By Sam Evans, Co-Founder and Lead Coach
As a trader, I have pretty much been doing the same thing for over a decade. That being using price action to determine value and find wholesale and retail zones for trades and then managing them according to my rules-based plan. Market speculation in the global markets is simple at heart but just not so easy to do. Mainly because we humans love to make things complicated. I guess it is something in our inherent nature. Nevertheless, an objective trade plan with the right rules and strategy will always overcome the most challenging market conditions.
Having a trade plan and keeping things simple with a rules-based process is important. Also crucial is making sure we don’t get in the way of the plan working for us. Often, traders get in the way of their own success and jeopardize their goals with their actions. I have taught thousands of people all around the world how to trade. Usually, they fall into one of three personality types. I decided to highlight these specifically, as I’ve found there are several common themes amongst struggling traders. Hopefully, by detailing their challenges and offering some action points, you too can take something away from this article to help your own trading journey in the months ahead.
Case Study 1: The “Over-Trader”
The first is one I can relate to in my early days of trading. The “Over Trader” type is pretty much destined for failure right from the very start. Randomly clicking buttons and entering the market on a whim is only going to guarantee one thing: frustration and multiple losses. I have been guilty of overtrading myself, so I know exactly the dangers that come with it. It is especially difficult in the currency markets when you consider that you must pay a spread as well, every time you get into a position. Imagine taking 20 trades in one day with a two-pip spread. That’s 40 pips given away before you have even had a winning trade!
I’ve seen that most traders hit the button far too many times. This is usually because they have a feeling that they know what is going to happen next. This is usually a result of losing a few trades in the first place. This typically puts a person on the back foot and creates a level of desperation. They approach their next trade with the need to make the money back and get into a level of profitability. Going home a winner for the day, is a far more attractive prospect than going home a loser. Yet, it amazes me how easy it is for people to stop trading when they win straight off the bat, yet they carry on when they are losing because they are so desperate to make those losses back. They stop when they win but carry on when they lose!
If you want to treat trading as a business then recognize that most time is spent waiting for the right set up which will offer the maximum reward and the lowest possible risk, with a high level of probability involved as well. When markets are moving frantically, it can be difficult to sit on your hands and wait for the best time to pick your spot. Yes, patience takes time to develop but as they say, the best things in life are worth waiting for.
Case Study 2: Too Many Stop Outs
When I meet a trader who is taking far too many stop-outs, it usually comes down to one of two things. Either their stop losses are too tight or they don’t have a proven rules-based strategy that they are working with. Taking small loss after small loss can add up. While we have to prevent the large loss from happening, it is also vital to recognize that a multitude of small losses can start to add up to one large loss over a longer period of time. I call this the “slow bleed” of the account.
Many traders I encounter use tight stop-losses. Usually, because they are trying to get cheap entries into the market and huge rewards. There are rare occasions when you can get away with a minimal stop loss and make a huge reward. That is very difficult to achieve on a consistent basis. Many times, the forex trader will find themselves getting stopped out, only to then witness the price move in the direction in which they anticipated. The key here is give yourself enough room for the trade to work, while also knowing when to get out if you are wrong.
If you are following a plan, you should know your specific entry, stop loss, and target all before you even place your order. You should only enter a position at the key moment when the lowest risk and the highest probability of success are present. This is what we call “market timing”. An inability to time the market means you will have a low success rate in your trades. Using a strategy that identifies retail and wholesale imbalances on a price chart (as taught in the IncomeAbilities course), means you can sharpen your ability to time the market in advance using a stop loss, entry, and target price. This is both objective and effective in maximizing reward and minimizing risk. Plus it helps prevent a multitude of unnecessary stop losses.
Case Study 3: Nothing I Do Ever Works!
It’s a frustrating time when as a trader, you go through the syndrome of feeling like every time you place a trade, the market is against you. You can feel like nothing you do is right and that you are destined for failure. Obviously, if you have never had any formal education in how to trade this is to be expected. There are many professionals out there who understand how the market really works. Unfortunately for the novice trader, they are willing to play that against them. They have a rules-based plan and the discipline to follow it. You probably do not.
There is only one way to find out what works for you and what doesn’t work for you. That is to do the same thing repeatedly for several times and analyze your results. Understand what practices give you success and recognize the ones that do not. By doing this level of groundwork, you will discover the best course of action that suits your style and psychology when trading. Many traders just fail to stick to one thing long enough to figure out what works. If you cannot be consistent enough to gain a track record, then you are doomed to failure from the very start. Consistency always leads to more consistency.
Be well my friends,