In my experience, Retail Traders really complicate their lives. The most common issues Sam & I continue to notice in 2018 are the same as they were in 2017, 2016, and earlier:
- fading trends instead of trading trends
- giving too much weight to technical indicators without due appreciation for market dynamics
- ignoring market drivers that influence sentiment
- being fixated with small timeframes and scalping.
These bad habits make for extremely inefficient trading, with traders spending hours in front of charts without making any headway or, in any case, producing small results compared to the effort involved.
Today’s blog post should help to move in the opposite direction: get 80% of the results with 20% of the effort by trading or managing positions only once per day, at the New York close.
Be Efficient
Retail traders make their lives very complex and spend hours in front of their charts, without making significant headway. We have stated that our goal is to lead by example. One story I frequently tell clients is from my own experience with a top performing CTA manager who told me many years ago that his effective trading was done in 30-40 minutes each day.
This fund manager currently manages over $50 Mln and at the time of the conversation was managing around $20Mln. So if this kind of trader utilizes 30-40 minutes per day, to generate a Sharpe Ratio of 1.83, you might want to ask yourself some questions about your own efficiency.
But there’s another consideration that applies to most retail traders: time contraints. Most people don’t work in the financial industry, or have much time at all to dedicate to their trading endeavours. As we’ve said before, the solution isn’t to leave your day job so you can trade full-time: that would be irresponsible in many ways, and also illogical unless you have any solid trading records that support such a transition.
The right thing to do is trade around your day job, while accumulating relevant knowledge and experience, with a consistent yet efficient model. That’s what we have done with our End of Day Signals: we have rolled out a trading model that requires updating only once a day, at the New York Close of business, and that can be applied to all instruments (not just FX).
Clients receive full details including:
- updates on current positions
- new positions with rationale
- accompanying chart
And here is a current open position that has been in the market since July 2nd:
Be Consistent
Along with efficiency, a low-key approach as described also leads to consistency. By having a pre-identified time of day for taking action (if required) or at least managing open positions, you will avoid much of the uncertainty and emotional charge that trading brings with it.
- You won’t be constantly checking your tablet or smartphone waiting for a potential setup.
- You won’t be worried about pending news events.
- You won’t be fiddling with trades.
Keep things simple & subtle. Our trading rules are all very basic and stem from a correct understanding of Market Type theory. Once the market type is identified, you already know what kind of strategy is applicable and most logical between:
Become a specialist in identifying and exploiting one or two recurrent setups consistently over time. Don’t try to be a jack of all trades. Unless the market is doing something that you thoroughly understand and can exploit, sit on your hands. It’s better to be out of the market wishing you were in, rather than being in the market wishing you were out.
We all have limited resources (risk capital) so our objective is to maximize the return per unit of risk. We need to become very efficient at spotting high risk:reward trades and avoiding all else.
We Lead by Example
It should be clear by now why our signals are built with an educational slant.
Many aspiring traders seek trading tips, trading signals or expert-advisor generated signals in order to copy them without any consideration for the “engine” that generates the trades, the risk-adjusted returns of the model and often have no intention of learning anything about the markets as well!
Traders that do not invest in their own education, and actually want to learn how the markets function and how to “play the game” consistently will have a hard time. Unless you have:
- the same degree of risk aversion
- the same preparation
- the same strategy
you cannot understand why we are trading a particular instrument at that particular time, and why our stop loss is positioned at a certain distance from entry.
This is why we exist. Through our trading signals, not only do you get trades with an edge, but you also get to be exposed on a day-to-day basis to the thought processes and methods of some of this generation’s premier traders. And you get this in the context of a complete trading frame-work that teaches you all the elements of successful Forex trading – as any good trader will tell you, the actual entry is only about 10% of the equation.
Also, given your risk appetite and objectives, you can modulate your position sizing. This gives you a significant advantage over using some form of copy trading service or managed account because you retain control of the elements of your trading strategy that generate the returns. It’s the “how much” you trade that matters, far more than your actual entry. Think about it. Emulate the practices of top traders:
- Carefully construct your position-sizing model to achieve your objectives
- Have a comprehensive risk management frame-work
- Swing big when the stars align
If you give up these elements, then you give up much of the power in your trading. Instead it’s much better to follow and model the practices of experienced practitioners who have, over the years, mastered this practice on a very subtle level. Finally, we want you to understand what we’re doing. The role of the Trading Tribe is to act as a support group for the traders involved. As another Market Wizard said, “trading is 100% psychology” and it’s being a part of our group that you can understand, inquire, and learn why and how we do what we do.
Over to You
Our End of Day Signals are an efficient way to outsource your entry and exit decisions while you educate yourself – through immersion with our team – but that’s not the whole story. By being curious and embracing the trading tribe concept (pioneered by Ed Seykota, Market Wizard) you gain access to information.
Even Bill Lipschutz, “the Sultan of Currencies” admitted that “Foreign Exchange is all about the flow of information”. It’s difficult to compete with traders who can:
- Source trades through a mixture of technical and market factors, using proprietary trend and mean reversion models to aid in the decision making process.
- Through his contact network, acquires market and analytical information.
- Brings together technical, fundamental and information based insights to generate trade ideas.
So why not “outsource” your entry and exit rules to the people in a better position to provide accurate and timely trades? Free yourself of any mental constraints that limit your performance, and use the advantages available to you.
Your trading will never be the same, for the better.
About the Author
Justin is a Forex trader and Coach. He is co-owner of www.fxrenew.com, a provider of Forex signals from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.