It’s that time of the year where we look ahead to what the market may bring us.
Will we finally see the EURUSD hit parity? Will Abenomics continue to drive the JPY lower? What will the drop in Oil mean for the CAD or currencies in general?
But I am going to suggest you take a different route this year; Instead of trying to predict the market, focus on ten basic truths that many traders tend to ignore. If you do that, I can guarantee that you will finish the year a much better trader.
- You are a risk manager first, and a trader second. Good traders play great defence first. They know that if they manage their risk, that their trading system’s edge will kick in and the profits will come.
- Plan your trade and trade your plan. If you set an objective for your trade, figure out a plan of how to implement it with the best risk/reward ratio, and then follow through on your plan, you will come out ahead of the 90% of traders who fail to do this.
- Let your profits run, and cut your losses short. While it is possible to be a high probability trader who gets 70-80% of their trades correct by taking profits quickly, it’s perhaps simpler to cut your losing trades quickly and let your winning trades run.
- Mistakes kill trading systems. You are a mess of emotions, bias and errors. The fight/flight evolutionary response of the human mind is ill-suited to trading, and causes us to do the exact opposite of point 3 above. If you can cut out trading errors in 2015, it’s quite possible to turn what seems like a losing system into a winning one.
- Fees and costs extract a large toll on your returns. Every dollar you pay in spread, or for education, comes directly off your returns. I’m not saying you should not invest in yourself and your trading, but cut down on unnecessary expenses where you can.
- To be successful, do more of what is working and less of what isn’t. Market Wizard Steve Clark gives this advice to traders in his hedge fund. Stop doing the things that are costing you money, and do more of what’s making you money. If your profits are made from long-term trades then do more of those (and less short term ones) for example.
- Your trade size is more important than your entry price. You achieve your goals though your position size on your trade, not your entry. It’s how much you trade that matters most, so spend your energy getting this right.
- Chart patterns work better in the context of the bigger picture. One of the big mistakes traders make is that they expect their technical analysis to work in all market types, no matter the fundamental backdrop. If your patterns are in alignment with the bigger picture, it can help increase your success rate drastically.
- Your positions are more correlated than you think. When things go against you, positions that might not seem correlated can end up all going against you. It’s important that you put a lot of thought into realizing which trades might be correlated, and then manage that risk accordingly.
- You are the Holy Grail – not your system. It’s time to stop hunting for the Holy Grail trading system. Instead, focus on your own psychology, and on trading a system that suits your personality. If you can achieve this simple goal, you will realize you had success in front of you all along.
Part of the magic in life is the people you meet, and this is true with trading too. We have the opportunity to connect online with so many wonderful traders, with whom we can share our journey.
My final note for you is to build connections with those that are willing to walk the unbeaten path with you. These connections will make the trading journey that much more special.
About the Author
Sam Eder is a currency trader and author of the Definitive Guide to Developing a Winning Forex Trading System and the Advanced Forex Course for Smart Traders. He is a part owner of Forex Signal Provider fxrenew.com (You can get a free trial). If you like Sam’s writing you can subscribe to his newsletter for free.