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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London Traders Forum Q4 – 2019 Summary & Take Aways

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.

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How Complete Is Your House of Trading?

Learning ‘How To Trade’ can be analogous to building a house, it isn’t until it is complete, that Consistent Profitability can be realistically achieved. The foundations cover such things as:

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Do You Hope & Pray?

When learning to trade it is easy to get seduced into making impulsive unplanned trades with no Trade Plan or trying to force the markets into giving you some profit when the market isn’t ready to give it to you. Plus, of course, there is the issue of FOMO (Fear Of Missing Out) and Revenge Trading or trading with so much open Risk that you are near to blowing up your trading account! On top of all that is the likelihood that you are not using a Stop Loss All the above can lead you to being in a losing position and starting to stress, worry, sweat, swear and ‘Hoping’ and ‘Praying’ that the market will turn around and get you back to a Break Even or better position.

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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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To Trade or Not to Trade?

(With apologies to William Shakespeare in this 500th anniversary year!)

ShakespeareTo Trade or NOT to Trade?

To Trade or NOT to Trade, that is the question;

Whether ‘tis nobler in the mind to suffer

The drawdown and losses of unplanned impetuous trades,

Or to wait with patience for higher probability setups,

And then to plan and trade them with discipline and calm,

Whilst managing your Risk and being focussed on the process,

And as a consequence, reap fine rewards for one’s labours!

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Merry Christmas & Happy New Year

Happy Christmas from Forex Trading London

Merry Christmas & Happy New Year!

Firstly our very best wishes to you and your familes at this Christmas time and thank you for reading our Blog posts and for following our Forex Trading Success Formula, which has plenty more to come in the New Year.  As the trading year draws to a close, it is a good time to take stock and analyse how you have done, 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: Continue reading

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Successful Trading Is Managing Uncertainty

When you are trading the ‘Hard Right Edge’ of the chart on whatever timeframe, you must always try to ‘Manage Uncertainty’.  What do I mean and how do you do you that?

gbpusd 4hr pot bear bat - 10 June 2015 - mwWhen you enter a trade, from that point onwards you do not know for sure what the market will do next and so all you can do is to try and manage that uncertainty by doing the following: Continue reading

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The Importance Of Context

When you plan and take your next trade, please ask yourself this question:

‘Do I know the Context of this trade?’

Knowing the Context of a trade is an important part of planning any trade.  Knowing the Context means:

  • Is this a Counter-Trend or Trend Trade and on which Time Frame?
  • Is it a short term or longer term trade?
  • How many reasons are there to take the trade?
  • Is this a Lower Time Frame entry into a Higher Time Frame Setup?
    • If so has the Higher Time Frame setup triggered yet?

Knowing the Context for your trade can give you a Bias and therefore an edge, but how do you do this in practice?

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