At the time of writing this article, I am just coming to the end of teaching the Professional Trader Class in London. As usual this has been another week of rewarding experiences, with the students learning the true ways in which the markets work and discovering how to carry out objective analysis, create a proper trade plan and manage their risk at all times. One of the most unique aspects of Online Trading Academy’s curriculum and teaching approach is that every single one of the gifted instructors who teach for the network, all follow and guide our students in the Academy’s unique core strategy which respects the dynamics of supply and demand in the market. However, while this overall consistency is of great benefit to the students we also have the opportunity during our classes to share our very own bespoke experiences with the class, allowing the students to also learn from both the mistakes we made, (so they don’t make them too) and also those special “ah-ha” moments when light bulbs went off as well!
During my own trading journey, I have been fortunate enough to have been taught and mentored by some of the very best traders, people who we are still lucky enough to have teaching for Online Trading Academy, including our Vice President of Education himself, Sam Seiden. Having had the chance to pick up some truly unique insights into the markets from my mentors over the years is what has no doubt allowed me to grow as a trader and if not for their input, I would not be in the position to now share my own experiences with others. During any class I teach, I always take the time to share with my students the things I learned myself from my teachers and as is often the case with the learning process, there are always a selection of stand-out nuggets you just have to pass on. I would like to share a few of my favorites with you now.
1 – Many Wins Do Not Equal Success
One of the most misunderstood areas of trading is win rates. Practically every novice trader I meet is obsessed with how many times they win and how many times they lose. They think that the more that they are right, the more money they will eventually make. In fact, this is completely the wrong way to think about things. The bitter world of trading reality is that you could actually be right 99% of the time and lose everything on 1 trade! Only by understanding that you have to lose from time to time and keeping these losses small, can you ever truly hope to become consistent in FX trading. A more important statistic is the difference between the size of your average win and your average loss. If the wins are bigger that the losses you are already defining a strong edge for yourself in your speculative activities.
2 – Price Trumps All Else
When people ask me how I read a chart and what tools I use to buy and sell currency, I think that they are expecting me to say that I use a ton of technical indicators and patterns. This is a typical assumption which many people make and is mainly due to the fact that they believe that trading itself must be incredibly complicated. As anyone who has been doing this for a while will tell you, it is pretty much the complete opposite. In fact, the less a trader relies on the various indicators and signals available to them through their charting packages, the more likely they are to focus their attentions on the true indicator above all: Price itself. I don’t care what tool you use to help you decide when to buy and sell, ranging from RSI, Moving Averages to Stochastics, they all only get their data from price and it is price which always has to move before the indicator. If you realize this simple and straight-forward fact, you soon come to rely less and less on everything else and pay attention more and more to what price is telling you. This is not a chicken and egg debate here guys. This is more like cause and effect.
3 – Rules Are Not Meant To Be Broken
Why does a consistently profitable trader have rules? They have rules because they know that every time they enter a position in the market, they are potentially about to lose or make money. This could be a little or turn out to a heck of a lot but either way it is totally out of their control. Entering the FX market is to enter a world without rules, a world where literally anything can happen at any given moment. If we know that we can never control the market, we then need to control ourselves and this is why we have rules to both protect us if things don’t go our way and to reward us if they do. We always have to remain objective with our analysis of price and every time we take a trade we need to do so with sound logic and reason, as opposed to gut feeling and emotion. Therefore the rules we live by in a speculation are our way of acting with control and discipline to keep us safe in the uncontrollable arena of the markets and by sticking to these rules we gain a key level of consistency as well. This consistency in turn then gives us a set of measurable results to gauge our performance by, allowing us to discover what works for us on a regular basis and what doesn’t. If you break these rules then the only person you are hurting is yourself.
4 – You Know Nothing
Finally, of all the tips I have received over the years from my mentors, this is by far the very best and I extend it to you right now: Understand that where the markets are concerned, you will never, ever really know what will come next. The minute you begin to think that your “intuition” is telling you where the market is going to next, is without question the time to step back and give yourself a head-check. This is probably one of the single most dangerous things any trader can do. Never think that you know more than the next person about where direction is heading or what the best companies to invest in are. Expect the unexpected, be humble and open to realization that anything can and will happen from one trade to the next. I know and have programmed myself to recognize that I never will know where the market is going but I can plan a trade around what it is objectively showing me and plan the rest out with a solid stop loss and target. Whatever happens next is totally out of my control and I will either endure a small loss or a decent win. Understand this simple fact of life and you will begin to finally understand the way the markets really work.
Until next time take care,