Trading Longevity

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:

Your Very Own Trading Support Assistant

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!

Your Very Own Trading Support Assistant

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.

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How Many Reasons?

How Many Reasons Do You Have….?

Is there such a thing as ‘High Probability of Success’ trading? As a trader, if you are sufficiently capitalised, employ robust Risk & Money Management and can manage the uncertainty of trading the Hard Right Edge of the charts by having a structured approach, you don’t need to be right all the time. In fact you can make decent money by only being right 50% of the time. But as a trader you never stop learning and are always trying to improve your ‘process’ of trading, with the aim of achieving better results. One way of improving your trading process, is to add an additional check into your pre-trade preps….

Continue reading
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Why Swing Trading?

I’m often asked ‘What is Swing Trading and why do it, rather than Intra-Day trading?  This post is an attempt at answering that question and also to highlight my view on the Pros and Cons of Swing Trading. Continue reading

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The London Traders Forum

The London Traders Forum

The Traders Forum is a ‘Mastermind’ group formed with the aim of raising the bar from the usual so-called Trading Events, free Seminars and low-cost workshops. It is aimed at both active and aspiring traders with some trading knowledge.  Plus it is also designed to be a sociable inter-active occasion for net working with like-minded people and for seeking knowledge from seasoned traders without the usual attempts at a hard up sell at the end.

The next London Traders Forum is on Saturday the 6th of October 2018, a one day seminar/mastermind/forum with Q&A interaction and discussion.  Speakers and topics so far include: Continue reading

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Ask Yourself ‘What’s Next?’

You may be thinking, ‘what has this blog post title got to do with trading?’.  Well, if you do some research you will find that the greatest volume of trades in the Forex markets are actually SPECULATIVE.

If so, then perhaps you need to think like a speculator.  Speculators are always on the look out for the next big idea, trend or thing and want to get in early in order to maximise their returns. Continue reading

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London Traders Forum – Q3

For several years now I’ve helped Paul Wallace run the London Traders Forum – a once-a-year all-day event for Traders to come together, learn and socialise with each other.

This year’s London Traders Forum will be on Saturday 6th October 2018 in Central London. Please put the date in your diary and keep your eyes peeled for details and early-bird opportunities.

In the meantime the next event will be the Q3 Online Traders Forum on Saturday 7th July.

Online London Traders Forum

This is a new initiative from traders, for traders. The idea is for it to be a short, intensive 3 hour online seminar that covers various aspects of the 4M’s of Trading: Markets, Method, Money and Myself. The idea is for you to be able to learn some new trading ideas, whilst in the comfort of your own home, and without sacrificing your entire weekend.

The plan is for there to be one Online London Traders Forum the first Saturday of Q1, Q2 & Q3 with the London Traders Forum at the start of Q4, the main all day event.

For the Q3 Event running from 09:00 AM to 12:30 PM BST, we’ll have the following speakers:

Paul Wallace from FXTraderPaul.com and founder of The London Traders Network will deliver the market analysis section focusing on FX, Indices, Commodities (and perhaps some Crypto) and look at where to focus for possible Q3 Trading Opportunities.

Martin Walker of ForexTradingLondon.com will take a deeper look at Price Action, what are it’s constituent parts, and how to identify and read it on your charts. He will show you how to use this knowledge in your trading. Understanding and being able to read Price Action is key to identifying Trends, Breakouts and False Breakouts, Market Turns and much more.

From Dublin, Ian McFadden from the Symmetry Trading FB page will talk about his way of intra-day trading Oil using the CL Futures contract. Ian has traded using Fibs for over 10 years and he will explain how he uses them to analyse Oil and find intra-day trade set-ups.

There is a charge for £20 to attend. Why? Because we’re not selling anything. Its proper educational content rather than a slick pitch in the hope to up-sell you something. Furthermore the sessions will be recorded, and as an attendee you’ll have access to them afterwards.

It promises to be an enjoyable session that will help you grasp the opportunities that Q3 2018 will present. For further information, timings and tickets etc just go here:

Online London Traders Forum

Trade well!

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Let’s Talk Leverage!

Today (27th March 2018) the pan-European financial regulator ESMA released its final proposals to govern leveraged trading, which remain unchanged from its original proposals.

Apart from banning Binary Options, essentially it boils down to the following Leverage limits which the FCA is expected to follow in due course:

1.    Leverage limits on the opening of a position by a retail client from 30:1 to 2:1, which vary according to the volatility of the underlying:

·         30:1 for major currency pairs;

·         20:1 for non-major currency pairs, gold and major indices;

·         10:1 for commodities other than gold and non-major equity indices;

·         5:1 for individual equities and other reference values;

·         2:1 for cryptocurrencies;

2.    A margin close out rule on a per account basis. This will standardise the percentage of margin (at 50% of minimum required margin) at which providers are required to close out one or more retail client’s open CFDs;

3.    Negative balance protection on a per account basis. This will provide an overall guaranteed limit on retail client losses;

4.    A restriction on the incentives offered to trade CFDs; and

5.    A standardised risk warning, including the percentage of losses on a CFD provider’s retail investor accounts.

So what impact will this have on retail traders?  Well you will need sufficient trading capital, but more importantly if you employ robust Risk and Money Management in your trading then these new Leverage limits should not impact your trading of Major and Minor Currencies, Major Indices and Gold.  Only those foolish enough to trade without using strict Risk and Money Management rules will be significantly affected.  If you trade Individual Equities and Crypto CFDs then there may be an impact.

Using lower Leverage has always been a great way of stopping oneself from ‘Over Trading’, because your trading platform will alert you to the fact you have insufficient funds to open any further trades.  So this fact makes a trader be selective about which trades they take and to manage their position size(s) commensurate with their amount of trading capital and the size of their stop loss.

Lastly,  if you don’t understand the terms Leverage and Margin then check them out before you take another Live trade.

Top Trading Tip:  Always use Robust Risk and Money Management when trading and employ lower leverage to prevent ‘Over Trading’ and exposing oneself to too much Risk.

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Do The Prep – Get The Pay Back

One of the key elements to being a successful discretionary swing trader is ‘Preparation’.  I’ve written about this to some extent before and covered the 5 or 6Ps.  The best trades I have had, have all been pre-planned.  Thorough preparation before taking any trade, particularly swing trades, tends to pay off handsomely.  This entails the following: Continue reading

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The 4 Cs..

In previous posts on my Blog I have written about the the 4 Ms and the 5 or 6 Ps.  I thought it about time I added the 4 Cs!  The 4 Cs came about through Swing Trading.  When I am looking for Swing Trades I use Multi-Time Frame Analysis (MTFA) in my trade planning. People have asked me in the past why I ‘laboriously’ look at all the different time frame charts when looking for and planning a trade, rather than stick to a single time frame.  Here is why.. Continue reading

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How Good Is Your Risk Management?

As the Brexit Referendum looms, it seems an apt moment to write something about Risk and Risk Management.

BrexitThe UK Brexit Referendum is clearly a High Risk news event and probably far to close to call at the moment, whatever your view.  Other High Risk news events include General Elections, the monthly Non-Farm Payroll (normally the first Friday of every month) and also other events such as the minutes from the Federal Open Market Committee and BOE Minutes and Interest Rate Decisons by Central Banks various.

As a trader you need to be aware of such High Risk events and conduct your trading accordingly.  The last thing you need to do is expose your trading account to too much risk in the run up to such often highly volatile events.  Better to scale back or not trade than to essentially toss a coin and become in effect a gambler.

There are many ways you can control your risk when trading: Continue reading

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