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Following on from my previous Blog Post: ‘Typical Stages of Trader Development’, the next natural topic would be ‘How do you actually pass a Prop Firm Evaluation?’ Here are some trading tips which might be of some use.
Firstly you have to find a Prop Firm that matches your style of trading. Are you a Position Trader, a Swing Trader or an Intraday Trader?
Do you need to have the ability to keep your trades open over weekends and for several weeks or even months? Some firms will accommodate this and others won’t.
Typical Stages of Trader Development - For some time now I have been acutely aware of the unrealistic expectations of people who come into trading, thinking that they are going to be able to pick it up quickly and make a rapid fortune! The reality is vastly different. Here are my thoughts on what that reality is.
Firstly, our very best wishes to you and your families at this Christmas time and thank you for reading our Blog posts throughout yet another difficult Covid Pandemic year. As the trading year draws to a close, it is a good time to take stock and analyse how you have done in 2021, what you have achieved and what could be improved upon in the coming year. If you can spend some time reflecting on your trading year, you should be able to:
The lyrics for ‘Tell Me Why I Don’t Like Mondays!’ by the Boomtown Rats used to epitomise how I often felt as a Forex Trader trying to take new trades on Mondays. Often I would be seduced into trades by false signals, one way and then the other, leading to extreme frustration. This was the case until I realised that Mondays are days when the markets will most often churn and consolidate and where unsuspecting traders can be preyed upon by the big players and Market Makers seeking liquidity. The market would move in one direction and then reverse and then end up pretty much where it had started. As the week progressed, I noticed that the quality of potential trades improved until Friday, when things tailed off.
Whatever type of Trader you are, there are some periods or points in your life when it probably isn’t in your best interest to trade and I’m not referring to unpredictable economic events such as FOMC and NFP etc or non-favoured days of the week or month.
Profitable trading nearly always relies on thorough market analysis and timing and being in the right mind set, rested, fit and alert to all the possibilities and prepared to have the courage of your own conviction to take the trades that you see.
Over the years I have learnt that there are definitely times in your life when it isn’t in your own interest to be trading and that isn’t just the likely unprofitable outcome but also in terms of one’s relationships and mind set.
Firstly our very best wishes to you and your families at this Christmas time and thank you for reading our Blog posts throughout this difficult year. As the trading year draws to a close, it is a good time to take stock and analyse how you have done in 2020, what you have achieved and what could be improved upon in the coming year. If you can spend some time reflecting on your trading year you should be able to:
At the recent Smart Traders’ Online Bootcamp, organised by Round The Clock Traders, I gave a talk about ‘How To Build Your House of Trading’ and during the subsequent Q&A the topic of Money came up. The usual questions of ‘How much money do I need to start trading?’ and ‘How much money in percentage terms of my trading capital can I make?’ etc, came up. These are fair questions to ask, but in broader terms, Money can have a funny effect on us and our Trading Mindset.
When learning how to trade the financial markets, you need to learn a strategy or two to get started, most will find something off the internet or pay for one. The issue then is how good is that strategy and probably more importantly could you actually employ that strategy to profitable effect. Reading and knowing the rules is one thing but actually implementing them in a live market is another thing entirely. So it would make sense to be able to learn the strategy and how to implement it in an environment that is less testing in the first instance. Once you have learnt the strategy and how to use it then wouldn’t it be a good idea to find out how effective it is in different market conditions. In other words try and ascertain if you actually have what is termed as an Edge. An edge is knowing that over an X number of trades you will be profitable. You only need to be profitable 51% of the time to be profitable if you control your risk. Once you have a proven edge, wouldn’t it be good to be able to improve it. If you could improve your edge to around 60:40 win loss ratio then you would would have a significant edge on the market. This can also be done off line by back testing.
I was chewing the fat with a fellow trader a few days ago and the topic of trader longevity came up. The question posed was ‘What is it that keeps a trader in the game, particularly during turbulent times when market volatility and false signals can increase? Plus most retail traders lose most or all their trading capital. This stat can vary from approx 70 to 90%, depending upon the Broker reporting such information.
At first, when answering such a question, it might seem difficult to pinpoint one or two things or aspects of trading or trading behaviour which stand out, because there are, without question, so many variables to trading the financial markets:
On top of all the variables associated with actually trading in technical terms, there is also the human factor, how we act and react as individuals, although there maybe common behaviours and emotions, which as you either know or will find out, can be difficult to keep in check or control. Trading psychology is really important but you can’t start to address this area, unless you have a structured approach to your trading.
My personal stance on the above question is this:
Successful traders will surround themselves with and impose on themselves and their trading, STRUCTURE. Placing structure around your trading helps immensely with managing uncertainty and thus your mindset, when trading the Hard Right Edge. Such structure will be in the form of
A Personal Strategic Trading Plan
Accountability to someone else – particularly when developing
Trading Preps/Routines/Check Lists
Discrete Trade Plans for every trade (Plan the Trade & Trade the Plan!)
Rigorous and Regular Top Down Multi-Time Frame Technical Analysis
Keeping tabs on the expected Economic & Political News Flow
BUT above all, and in my view the most important factor is, rock solid Risk and Money Management, without this, you will fail as a trader.
What is it about Risk & Money Management that is so important?
The number one priority of any trader should be to protect their trading capital as much as possible, at all times, but they need to risk a small % in order to increase their equity and there in lies the main problem. How to protect your existing capital from over exposure to risk and still build a tidy sum?
Successful traders tend to adhere to strict Risk and Money Management rules, which include:
Capping the % Risk on any single trade, which is likely to be around 1% or less of their trading capital and this will likely include 2 or 3 positions . (Please note that when learning it is absolutely fine and ok to risk less than 1%, maybe even 0.25% on any one trade, this will allow you more time to develop as a trader.)
A maximum amount of Risk at any point in time, governed by the maximum number of trades they may have open which are not yet at Break Even or better, and likely to be 2 – 3% absolute max. Having only one trade open at any time is also good behaviour, particularly when learning. But how does this support longevity as a trader?
Well, the point is that if a trader has control over their risk exposure and their risk is always a very small percentage of their trading capital, even in turbulent times when a string of losing trades may be possible, they will still have capital to trade with, be it tomorrow, next week, next month. How? Well if they have a bad run and their trading capital reduces then so will their position sizes.
If you are trading a $10,000 account and you risk 1% on each trade = $100
If you have a string of losses and you are then trading with say $9,000 and you risk 1% on each trade = $90
For $8,000 at 1% per trade = $80 risk
So you can see that when a trader, with strict risk and money management, goes through tough times, the amount they risk on each trade lessens as their capital reduces. BUT, the point is that they still have capital to trade with, instead of a Blown Up Account and lot’s of Should Have/Would Have/Could Have after thoughts and no money left to trade.
Conversely, the above rules will also benefit and incentivise a profitable trader. As they do well and their trading capital increases, so does their position size and the value of their 1% risk, which should, in turn, generate greater returns.
So if a trader has managed to increase their capital to $11,000 then 1% = $110 risk
Similarly for $15,000 at 1% risk per trade = $150
So smart traders veer and haul (good naval terminology!) their position sizes and stop losses to match their available trading capital at all times and it is this that keeps them in the game and thus supports their longevity as a trader.
When learning to trade, it can be hard to stick to such strict Risk and Money Management rules, but without such structure and control of your risk and potential expenditure, you are setting yourself up for a monetary fall or excessive losses. Plus if you have structure around your trading it helps enormously with mindset and those destructive human behaviours we all exhibit from time to time.
Wouldn’t it be great if there was a tool or virtual trading assistant that could keep you on the straight and narrow when trading, combining both the human choice element with pre-determined structured robust risk and money management software? When I started out trading I would have loved something to keep my trading on track as I developed. Well now there is! A software trading assistant that can be tailored to your personal settings and thus your chosen Risk profile, which once set, can then take care of your selected trades, you just use your strategy and chosen market direction and it will do the rest, whilst keeping your trading capital safe from human interference and errors of judgement. If you want to sleep well at night and not fret about your open trades, want to set and forget trades in the financial markets (stocks; Forex; commodities; indices) whilst you do something else, such as your day job, then to find out more just click the link below:
As most of you that regularly read my Blog will know, I don’t spam people and don’t normally promote other peoples products, but I do highly recommended this, and believe it is good Value For Money when you consider what a Blown Up Account will cost you!
Top Trading Tip: Take back control of your trading by adopting and then abiding by, some strict Risk and Money Management Rules and stay in the game for life, after all, it is a Life Skill you are mastering.
I thought I would highlight some of the Take Aways from the London Traders Forum which met on Saturday. The feedback was very positive and all the presentations were well received with great interaction and debate with the attendees, in a packed room, plus a great social afterwards.
Refreshments and light breakfast on arrival available to all. Teas/coffees/snacks etc available throughout the day.
Firstly we had a market roundup and strategic view from Kevin Barry (Traders & Investors Club|), where we learnt where to go to find excellent economic indicators and how to read them and what leading indicators highlight if an economy is going into recession or not and how to act on that in trading terms. We were given his strategic view of the markets and current correlations and where the money is flowing and the impact of that in Trading terms.
