run because of the inability to face reality and accept that he or she was wrong and close the trade. In order to become successful a trader must learn to keep hard stop instead of a mental stop.
REMEMBER: LOSS IS STILL A LOSS EVEN IF IT IS AN UNREALIZED ONE.
As a trader I have learned never to envy anyone’s profits and never to brag about my own. Most common mistake made by novice traders is to pay attention to someone else’s profits instead of his or her own P/L and by doing so a trader becomes a danger to him or herself, because if another trader is doing better, that where greed takes over the trader and he or she feels compelled to catch up. As trader tries to match someone else’s profits, he or she will start taking unnecessary risks with trades, too much size and overtrading as the most common one’s, and as number of mistakes mount due to the loss of self-control and trader simply “blows up” the account due to greed and completion. In order to become successful a trader must understand that the only profit and loss he or she must be concerned with are the one in his or her account, not someone else. Someone else’s profits should not be a source of envy, because that leads to greed and competition, and that in turn leads to ruin, instead pay attention to your own account and P/L and you will be successful.
REMEMBER: A TRADER WHO PAYS ATTENTION TO SOMEONE ELSE’S PROFITS WILL NEVER RECOVER FROM HIS OR HER OWN LOSSES.
As a trader I learned never to assume anything and to differentiate between the continuation and reversal setups and to never trade continuation during a reversal and to never to trade a reversal when the market calls for a continuation. The most common mistake made by novice traders is to think that the market has to reverse because it has gone to “far” or continue to trade in the same direction just because the trader thinks it will. WRONG. Nothing has to do anything. In order to become successful, a trader must never assume anything and to never anticipate the market, but to react to it. Price does not reverse or continue just because the trader thinks it will and has a position on in anticipation the move. A key to successful trading is understanding that the price will move in a predetermined direction until it stops moving in that direction and reverses, only than trader should enter the market after understanding whether price is going to reverse or continue, and trade after the confirmation, not in anticipation of it.
REMEMBER: NEVER ANTICIPATE THE PRICE ACTION, REACT TO IT AND YOU WILL BE SUCCESSFUL.
As a trader one the hardest lessons I have learned is how to get back on my feet after being crushed by market. Most common mistake made by novice traders is misconception that learning to trade is easy and fun. WRONG. Yes learning to trade is certainly rewarding, but it’s a long, hard grueling and emotionally wrecking task. Every successful trader has experienced failures, no one ever escapes it. Every failure brings you one step closer to success, if you are willing to learn from it. After being crushed by the market twice I took a step back and revaluated my strategy, my trading style and myself. I unlearned everything I knew about the market and trading, keeping only the knowledge of what did not work and set about on a quest of self-discovery. I would like to share with you my readers an interesting fact: I have read my first technical analysis book in September of 2004 given to me by my close friend and teacher. After that first book I have learned and unlearned many things since than, but I never forgot that market can crush anyone, its how you pull yourself together separates real traders from amateurs.
REMEMBER: MARKET CRUSHES EVERYBODY; IT’S HOW YOU PULL YOURSELF TOGETHER AFTERWARDS, THAT WHAT REALLY COUNTS.
As a trader one the lessons I have learned is to know when stop and take a break from the trading, from the markets and from myself. Most common mistake made by novice traders is to keep trading no matter what, regardless of whether they losing or winning, especially when they are losing. Trader is first and foremost is only human and as human he or she is limited by their own humanity. It is very important for the trader to learn to stop after a big loss or series of losses, but, especially after a big profit. By taking a break after a loss, trader gives him or herself a chance to clear one’s mind and reevaluate the trading strategy and the market conditions. Taking a break from a big win is even more important, because after a successful trade, trader becomes very vulnerable to him or herself due to the fact that when trader takes the next position it will be bigger than the previous one and at the same time the trader becomes a victim of own success. It’s important to know your limits, to take a break and always remember that a trader is only human.
REMEMBER: TRADER IS ONLY HUMAN.
As trader I learned that it does not matter which trading strategies trader utilizes for trading whether it’s technical, fundamental or combination of both, that is not very important. Most important strategies every trader must learn are when to enter the market, when to exit the market and most important strategy is when to stay out of the market. Most common mistake made by novice traders is to focus on entry strategies without learning how to exit the market and take either profit or loss. An even bigger mistake made by most traders is never implementing the “stay out of the market” strategy, because of the simple human need for greed and gratification. I have found that in order to remain a trader and remain in the market I have learned that “stay out of the market” strategy is the best strategy any trader can learn; especially when the market has no potential trades or when I find myself not in tune with the market.
REMEMBER: KNOW WHEN TO ENTER, WHEN TO EXIT AND WHEN TO STAY OUT AND YOU WILL BE SUCCESSFUL.
As trader I learned that each trader is unique and in order to be successful he or she must adopt to a trading style that the trader feels comfortable with. Most common mistake made by traders is to stick to a trading style that does not suit traders’ personality. Some traders like constant price action and get involved in dozens of trades on the intraday basis, while other traders sit and wait patiently for an opportunity to arise to enter into a long term trade. The key to successful trading is to know yourself, to know what works for you as both the trader and the individual, if a person is a day trader in heart than he or she should remain a day trader, but on the other hand if a person can’t day trade, than he or she should look to become a medium or longer term trader. If anyone wants to succeed as a trader, one must be comfortable with the timeframe and trading style, which in turn always translates into a life style. Learning to trade is extremely hard and challenge and not for everyone, just like any other profession, but there are rewards for those who are not afraid of the path and yes it’s ok to fall while learning to walk, but only if you are willing to get up and continue to walk. Learning to trade is first and foremost is learning about yourself, your true self, who you truly are, because the market is a true equalizer, everyone is equal in the market, EVERYONE, and you only lie and deceive yourself when you are afraid to face reality of the market.
REMEMBER: HUMAN NATURE NEVER CHANGES; LEARNING TO TRADE IS TO LEARN WHO YOU TRULY ARE.
Good Luck Trading!!!
Sincerely
Sam Shenker
Sam Shenker is a Technical Currency Analyst for Forex Capital Markets (FXCM). Sam is the author of the Daily and Weekly Technical Research reports at FXCM.
His reports include: Daily Technicals, Weekly Crosses and the Weekly Futures Commitment of Traders Report. Prior to joining FXCM, Sam spent a number of years on Wall St and has traded many different products, including: equities, equity derivatives and futures.
He also specialized in research and analysis of high yield bonds, corporate bankruptcies, restructurings, reorganizations and venture capital.
He holds a Bachelors degree in Finance and Business Management from Pace University and is an active currency trader. Sam is frequently quoted on FXStreet.
I welcome you to the complete edition that contains the entire Trader’s Corner series that has been appearing on the front page of Daily Technicals report. Please feel free to email me at [u][email protected][/u] with your comments.
Meditations of a Trader
I’m a trader, that what defines me as me. In order to become a trader, a person must identify him or herself as a trader. In order to be a trader one must become one with the market, with the price, with one’s self. As I meditate on the price there is nothing else, no time, no distractions, and no world outside of the purity of the price. As I mediate on the direction of the price and ask market for guidance, I remain humble and thankful for every lesson the market is willing to teach me for I’m a willing student, a trader and myself. As I become one with the price and seek the future path, I’m a trader and understand that there is no direct route where I want to get, but I’m not lost because I follow the price. Only the price knows where it wants to go, it speaks and I listen, and if I listen correctly I will be rewarded and if I make a mistake I will be punished, but I remain a patient and willing student, a trader and myself. And I thank the market for every lesson that I learned, continue to learn and will learn in the future, for I’m a trader and that is my true self.
Traders Corner
It’s hard to take a loss, but as a trader that what you do, you take losses along with profits, its how you handle them, that is the ultimate resolve. Cut your losses and let your profit run, but over 95% of traders tend to grab a quick profit and let the losses run, and in the long run they run out of trading capital and move on with their lives. It’s easy to take profits and hard to let them run and it’s easy to let the losses run and hard to take them, because psychologically it’s not a loss if it’s not taken, but reality dictates otherwise. In order to become a successful trader you must go against the human nature of hopes and dreams and learn how to face reality.
It is psychologically hard to take a loss, most traders try not to take losses and let them run, but an unrealized loss is still a loss and by not covering it a trader will face a dilemma of shirking capital. Capital is trader’s inventory, something to be deployed when the right opportunity comes around, but by letting the loses run and hanging to such notions as hopes and dreams, which do not exist in a market, something that this trader learned the hard way, the trader will eventually run out of trading capital and will face a dilemma of taking a loss or adding more money to a losing position. In order to become a successful, a trader must first learn how to take the loss, loses are inevitable no matter if you are professional or a novice, its how the trader deals with them that what separates novices from professionals.
What fascinates me the most about traders is how they deploy their capital, they will nurse losses and quickly grab profits, but that just negates the risk/reward ratio. Risk/reward ratio is something a trader must establish before he or she enters and exits the trade. Always keep the risk/reward at least at one, because if the trader takes a loss it will take one successful trade to recover the loss. If the risk/reward is below one it becomes negative and unfavorable as trader need to make a higher number successful trades to make up the loss and by doing so once again exposes the capital to a higher loss. I as a trader I never enter a trade unless I can have at least between 4 to 10 risk/reward, but I do not trade often and wait for extended periods of time for a potential trade to surface. The tradeoff is this, if the trader trades short-term keep the risk/reward lower, anywhere between 2 and 3 to 1 when entering a large number of trades. The reason behind the lower risk reward is lower profit targets and shorter holding period because it’s very hard to make more than you can within lower timeframe. This trader trades long-term, I can be in a position for weeks and months at a time, that is why I seek a higher risk reward, but once again the downside is I trade less frequently and my stops sometimes exceed over 100 pips.
As a trader one of the hardest lessons I learned is humility and how to be humble when trading the market. When the trader becomes successful he or she feels invulnerable that is when the market will remind you who you are. The best trade sometimes is the one not taken. The best thing to do sometimes is to walk away. Always be humble, no matter if you are running a $10,000 mini account or a multi-billion dollar hedge fund, the market will take your money equally, and it does not discriminate. As a trader I always treat the market with respect, because if you respect and listen to the market it will give you the answers that you seek, always remember that in a market you are alone, its only you and the market no matter what happens the market is always right, it’s the trader who can be on the wrong side of it. Learn humility and be humble, respect and listen to the market and in turn you will be a successful trader, but never let success go into your head because the market will punish you for your arrogance and always be thankful for the lessons the market teaches you, no matter what the price is.
Why do we trade? Money, financial freedom, recognition, success, maybe. Those all good reasons to trade, but they ultimately lead to vanity and greed and that leads to devastation. Greed is the worst motivation for trading; market will always punish greed and will always reward moderation. Never try to make all of the money in one trade; you can’t place everything on the outcome of one trade, if the trader does that, than I see no future for that trader, because he or she is not trading, but gambling. There is a fine line between traders and gamblers, because when there is money there are always those taking blind chances. If you want to succeed as a trader, do not think like a gambler, do not take blind chances and do not rely on luck because luck comes and goes just like a gambler, it’s the trader who remains.
As a trader I learned never to add to a losing position, a common mistake made by most traders. Yes I will agree with critics that will say that is will lower the breakeven level for the trade, but that only works when the price reverses its direction and heads in the direction of the trade. But what if the price continues to go against the trader, what now, losses are beginning to mount at a greater pace because trader increased the size, most traders just add to the position and hope for a break and a reversal, and that is where they get their break, its called a margin call, not the best stop a trader can use. The worst is seeing the market reverse direction and “runaway” from the trader. So the trader is now sitting with a big loss, being right in his or her initial judgment and seeing the market move their way adding an insult to the injury. DON’T BLAME THE MARKET FOR YOUR MISTAKES, BLAME YOURSELF. Mistake number one is adding size to a losing position, (if you are long/short and wrong don’t add size until position shows you a profit) and next mistake blaming the market for your own mistakes.
As a trader I’m the only one responsible for my own decisions and for my own actions, because I’m the only one who has to live with the consequences of the decisions that are made by me. It does not matter whether you will be right or will be wrong, eventually you will be proven to be either way, the trick is to understand and accept the consequence of the decision. When I trade I know that there are two outcomes, a gain or a loss and mentally ready for both, because if you can’t accept the responsibility for your own actions that you should not be in the market to begin with. As a trader I rely on my own choices and draw my own conclusions, I will listen for an advice but will act according to my own judgment; I never let someone else make decision for me. Why do most traders instantly turn to someone else for help when their trades go bad, the answer is simple, it’s a human trait, shift the blame on someone else, let someone else make the decision for you. What happens when there is no one around to stop you, learn to make your own mistakes, learn how to learn from them and learn to make your own decisions, only than you will become a real trader.
Reality or wishful thinking, it’s a very delicate balance when it comes to trading. As a trader I always learned not to let the wishful thinking cloud my judgment. I never let such notions as hopes and dreams distort the reality of the market. At one point when I found myself grasping at straws in a sinking trade I realized that no matter what I think, wish or hope, the market will do what its need to do, the only thing I can do is accept reality of being wrong, close the trade, take a loss and stay out until I can get myself to think rationally. Most traders instantly feel the urge to get their money back from the market and start trading with a vengeance and by doing so make even more mistakes and sink their account deeper into loss. Never let emotions cloud your judgment, never try to instantly make your money back, you will only lose more. The best thing to do is to walk away and try again after clearing your head no matter how long it takes, that what separates professionals from amateurs.
As a trader, I learned not to force trades. I learned the hard way not to push the trades just because I’m bored and there is nothing to do. Market does not always have a trade available, so the best thing to do in situation like this is not to do anything and be patient. Sometimes the best action is the one not taken. But what happens when you go ahead and push anyway, answer is simple, you lose and if you push again you will lose again. The key to becoming a successful trader, knowing when to stop yourself. A trader must, MUST, know how and when to stop trading and stay out of the market. It’s hard to stop, but it’s important to stop and walk away for sometime when the trades are not going your way, because losing on a couple of trades can turn into a losing streak. If the trader can’t stop trading, he or she will stop eventually when the account runs out of the money.
One of the most common mistakes traders seem to make is position size. Most traders instantly size up their positions after only few successful trades that they were lucky to be involved in, and that is a bad mistake. Size is a double-edged sword, which can cut the trader with either edge, because size will not only magnify profits, but will also magnify loses. Another common mistake is increasing the size of the next position after a losing trade in an attempt to recover the losses. That is when the trader is most vulnerable, because he or she is not only emotional because of the loss, but also an increased size can push the account deeper into loss. As a trader I learned the hard way to bring my size down when my trades are not going my way, not the other way around, because when my trading is suffering, my account should not. Loss of capital will hinder the trader’s ability to recover the losses and eventually will force the trader out of the market. Size does matter when it comes to trading; initial position size must always reflect the size of the account.
As a trader I learned that it is always important to understand the failure of success and I mean exactly the failure of success. As trader becomes more and more successful in his or her trading, there is a moment when the trader believes that he or she is a great trader and nothing will ever again go wrong, WRONG, that is when the trader is most vulnerable to him or herself, because that is when the trader has the biggest position size he or she ever traded. But that’s is where disaster might strike because the trader’s success can cloud the judgment by what I call a self-proclaimed invulnerability, a thought that the trader knows everything that he or she needs to know about trading the market. A thought such as this is ultimately will lead to the trader’s demise, because if something stops working or the market conditions change and trader still believes in his own hype, he or she will become a victim of own success. Never think that if you are that good, you can always be better, there is always room for improvement. Markets change and in order to remain successful, the trader must change as well, remain humble, never become a victim of a self-proclaimed invulnerability and remember to learn from the market and be thankful for the lessons.
As a trader, one of the lessons I learned the hard way is to not overtrade. Overtrading will lead to a substantial loss, because every time the trader enters the market, he or she exposes the capital to the market, because an increased number of trades will not instantly translate into profits and may increase the amount of losses the trader will sustain. Also with an increased amount of trading activity, increases the amount of execution cost, which includes spread, commissions and slippage. The most common misconception amongst the novice traders is that the trader has to be constantly in the market, but by being in the market all the time the trader does not give him or herself a chance to pause and will eventually lose because of the unfavorable market conditions. There are times when I trade, and there are times when I stay out, because if I don’t see any trades I will not trade. Trading out of boredom is the worst reason to be in the market. Patience, patience, patience. Patience is one of the keys to becoming successful trader, patience will keep the trader from overtrading and by being patient a trader has enough time to observe and look for a potential setup for the next trade. Remember it’s not the quantity of trades, but the quality of a trade.
A lesson that I learned as a trader is never to chase trades, because by chasing the trade and entering at another level alters the original risk/reward and violates the trade setup. Traders who chase the trade will most of the time find the price going against them, which instantly increases the probability of being stopped out or even taking a larger than anticipated loss, and its all due to the eagerness of the trader to establish a position. Never chase trades, because by the time you catch it, the trade is not the same that your original setup called for, and that makes the risk/reward unfavorable. Other mistake traders make is becoming “hang-up” on a missed trade. Key to success in trading is not to pay attention to the trades that the trader has missed, but rather keep the attention focused for the potential trades that will occur in the future. A missed trade serves as a confirmation that the trader is correct in his or her analysis and missed setup should be used to look for potential trade in the future. Remember: “Loss of Opportunity is Better than the Loss Of Capital”.
As a trader I learned how to learn from my own mistakes and from the mistakes made by other traders. The most common mistake is not to admit that you are wrong, accept the consequence of the wrong decision and close the trade. Instead what most traders do, they let their pride takes over and they hang on to a losing position because they are afraid to admit that they were wrong. Pride has no place in the market, pride can lead to devastating losses, especially when the trader had a successful run and feels invincible. I’m only proud of one thing, that I have no problem admitting when I’m wrong and move on to another trade, which is why I use stop loss to minimize the damage of my mistakes. Mistakes should be used as a learning experience, I may not know all of the things that work, but I do know what does not work and will not repeat the same mistake twice, or at least not the third time.
As a trader I have learned that size of the position does matter, because size is a double-edged sword, it magnifies both profits and losses. The most common mistake made by the novice traders is to instantly increase the size of their positions in an attempt to magnify their profits, but instead they mishandle the size and increase the loses, and by doing so the trader gets aggravated and yet once again increases the position size of the next trade in an attempt to bring back the account balance, thus exposing the account to a bigger potential loss. Another downfall of an increased position size is that any normal price fluctuations will be magnified proportionally by the size of the position, and if the trader has leveraged his of her account in an attempt to maximize the profits, he or she will face a possibility of a margin call, loss of capital and loss of a position. The worst outcome of overleveraging and sizing up is a margin call, a loss of capital and subsequent move in the right direction, thus leaving the trader to blame him or herself for the mistake. The key to trading is to know that profits do not happen instantly and by increasing size of the position, the trader will not only maximize profits, but will also maximize losses. In order to stay in the market and withstand the short-term volatility, a trader must learn how to adjust the position size according to the account. In order to maximize the profits and minimize the losses, this trader uses a “perfect” leverage technique, where the size of each individual position will not affect the overall account, even in times of extreme volatility.
As a trader I learned that one of the cornerstones in trading, and I mean successful trading is money management, and what fascinates me about most traders is how they trade without protective stops. A stop is not an option when it comes to trading, its mandatory for preserving the capital and must be used to take out the guessing of should I close the losing trade or maybe it will turnaround, This type of thinking can sink trader’s account deeper into loss, because no stop and no decision combined with hesitation and wishful thinking is a recipe for disaster. Stop is a hard loss, a trader MUST NEVER TRADE WITHOUT THE STOP LOSS. Trading without a stop exposes trader’s capital to an unlimited loss; trader must never enter a trade with potentially unlimited loss. Key to trading is to keep the losses to the minimum, while maximizing profits. Losses are inevitable; it’s how soon the trader is willing to deal with them, because a small loss without the stop can easily snowball into an avalanche and wipeout the trader’s account. Do not be proud, use stops; no one is right 100 percent of the time, NO ONE, including myself. Every time I enter the trade, I already have a predetermined stop; because the only known in a trade is how much I’m willing to lose, and I never lose more than I risk. A trader must never lose more that he or she risks on a trade while keeping the risk/reward positive.
As a trader, the most valuable lesson I have learned is to adapt to changing market conditions, because what worked yesterday will not necessarily work today or tomorrow. Most common mistake made by traders is to stick to the strategy that stopped working, it does not matter is the strategy produced favorable returns in the past, now is the present and tomorrow is the future. As traders we do not trade the past, we trade the future. As time progresses market participants change, rules change, price action changes, so why does the trader persists on doing something that does not work anymore, answer is simple human pride, do not be proud, admit that you are wrong and change what does not work. My advice has always been to traders, “If it works use it, if it does not change it”. I utilize an adaptable and self-learning fully discretionary trading system, which I constantly adjust to changing market conditions, because if the trader does not change with the market, he or she will be left behind. My advice for my readers is to follow the 3C’s and 3L’s of trading and you will be successful. “3C’s: Confidence, Consistency and Compounding and 3L’s: Levels, Leverage and Liquidity”.
As with any markets there are times for action and there are times for inaction. This trader believes that in order to be successful, trader must remain vigilant and not tire him or herself out by chasing everything single price tick. Price chasing must be replaced with caution, patience and vigilance. As a trader I learned that it’s impossible to trade every day, I do not trade every day, I trade when there are trades and I stay out of the market when I do not see any. Trader must not be in the market when there is nothing going on, do not trade if you do not see any trade setups or the market conditions do not conform with your trading methodology. Trade only when you see something; do not trade when you don’t see anything.
NEVER TRADE JUST TO BE IN THE MARKET.
As a trader I’m constantly reminded by the market to remain humble and respectful, because when I forget and fall into a trap of thinking that I’m better and more skillful than I’m actually am the market will remind me and give me a warning. Most common mistake made by traders after they make just a few successful trades is to fall into a mental trap and think that they are good, really good and that they can do anything and the market is their playground. WRONG. The market has a tendency to warn and remind you of whom you are, the key to becoming successful trader is to listen to the market and heed to the warning. It’s important for the trader to remain humble and learn the limits and capabilities that he of she posses. Because going beyond individual limits and capabilities will only lead to a loss, or even worse a series of losses, which can have a devastating impact on a trader both emotionally and psychologically.
NEVER THINK THAT YOU ARE BETTER THAN YOU ACTUALLY ARE, NOBODY IS THAT GOOD, NO ONE, NOT ME, NOT YOU, NO ONE.
Always be humble and you will become successful.
As a trader one of the lessons I learned is how to take losses. Learning how to take losses is one of the most important lessons a trader must learn if he or she wants to remain in the market. Losses are inevitable, no one is 100 percent right all the time. There will be trading streaks where trade can have a number of successful consecutive trades, but sooner or later the streak comes to an end and he or she will take a loss. As that point it’s very important not to lose one’s head, a trader must remain in control of him or herself. After taking a loss, take a break and after regaining clear mind and an ability to think logically only than trader can choose to reenter the market. Don’t hang up on a loss and never carry a prejudice against a loss, the key to handle losses is to cut them quickly before a small loss becomes a large one. Never think that you will escape losses, losses are just like profits, it’s all part of the trader’s universe.
LOSSES ARE INEVITABLE, GET OVER THE LOSS AND MOVE ON TO THE NEXT TRADE.
As a trader one of the lessons I learned the hard way never to be eager to enter the market. Eagerness tends to lead to excitement and in turn it tends to cloud rational thinking, which can lead to a loss or a series of losses as trader did not allow him or herself enough time to asses the market for potential trades and just entered the market because it’s moving and the trader does not want to be left behind. Its ok to miss a trade, in order to be successful a trader must learn how to control his or her emotions, never be eager to establish positions and never enter the market on a whim, just because it’s moving. Trader’s strongest asset is patience to wait for a high probability setup to materialize, because if the trader is not patient, he or she will not be trading for very long. If you feel the urge to trade just because you are bored, get a cheaper hobby. Be patient and listen to the market and you will be successful.
PATIENCE IS A CORNERSTONE OF SUCCESS FOR A TRADER.
As a trader I learned the hard way that not every trade will be profitable there will be losses, it’s inevitable. One of the most common mistakes made by amateur traders is that profits are easy to come by; WRONG losses are easy to come by, not profits. Every time when I enter a trade I know that I can and will lose on some of my trades and I accept the reality of trading. Key to successful trading is to differentiate what kind of trades dominate your trading, losing trades or wining trades. If my losers exceed my winners I stop trading because its obvious that something is not working or my trading strategy is not in tune with the market. If I’m wrong on high number of my trades I liquidate everything, because if I hold on to the positions in a situation where my losers exceed winners, it’s only a matter of short period of time before my winners will also turn into losers. The best thing to do is to take a break and start with a clean slate.
IN THE MARKET LOSSES ARE EASY, PROFITS ARE HARD.
As a trader I learned the hard way that if I want to become a trader I must first unlearn everything I knew about the market. As I began my trading career my first lesson was never assume anything or take anything for granted in the market. Most common mistake made by novice traders is to think that trading is easy and fun, WRONG; trading is hard and grueling task. Yes, I agree with my critics that trading can be extremely rewarding, but it can also be devastating, both financially and emotionally, for both experienced and inexperienced traders. In market only the strong survive, and by strong I mean consistent traders, consistency is one of the pillars of successful traders. By being consistent trader will overtime build up his or her confidence as well as the trading account. It’s important to remember that it’s not how big the profits are its how consistent the trader is.
Always remember 3 C's of trading: CONFIDENCE, COMPOUNDING AND CONSISTENCY.
As a trader I learned through my experience that there is no bull or bear side of the market, there is only one side, which is the correct side. Most of the novice traders lock themselves into one way thinking, they make the most common mistake of choosing a side. As a trader I’m neither bull nor bear, but a trader, I do not have a favorite side, I trade the side that moves, and it does not matter whether the price is heading up or down, as long as it moves in one direction and has a follow through. As a trader I’m constantly on both sides of the market at the same time, because in order to succeed I always maintain a buy and sell scenario. I do not sell when the market goes up and do not buy when the market goes down; I trade with the market and never against it. In order to become successful a trader must remember:
THERE IS NO BULL OR BEAR SIDE IN THE MARKET, BUT THE CORRECT SIDE.
As a trader I learned the hard way that there is no instant gratification in the market. The most common mistakes made by novice traders are that they expect constant price action and instant profits. Market does not always move and there are periods where the price action is almost non-existent, and as a trader I learned to stay out of the dull market or at least not to carry a large position during those periods. But what a novice trader does, he or she instantly sizes up the position in order to maximize the potential return, because the market is not moving and there is a need for gratification, price action and instant profits. That is where the trader becomes a danger to him or herself, because if there is an unexpected move against the trader, he or she will be devastated by the size of the position. A trader must remember that bigger size not only magnifies potential profits, but also magnifies losses; never trade size in a dull market, patience is a key to success because nothing ever happens instantly.
THERE IS NO SUCH THING AS INSTANT PROFITS, ONLY INSTANT LOSSES.
As a trader one of the lessons I learned the hard way is never try to trade everything I see and to keep my trading universe limited. Most common mistake made by novice traders is trying to take on too many positions at once. A danger of trading too many positions at one time is losing one’s focus thus increasing a chance of a loss. A trader must understand that he or she is only human and must focus on a limited number of opportunities. A higher number of instruments traded does not necessarily translate into higher profit, instead as trader adds more and more positions while trying to keep track of the previously opened positions and the price action, he or she will eventually burnout and lose focus. A loss of focus for a trader will translate into a loss in the account because if he or she can’t keep track of positions no one else will, remember only you as a trader have vested interest in your own success.
REMEMBER: KEEP YOUR TRADING UNIVERSE LIMITED AND DON’T LOSE FOCUS.
As a trader one of the lessons I learned is to keep my trading strategy as simple as possible. The most common mistake made by novice traders is to use everything they learn at once and to keep strategies that do not work. Another mistake is to make strategies to complicated, which can be compared to a mechanism that has too many parts. A strategy that has too many rules does not necessarily translates into a profitable strategy, on the contrary the more moving parts the mechanism has the more it’s prone to failure. I personally keep my trading strategies simple; I just don’t deploy them all at once. The key to successful trading is to know which strategy is appropriate in particular market conditions and to discard the strategies that do not work. Never keep a strategy that does not work, if it works use it, if it doesn’t discard it, keep it simple and don’t make things more complicated than they are.
REMEMBER: KEY TO SUCCESSFUL TRADING IS SIMPLICITY.
As a trader one of the lessons I learned the hard way is to never move my stops against the position. One of the most common mistakes made by the novice traders is to move the stop against the position once the trade start going against him or her. As the trade keeps going against the trader and once again approaches the stop, what do most of traders do, they move the stop again, thus increasing an unrealized loss, but unrealized loss is still a loss and a real one at that. In order to become successful, a trader must learn that the initial stop most of the time is a correct stop, because if the stop is triggered it usually means that the trader is on the wrong side of the market and by moving the stop he or she only increases the loss. The reason why traders move stops is hope that the market turns around and goes in the direction of the trade, but hope has no place in the market, protective stops do.
REMEMBER: NEVER MOVE THE STOP AGAINST THE POSITION, BECAUSE BY MOVING STOPS AGAINST YOUR POSITION YOU ONLY INCREASE THE SIZE OF YOUR LOSS.
As a trader one of the lessons I learned the hard way is to never let my emotions and feelings interfere with my trading. Trading can be emotionally draining experience for those who are not prepared for what can happen in the market. A trader is constantly subjected to an avalanche of data, price action, volatility, emotions and feelings of greed, fear, elation, joy and pain. Emotions and feelings are an integral part of human nature, but can be very expensive luxuries a trader can ill afford to hold on to, especially for a novice trader. In order to become successful, a trader must learn self-control, he or she must put aside all of the feelings and prejudices one had before becoming a trader. A successful trader must always be in control of oneself, one’s emotions and feelings. It is always important to remember that it is a trader who runs a position, not the other way around, because when the position begins to run a trader instead, that is where trader is lost to the emotions and feelings and in turn that will lead to a devastating loss.
REMEMBER: SELF-CONTROL IS KEY TO SUCCESS.
As a trader I have come to understand that trading setups do not always exist in the market and during those periods I stay out of the price action. The most common mistake made by novice traders is to “imagine” a setup that is not there, just because a trader wants to get involved in a price action. Many traders have fallen into a trap of their imaginations, which is further a bolstered by wishful thinking and lack of patience, and lost on trades where they thought was potentially great trading setup, when in fact there was nothing there. Another common mistake that costs dearly is anticipating a potential setup, bad mistake. I personally follow a rule; it is not a trade setup until it becomes one, never anticipate the price action, instead react to it and act upon it.
REMEMBER: TRADE WHAT YOU SEE NOT WHAT YOU THINK.
As a trader I have learned to keep hard stops instead of mental stops, because mental stop is not a stop until it’s executed by the trader. Most common mistake made by the novice traders is to keep a mental stop instead of a hard stop, because an inexperienced trader lacks the discipline to follow-through with the original mental stop when facing a possibility of a loss. It’s psychologically hard to take a loss, but an unrealized loss is still a loss and a real one at that. Hard stops take the hard decision of taking a loss out of the trader’s hands, but with mental stop, trader must make his or her own decision to take a loss, and that is where most traders will let their loss run because of the inability to face reality and accept that he or she was wrong and close the trade. In order to become successful a trader must learn to keep hard stop instead of a mental stop.
REMEMBER: LOSS IS STILL A LOSS EVEN IF IT IS AN UNREALIZED ONE.
As a trader I have learned never to envy anyone’s profits and never to brag about my own. Most common mistake made by novice traders is to pay attention to someone else’s profits instead of his or her own P/L and by doing so a trader becomes a danger to him or herself, because if another trader is doing better, that where greed takes over the trader and he or she feels compelled to catch up. As trader tries to match someone else’s profits, he or she will start taking unnecessary risks with trades, too much size and overtrading as the most common one’s, and as number of mistakes mount due to the loss of self-control and trader simply “blows up” the account due to greed and completion. In order to become successful a trader must understand that the only profit and loss he or she must be concerned with are the one in his or her account, not someone else. Someone else’s profits should not be a source of envy, because that leads to greed and competition, and that in turn leads to ruin, instead pay attention to your own account and P/L and you will be successful.
REMEMBER: A TRADER WHO PAYS ATTENTION TO SOMEONE ELSE’S PROFITS WILL NEVER RECOVER FROM HIS OR HER OWN LOSSES.
As a trader I learned never to assume anything and to differentiate between the continuation and reversal setups and to never trade continuation during a reversal and to never to trade a reversal when the market calls for a continuation. The most common mistake made by novice traders is to think that the market has to reverse because it has gone to “far” or continue to trade in the same direction just because the trader thinks it will. WRONG. Nothing has to do anything. In order to become successful, a trader must never assume anything and to never anticipate the market, but to react to it. Price does not reverse or continue just because the trader thinks it will and has a position on in anticipation the move. A key to successful trading is understanding that the price will move in a predetermined direction until it stops moving in that direction and reverses, only than trader should enter the market after understanding whether price is going to reverse or continue, and trade after the confirmation, not in anticipation of it.
REMEMBER: NEVER ANTICIPATE THE PRICE ACTION, REACT TO IT AND YOU WILL BE SUCCESSFUL.
As a trader one the hardest lessons I have learned is how to get back on my feet after being crushed by market. Most common mistake made by novice traders is misconception that learning to trade is easy and fun. WRONG. Yes learning to trade is certainly rewarding, but it’s a long, hard grueling and emotionally wrecking task. Every successful trader has experienced failures, no one ever escapes it. Every failure brings you one step closer to success, if you are willing to learn from it. After being crushed by the market twice I took a step back and revaluated my strategy, my trading style and myself. I unlearned everything I knew about the market and trading, keeping only the knowledge of what did not work and set about on a quest of self-discovery. I would like to share with you my readers an interesting fact: I have read my first technical analysis book in September of 2004 given to me by my close friend and teacher. After that first book I have learned and unlearned many things since than, but I never forgot that market can crush anyone, its how you pull yourself together separates real traders from amateurs.
REMEMBER: MARKET CRUSHES EVERYBODY; IT’S HOW YOU PULL YOURSELF TOGETHER AFTERWARDS, THAT WHAT REALLY COUNTS.
As a trader one the lessons I have learned is to know when stop and take a break from the trading, from the markets and from myself. Most common mistake made by novice traders is to keep trading no matter what, regardless of whether they losing or winning, especially when they are losing. Trader is first and foremost is only human and as human he or she is limited by their own humanity. It is very important for the trader to learn to stop after a big loss or series of losses, but, especially after a big profit. By taking a break after a loss, trader gives him or herself a chance to clear one’s mind and reevaluate the trading strategy and the market conditions. Taking a break from a big win is even more important, because after a successful trade, trader becomes very vulnerable to him or herself due to the fact that when trader takes the next position it will be bigger than the previous one and at the same time the trader becomes a victim of own success. It’s important to know your limits, to take a break and always remember that a trader is only human.
REMEMBER: TRADER IS ONLY HUMAN.
As trader I learned that it does not matter which trading strategies trader utilizes for trading whether it’s technical, fundamental or combination of both, that is not very important. Most important strategies every trader must learn are when to enter the market, when to exit the market and most important strategy is when to stay out of the market. Most common mistake made by novice traders is to focus on entry strategies without learning how to exit the market and take either profit or loss. An even bigger mistake made by most traders is never implementing the “stay out of the market” strategy, because of the simple human need for greed and gratification. I have found that in order to remain a trader and remain in the market I have learned that “stay out of the market” strategy is the best strategy any trader can learn; especially when the market has no potential trades or when I find myself not in tune with the market.
REMEMBER: KNOW WHEN TO ENTER, WHEN TO EXIT AND WHEN TO STAY OUT AND YOU WILL BE SUCCESSFUL.
As trader I learned that each trader is unique and in order to be successful he or she must adopt to a trading style that the trader feels comfortable with. Most common mistake made by traders is to stick to a trading style that does not suit traders’ personality. Some traders like constant price action and get involved in dozens of trades on the intraday basis, while other traders sit and wait patiently for an opportunity to arise to enter into a long term trade. The key to successful trading is to know yourself, to know what works for you as both the trader and the individual, if a person is a day trader in heart than he or she should remain a day trader, but on the other hand if a person can’t day trade, than he or she should look to become a medium or longer term trader. If anyone wants to succeed as a trader, one must be comfortable with the timeframe and trading style, which in turn always translates into a life style. Learning to trade is extremely hard and challenge and not for everyone, just like any other profession, but there are rewards for those who are not afraid of the path and yes it’s ok to fall while learning to walk, but only if you are willing to get up and continue to walk. Learning to trade is first and foremost is learning about yourself, your true self, who you truly are, because the market is a true equalizer, everyone is equal in the market, EVERYONE, and you only lie and deceive yourself when you are afraid to face reality of the market.
REMEMBER: HUMAN NATURE NEVER CHANGES; LEARNING TO TRADE IS TO LEARN WHO YOU TRULY ARE.
Good Luck Trading!!!
Sincerely
Sam Shenker
Sam Shenker is a Technical Currency Analyst for Forex Capital Markets (FXCM). Sam is the author of the Daily and Weekly Technical Research reports at FXCM.
His reports include: Daily Technicals, Weekly Crosses and the Weekly Futures Commitment of Traders Report. Prior to joining FXCM, Sam spent a number of years on Wall St and has traded many different products, including: equities, equity derivatives and futures.
He also specialized in research and analysis of high yield bonds, corporate bankruptcies, restructurings, reorganizations and venture capital.
He holds a Bachelors degree in Finance and Business Management from Pace University and is an active currency trader. Sam is frequently quoted on FXStreet.