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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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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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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Forex Trading – The Essentials

Forex Trading Essentials - www.ForexTradingLondon.comWhilst doing some Housekeeping in my email account, I came across and was reminded of an email I had sent as a reply to a prospective student, who unfortunately could not afford our Personal Mentorship Programme (PMP) lessons.  In my reply I wanted to be helpful, so I tried to summarise the Key areas that he should work on until he was in such a position to be able to take advantage of our PMP.   Here is the main body of the email, with a few additional tweeks, containing what I suggested:

‘No problem, the key things you need to concentrate on are: 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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Forex Trading Survival Rules

Have you got what it takes to SURVIVE in the markets whilst learning to trade Forex?  Will you survive to trade another day? Or will you just become another of the 80 to 90% that fail?  How practised are you in your Forex Trading Survival skills?

Forex Trading Survival Rules - www.ForexTradingLondon.comWhilst learning to trade Forex or any other financial market there are certain things that you must do and that need to be in place, if you are to stand a chance of surviving to trade another day.  What are they?
Continue reading

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Will Your Account Survive Whilst Learning To Trade?

Have you got what it takes to SURVIVE in the markets whilst learning to trade Forex?  Will you survive to trade another day? Or will you just become another of the 80 to 90% that fail?

Whilst learning to trade Forex or any other financial market there are certain things that you must do and that need to be in place, if you are to stand a chance of surviving to trade another day.  What are they? Continue reading

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