- February 16, 2019
- Posted by: Trading
- Category: News
While there are a multitude of New Year’s resolutions you could have made in January, the catch is if you will stick to whatever you decided on. That’s the thing about trading, it exposes our weaknesses and failures as human beings. When you think about trading, you must understand that it’s actually not that complicated. Notice how I use the word “complicated” and not “difficult.”
What I’m getting at is that although trading is difficult, it isn’t complicated in the sense that when you press the “buy” or “sell” button, you are either correct or not. It’s that simple. The markets will either go higher or lower, and you have little to do with that. You are simply trying to navigate where you believe the market is heading, with the hope that you will be proven correct and rewarded with profits. Trading is that simple.
I’ve been trading for roughly 12 years. The more I trade, the more I realize that the system doesn’t really matter. Simply put, if you buy a market that’s rising or sell a market that is falling, that’s pretty much as difficult as it needs to be. Throw in a little bit of money management, and a whole lot of psychology, and you have a winning formula. This doesn’t mean that you can’t tweak entries and exits obviously, but had you shorted the USD/JPY pair during the height of the financial crisis, you made a fortune. You simply went with the market instead of fighting it. However, as we know it’s much more difficult to stick to your guns in so-called “real-time.” And that’s the crux of this article: sticking with your guns.
It really doesn’t matter what your trading resolution is. As traders, we need to be accountable for everything we do. There’s nobody there that’s going to stop you from placing the next trade, so you need to make sure it’s what you really seeing in the market and it’s not something like boredom. It’s going to be the same thing with your resolution, you need to understand that in order to be successful longer term, you must stick to rules, systems, and in this case resolutions that you come up with.
Let’s take an example. Let’s say that you do some research and you understand that on days that you are down more than 100 pips, it’s pretty much a lost cause. You understand that once you get down that far you simply are not reading the market correctly, and therefore nothing good happens after that point. You decide that your resolution is that as soon as you are down more than 100 pips for the day, you close out all of your positions and take a 24 hour break. This is reasonable money management and something that a lot of professional prop shops have in place. (Typically, they will use a percentage but the “X variable” in this scenario doesn’t matter.)
The question now is whether or not you will stick to it. You need to understand that if you notice a negative pattern and you have the solution in front of you, it’s your job to react to this information. This is no different than reacting to an interest rate hike out of the Bank of England, or perhaps a poor jobs report out of the United States. They both affected the currency markets, just as this type of statistical analysis affects the probability of a fruitful trading endeavor. It’s your job to understand that this is yet another piece of information, and that you should use it to your advantage. There is no shame in knowing when to say it’s time to call it a day.
I am assuming that you have been trading for some time. Think back to all of the broken promises that you have made to yourself, and what it has cost you. By focusing on the losses of not sticking to your rules or money management scheme, it should keep you focused on doing what’s right. After all, as humans we will do much more to avoid pain than anything else. In fact, you can use it as a psychological tool if you focus on what it feels like to do something like blow an account. The worst part of that is I have never seen a blown account that could not have been avoided. It’s always self-induced. Granted, I know plenty of traders that will blame it on some external factor but at the end of the day nobody made them place these trades. Beyond that, most of the time they have doubled down on a bad trade and it’s their own fault.
Whatever your resolution was, you made it for a reason. I’m assuming it wasn’t something off the cuff like “I’m going to get rich in 2019.” That’s not a resolution anyways, because it doesn’t even have a quantifiable target. For those who are much more serious about trading they recognize that there are certain things that they lack. By focusing on the pain that the shortcomings bring, you can use that to your advantage.
From a voice of experience, I can promise you that if you can manage the psychological game, which is more important than the technical game, you will eventually be profitable. I know for the longest time I had a hard time hanging onto gains and letting the trade run. That is probably one of the most difficult things to do as a trader. Understand that it is okay to be psychologically uncomfortable with the trade, because what we do is counter to a lot of evolutionary psychology. We take risks, something that we are not hardwired to do as humans. This is why it’s so difficult for most people to make it.
It’s very likely that whatever your resolution is, it’s something that will cause a certain amount of psychological discomfort. However, the end result of not following through is going to be much more catastrophic to your account and your psyche more than likely. Focus on the previous disappointment that you have had and recognize that most of it is self-induced. Stick to your resolution, because there will be many others in there will be other things to work on. Think of this as yet another steppingstone on your way to profitability.