One of the things that makes retail trading unique as a pastime, or even a career, is the degree of honesty and self-reflection it requires. There are many jobs that offer some consistent semblance of leeway when it comes to making mistakes and honing a skill set, but trading is not one of them. No trader can negotiate a raise with the markets or hope for the markets to recognize their hard work; if anyone is not careful with their expectations and risk management, even just one losing trade can be catastrophic. Hence, why truthfulness matters in the world of retail trading: it often spells the difference between passive income and financial ruin. With that in mind, let’s explore 3 lies traders should avoid today.
“My strategy doesn’t need stop losses”
Regardless of a trader’s win rate, every trustworthy strategy incorporates stop losses to some meaningful degree. This is because it is as near certain as statistically possible that unmitigated risk in trading will eventually have terrible consequences. Even if a strategy somehow achieved a win rate over 95% with consistent incremental gains, unchecked risk would still be present in every trade, resulting in a handful of losses that could easily erase all prior profits in a fraction of the time (I know this from personal experience). Stop losses, especially trailing ones, are thus an indispensable tool for traders when it comes to safeguarding against inevitable losses and making their wins count in the long run.
“I will compound my account so fast”
Building a large trading account is a long, gradual process that requires plenty of discipline and patience. Because of this, if a retail trader approaches entering and exiting positions through the lens of a get-rich-quick scheme, they are bound to become disappointed and discouraged, and likely lose money along the way due to over-leveraging and impulsive trading. Thus, it is important for traders to generate realistic expectations for themselves, and not take success for granted. Some ways to practice this include a) thoroughly backtesting any strategies of choice, b) avoiding trading out of financial desperation, and c) recognizing that your value as a person has nothing to do with your account’s performance.
“Fundamentals don’t really matter”
Technical analysis is a wonderful tool for every trader to have equipped, and there are myriad technical indicators worth exploring and adding to any strategy. Likewise, sentiment analysis is valuable as well, since anticipating buying and selling pressure is at the heart of trading as a discipline. However, even with these two crucial forms of analysis at our disposal, it must never be taken for granted that traders are buying and selling real securities.
In a new age of gamification and excessive speculation fueling price action volatility in the markets, it can become easy to believe, even subconsciously, that trading is reducible to a worldwide chart-reading game. Therefore, it’s possible for many traders to miss out on significant fundamental catalysts and opportune points of entry and exit, because it is easy to forget that we are trading in real markets that are shaped by concrete circumstances and events in our world. Thus, whether a trader is buying or selling stocks, currency pairs, or bonds, it is always wise to conduct fundamental analysis, whether that be monitoring macroeconomic data, business fundamentals, or other variables.
Setting goals for yourself when it comes to your performance in the financial markets might not be as straightforward and simple as you may imagine.
It's essential to set a goal whenever you're working towards something in life, otherwise how will you ever know if you've achieved it? Goals can be motivating and are often really helpful in keeping you on the right track to achieving success.
However, it's just as important to spend time ensuring the goals are meaningful rather than purely inspirational and spur of the moment thoughts. Things that are actually going to help you reach a desired outcome and monitor your progress towards achieving it.
For example, when you set goals for your trading/investing progress, have you ever relied on statements along the lines of "I want to become more profitable" or "I want to open more great trades?".
I have to hold my hands up to that one, I've used goals like that in the past - most traders have! Unfortunately, these sort of blanket statements just fall into the category of 'easier said than done'.
We need to get more specific. We all set these blank goals in life. We set ourselves these vague goals often. Saying I want to be a profitable trader is just like saying I want to be able to run a marathon or I want to get all A’s in university.
To be able to truly achieve your trading and personal goals you need to get specific and consistent with your goal setting.
Each of us has different strengths, weaknesses, and past experiences that affect our trading. Some may be highly risky traders as they have not yet encountered a reality check by Mr. Market others may be risk averse. We all have different areas we need to work on in our trading approach if we want to progress and succeed in the markets to become profitable traders.
By using a blank statements about our overall trading, we're not really going to be measuring progress in the areas that really matter to us individually.
Rather than setting goals and measuring our success based on improvements only in our P&L, we should be identifying points that are holding us back and find an appropriate measure that shows progress in that specific area.
Many traders need to focus on their risk management (which I believe is the key to a long career in the markets) setting specific goals such as no more than 2% per trade or after 3 losing trades walking away from the screens. Stopping to trade when you feel that you will over trade or start revenge trading. If this is something you struggle with get some help! Invest in your education here with A1 Trading
Other traders may need to focus on not jumping the gun! Not entering into trades too fast, not checking macro-economic data or not looking at the economic calendar to see if there is high volatility news due, as we all know trading before major news releases is very risky.
By doing that, it will help us to focus our development plan in a way that's meaningful and encourage trading in a way that's more sustainable. Things that avoid us being tempted into risky approaches in an attempt to hit profit targets, without any improvements actually being made to our ability.
What's your ratio ?
To help put this in to practical terms, there's a quote from the book 'Good to Great' by Jim Collins that has always resonated with me. It's intended to apply to business, but I think it can also be adapted to apply to trading or any other area of your life you're hoping to improve.
"If you could pick one & only one ratio - profit per _____ - to systematically increase over time, what _____ would have the greatest and most sustainable impact on your economic engine?"
That's definitely something to really focus when making realistic goals regarding your trading. The word 'sustainable' is key here - we don't want to hit a profit target for the sake of it, but instead we want to see an improvement in our approach to the financial markets in a steady & sustainable way. Improvements that lead to dependable and repeatable returns in the market, not a one-hit wonder.
Have a think about you ratios as a trader - what would your ratio be that you want to improve? What would show that your performance as a trader / Investor is moving in the correct direction?
If you're an A1 member, let's discuss and share our specific trading goals in the discord server
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