Lessons from the Pros


The Effects of Inconsistency: Part 2

Two weeks ago, we explored together the outcomes of being inconsistent in our trading activities. I highlighted the stories of two of my students who I managed to touch base with in Philadelphia when I was teaching a class; and how their constant changing and adapting of their trade plan was holding them back from hitting the targets they were looking to achieve in their trading. If you didn’t manage to catch that article you can find it by clicking here. After the piece was published I received multiple emails from my readers thanking me for the insights and explaining how they had experienced some of the same struggles as well. With this in mind, I decided to write a follow-up piece to explore a few more areas in which we can draw attention to so as to solve this inconsistency problem that many of us have to deal with from time to time.

Free WorkshopAs I spoke about last week, it is very common to see people routinely updating and tweaking their trade plans when they don’t tend to get the results that they desire. Foremost, it can be incredibly challenging to just stick to doing one thing over and over again because it is easy to fall into the trap of feeling like you must know what is going to happen next in the markets. At the end of the day, it is easy to assume that we must have an almost crystal ball like understanding of the currency market in order to ever be able to make money from it. However, as time goes on you soon realize that the real key to consistency does not actually have anything to do with knowing what’s going to happen next, but rather about you knowing what you are going to do next when you get an objective signal to take action on a trade.

We will never know what’s going to happen next every single time, but that doesn’t matter because profitability as a FX trader is achieved by capitalizing on the events that happen enough of the time to allow us to secure a large profit on occasion and manage our downside risk when we are on the wrong side of the market. If you don’t accept this simple dynamic and learn to allow time to do its work along with your trade plan, trust me, frustration will soon settle in. Let us take a look at a few areas which tend to cause the most issues for the majority of struggling traders. Give these areas a little bit of attention yourself and make sure that they are covered in your trade plan and I assure you that your consistency will most definitely be moving in the right direction.

  1. One of the biggest levels of confusion I have found people go through is due to the lack of consistency in the charts which they choose to use for their trades. I have seen people using up to 6 charts to find one trade which typically results in simply more confusion. I live by the role of less is more which means I would never look at any more than three charts when trying to find my currency trades. If you do look at too many time frames it can be easy to find contradictory signals which is an absolute no go for anyone hoping to develop an objective system. The purpose of multiple timeframes is to aid a trader in understanding which direction they should be looking to go. If you look at a selection of different chart timeframes, you will find many reasons to go both long or short. Remember that the goal is to find your trade and pick your direction. This is far more important than trying to over analyze and confuse yourself directionally.
  2. The next area I find many people struggle with is, when they take a profit and the market carries on going farther. Before you take any trade you must know what your objective profit targets are before you even enter it. This is the only way to make sure that emotions don’t kick in causing you to end up getting too greedy on the position. Take this example which I showed in a live trading room a couple of days ago: As you can see, this was taken on the GBPUSD for a short intraday move. I noticed the supply zone at 1.5275 with a small 10 pip stop. I told the class that this was just a quick short term income trade, shooting for no more than a 30 pip target for a 3:1 Reward to Risk profile. My reasoning for the profit target was because I was joining this market late in the trend and I was aware that we were coming into an area where we could see a reversal. As we can see the trade was a success, even though it did go down another 20 pips. The fact that it dropped further is irrelevant however, because it could have easily reversed harder at this area too and we may have been left with nothing. Set your targets in advance and take them consistently with no questions asked.

    sevans 20150310 - GBPUSD-short-intraday

  3. The final point I make is somewhat tongue in cheek I know, yet it is meant in all seriousness. We all need to journal our trades. This is a point I have made on numerous occasions and written about in previous articles but I never find myself saying it quite enough. One needs to keep a track record of exactly every action one takes once they place a trade, and this also includes the methodology that they use before they even placed the trade. Traders need to detail the analytical process as well and the specific steps taken, as well as the timeframes and tools used throughout the process. Only when this information has been recorded and logged do we then have true data to use to aid us in figuring out what works and what doesn’t. I agree it is a laborious process, but it occurred to me early on that most of the time the most boring things we do in trading often yield the very best results.

I do hope that you find the points I made in this article worthwhile and that you are also able to employ them to some degree in your own trading plan to get your results moving in the right direction. Feel free to drop me a line with any questions and, in the meantime, don’t be afraid to check in with yourself and question just how consistent you’re being on a day-to-day basis.

Be well and safe trading,

Sam Evans

DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

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