Firstly, I hope you all had a wonderful Christmas and that you have all been enjoying the holidays with your family and friends. This is usually a quieter time of the trading year as the markets tend to lose a little volume, what with people taking vacation time and having a break from trading. As usual around this time of the year, I like to offer some reflection on what I think could be beneficial to your FX trading next year, especially if you feel like things have been a little challenging for you over the last 12 months.
I have been teaching students of Online Trading Academy for a long time now and over this duration, I have come to realize that the biggest challenges most people face in the markets are pretty much all the same. It is almost like I can anticipate what someone is going to ask me in a class before they even ask the question itself. Why is this you ask? Well, I would respond by saying that it is really due to the fact that there are a limited number of outcomes in any trade (a win, a loss or breakeven) and also because the only thing we can ever do in the markets is buy, sell or sit on our hands. Those facts alone dictate a limited number of options and outcomes for us, meaning we simply need to focus on solid execution of our trade plan and then actually allow the plan to play itself out.
I would say that when a trader really comes to terms with the fact that they have absolutely no control over the outcome of their trades, they have then turned a corner and can finally allow themselves to gain the all-important consistency we all need in our market speculation. Ask yourself an honest question: how many times have you rewritten or tinkered with your trading plan or strategy hoping to avoid losses and win more often? If you are anything like myself in the early days, probably too many times to remember! If you are constantly changing the plan, then how can you hope to learn what actually works for you and what does not? You aren’t doing the same thing for long enough to figure out if it works or does not.
One of the many things I love about teaching our school’s patented core strategy, is that it is simple, rules-based and easy to execute. With this basic foundation, any dedicated student of the market can learn to become more consistent in their trading and take the all-important journey of discovery to learn what is helping their trading and what isn’t. To compliment this consistency, I would say that it could be hugely helpful to focus on keeping your strategy simple as well. Take off all those indicators and chart patterns and start to focus on price itself, the only real leading indicator needed for market speculation. Too many conflicting signals makes it hard to be decisive at the time you need to be. Along with this we also need to accept that if we focus on using technical indicators as tools to make a trading decision, we are using lagging indicators which only present us with signals which are trailing behind price and get us very late to the entry. There is a huge difference in analyzing the market beforehand with a clear predefined entry, stop loss order and target. Successful market speculation requires planning in advance and knowing exactly why we are looking to enter a position, rather than chasing the price as it moves before we do.
One other huge issue I find that comes up is when people feel like the market is against them. Every time they read some good news, they buy and the markets go down or vice versa, or they find themselves scratching their heads when they can’t explain why the markets did what they did and how to prepare for it next time. My response to this is simple: stop searching for the reasons why the markets move. The news and websites will always give you reasons as to why the markets moved, but it is always after the event itself, proving useless to us overall. Prices change simply due to imbalances between supply and demand created by institutional order flow. If you understand what this looks like on a price chart then you are already giving yourself a huge advantage in the markets, combined with a strong low risk to high reward ratio to boot. Banks and institutions buy and sell FX to make money, it’s as simple as that. If trading were as easy as following the news and fundamentals and then making your choice to buy and sell based on that, then wouldn’t everyone be doing just that and making money? Learn to think differently and you will start to see different results in your trading, I’m sure. Join me in 2 weeks where I will do a New Year review of the impact of Supply and Demand in the currency markets so as to get us all up to speed for 2016!
Have a very Happy New Year,
Sam Evans – firstname.lastname@example.org