Good morning all! I hope you are having a good trading week and are staying on the path of profitability. There was New Zealand (NZD) interest rate news overnight that came out and assisted anyone holding short positions with a nice bearish kick.
Unfortunately, I have woken up ill today so I am in no mood to do any heavy trade breakdowns or chart analysis today. This is something I have learnt the hard way because if you are not in the right frame of mind when trading then you may find yourself straying away from your strategy and begin making silly mistakes. I can’t emphasise enough, the importance of being in control of your mind and emotions when trading. It is why the best demo traders in the world crumble as soon as they trade with real funds and it is why a good trade entry can easily be turned into a loss.
So my topic for today’s post is just a simple list of 5 important things that I think might help new traders that are struggling to trade the financial markets. If you are currently getting a higher number of stop losses hit or if you are managing your open positions badly then hopefully these 5 tips will help you.
My 5 Top Tips
- Look at the bigger picture – Higher Timeframe Analysis is important.
- Stay committed – Any trading strategy will have losing streaks.
- Keep it simple – Don’t over complicate your analysis.
- Journal everything – You aren’t losing if you are learning from it.
- Think long term – Trading isn’t a day, week or month long game. Think in years!
So you may have heard these tips said before but that is because they are important. Anyone who has learnt to trade the financial markets has most likely gone through the same struggles that you have and ultimately had to overcome them to succeed, just like you will need to.
Look at the bigger picture
Put simply, zoom out of the chart and go to a higher timeframe. If you are looking at the 15 minute or 1 hour timeframes trying to get pin point entries with small stop losses then you may be hampering your success. If you are trying to do this and are getting a larger number of stop losses hit then you are running before you can walk.
Zoom out and go to the higher timeframes. You can use the same trading techniques on the higher timeframes but use a wider stop loss and become less aggressive. This will allow you to learn the strategies and techniques of trading that you can then take to the lower timeframes and begin to increase your accuracy of entries from there.
It is very easy to jump from strategy to strategy and from trading course to trading course when you first start to learn how to trade. As soon as the going gets tough you will see other traders “winning” and want to jump ship. Don’t. You will not succeed by simply jumping from strategy to strategy. There will always be at least one person who is able to be profitable by trading in a particular way but that does not mean it will work for you. Stick with it and find your own path.
Staying committed also applies to those who are getting disheartened and desperate after a single losing day or negative week. Trading is a long term game and all strategies will produce losing streaks. Nothing is 100% in trading and even if your strategy has an 80% win rate, that could still mean 20 losing trades in a row. Deal with it, stay committed and keep going.
Only time in the markets and confidence in your strategies will help you to stay committed but keep going and you will get there in the end.
Keep it simple
It is very easy to think that “more is more” when you first start trading. You will see pictures of traders charts and screens with hundreds of indicators on them and loads of lines. Ignore them and focus on the core principles of trading: supply & demand, market trends and swings. Keep it simple, get profitable and then build up to using more indicators if you want to.
I am a huge fan of keeping my trading and analysis simple. An example trade of this principle is GBPUSD from this week which can be found via the link below.
This is very important and I recommend this to anyone who is trying to learn anything new. It doesn’t matter if you are learning to trade or learning to play a sport. You need to record what is going right and what is going wrong and learn from it.
Record every bit of information about every trade you enter. Entry criteria, time and date, state of mind around the time of entry, stop loss and profit target, how you managed the trade, end result. Use this to then identify what is working and what isn’t. You may be doing something wrong that can be easily fixed to improve profitability or your strategy just may not be a profitable one. Either way, it needs to change in order for you to progress and you will only be able to do this if you can identify what is wrong. I still do this when I am backtesting a new strategy.
A loss is not a loss if you learn from it. – Charlie Bowden
Think long term
This one ties in to points 1 and 2. Trading and investing is a long term game and any strategy will produce losing streaks because nothing is guaranteed to win every time. You will almost definitely see a losing day, a negative week and even a down month when trading the financial markets and that is okay! Don’t think in terms of days, weeks or even months… think in terms of years!
If you look at any financial product offered by high street and investment banks, they always recommend you look to invest for a minimum of 5 years. This way you can ride out any bumps in the road and dips in the markets.
The financial markets don’t move in straight lines therefore your equity curve won’t either.
A lot of these points relate to the psychology of trading because that is the most important part of being a successful trader and investor. You can have the best strategy in the world but if your brain is all over the place then you can easily turn that strategy into a loser.
If you are wanting to improve your overall psychology for trading and other parts of life then I highly recommend you read Trading in the Zone by Mark Douglas
Thank you for reading my blog and I look forward to getting back to more technical posts and show you how to trade to go with your new psychological strength!