By Rob Colville on June 11, 2014 in
Want to know the key to a long and prosperous trading career? What do you think it is? Working longer and harder at it than the others? Calling market tops and bottoms? Perhaps simply winning more often than you lose? It’s actually none of those; not by a long shot.
In trading, success and longevity is all about preservation of capital, both physical (i.e. money) and emotional (i.e. brain power). As soon as one runs out, you can’t trade anymore, and it’s as simple as that.
The fortunate flip side is this, though: when the highest-quality set-ups, exacting risk management, and proper execution all come together, the result are high-probability, low-stress, “set and forget” trades.
You can build and sustain your entire career on the back of that very method, and this article aims to decode each of those three qualities in order to show you how to make these lucrative, “set and forget” trades the norm, rather than the exception.
There is an all-too-common misconception that consistently profitable traders spend long and difficult hours toiling away in front of the monitors, watching every tick of the market, and perhaps even hurling keyboards or anything else that’s nearby as they live and die with every new chart candle!
Don’t you wish there were a better way; a viable trading method that requires only minutes per day to act calmly on clear signals, execute, and then leisurely move on with your life? Just think of how much stress and hard-earned capital that would save you!
If you’re thinking “That sounds just too good to be true,” believe me, it’s not. Ever seen one of those mysterious “black boxes” on late-night infomercials, the ones that promise (but don’t deliver) effortless trading profits? Now those are too good to be true!
In countless other industries and endeavors, from business, arts, sciences, sports, and beyond, we typically get back in results only as much as we put in (i.e. time and energy). When it comes to trading, though, these same rules need not apply, and here’s why not:
These “set and forget” trades—the kind that can be taken almost effortlessly, with confidence and conviction, and free from fear and emotion—are actually found whenever a confluence of key factors comes together, both in the market and in the mind of the trader.
Such trades require patience and unwavering discipline, but working hard to isolate only the highest-quality set-ups, carefully managing risk, and executing with mechanical precision can make “set and forget” trades the rule, not the exception.
There is profound and often underestimated value in being extremely selective in your trading, thereby filtering out all but the highest-quality set-ups that “follow the rules” right down to the letter and satisfy your desired parameters, including an exemplary risk/reward ratio.
For technicans out there, that may rightfully include one or a number of proven patterns and/or indicators on your desired time frame(s). For us Lazy Traders, that can entail trading based on Fibonacci-inspired support or resistance, pin bar reversals, engulfing bars, dojis, smash bars, or pivots, among others.
These set-ups for which all factors line up in agreement are what we affectionately call “purple cow” set-ups, although unlike purple cows, these really do exist! Actually, they’re a lot more common than you might think, and these are “set and forget” trades every time simply because you believe so strongly in the premise behind them.
Wouldn’t it be great if every trade could feel like that? Well, it can if you commit to being so unforgiving when qualifying set-ups that any which fail to meet every condition are cast aside, even if it means staying on the sidelines for days or more until a valid set-up is confirmed.
Want to improve your consistency and trading results starting with the very next time you trade? Of course, we all do, and the fastest and easiest way to do just that is to never force a trade because it looks “good enough” or meets some (or even most) of your desired parameters.
Trading is not easy, nor are profits guaranteed, so you want to be sure you have every probability in your favor before committing even a drop of hard-earned capital to a given position. Afterall, it’s a whole lot better to sit idle and break even than it is to lose money, isn’t it?
Think of the motto “Trade the best, and leave the rest,” and let this advice govern each of your trade decisions. You’ll almost certainly trade less, profit more, and enjoy your time both in and out of the markets considerably more for it.
We as individuals knowingly and willingly assume risk all the time. Whether flying on an airplane, playing in or attending a sporting event, or doing countless other things that are commonplace in all of our lives.
In trading, though, once we have capital invested and “skin in the game,” somehow things change, causing traders to watch obsessively as the market moves, nervously counting profits or lamenting losses in real time as emotion and fear pickle their brains. Sound at all familiar? Well, rest assured that it happens to the best of us!
Trading is all about risk: first assuming it, but most importantly, effectively managing risk. Too many fail initially to get past the acceptance part of the risk equation, which leaves them emotional, fixated on the markets, and constantly trading amid high stress. When trading feels like this, “set and forget” trades are out of the question!
To manage risk, start by being truly committed to risking a reasonable amount of capital that is no more than 1% of your account each time you trade. Accept that you’re willing to lose that amount and no more if the trade goes against you, and recall that we’re only trading the highest-quality set-ups for which all the desired factors are aligned in favor. This should help breed the confidence and conviction needed to execute with a clear conscience.
Furthermore, use a viable formula for calculating risk that minimizes potential losses, identifies stop and target placement points, and can allow full or partial profits to run, depending, of course, on your strategy, preferences, and risk profile.
Fibonacci calculations, support/resistance, trend lines, and percentage move are all common methods, but the point is that a carefully chosen system must be in place to effectively manage risk, and as much attention must be paid here as was to the evaluation of the set-up itself.
It’s easy to see how these first two qualities go together nicely, with one complementing the other. If you make it your business to trade with strong conviction, accept the inherent risk and take careful, calculated steps to manage it, “set and forget” trades will follow more naturally, quite possibly with surprising regularity.
Trading mechanically and free from fear and emotion can be challenging because you are highly invested in the end results. It’s your hard-earned capital on the line, afterall, right?
This is where common fears about financial and emotional losses are born, adding undue stress, crippling objectivity and judgment, and making it nearly impossible to plan or execute“set and forget” trades.
This is also when it really helps to pay more attention to the process than the end results.
Before, during, and after executing a trade, focus on your methods, not the money. If you’ve traded precisely according to your plan, meticulously screening and qualifying the set-up, and then managing risk to the very best of your capabilities, consider that a success in itself! When you do, it becomes that much easier to let go of fear and simply let the chips fall as they may.
Once you pull the trigger, markets can—and will—do what they want, and we have no control over that, right? However, we do have complete control over how well and how closely we adhere to our own trading strategy.
There are those odd times when the markets defy all logic and reason, but rest assured that trading precisely according to a reputable strategy will always produce favorable results over the long term.
Trading with that knowledge in mind can keep you calm, focused, and reassured while others may panic, and it will help even when you do suffer those inevitable (but limited) losses.
See also: 3 Ways to Overcome Fear in Trading
It’s especially true here that a little change in perspective can go a long way, so try shifting more emphasis on executing your strategy right down to the finest detail, and don’t be so fixated on profits. You may be promptly rewarded with clarity, confidence, and consistency, and profits will naturally follow from there.
One of the biggest, and frankly, most annoying misconceptions in all of trading is that time somehow equals money, and that successful traders must constantly watch the markets and have active positions.
In all, there is a better way. A way to trade quickly and almost mechanically, free from stress and emotion. It’s actually easier than you think, and by qualifying set-ups with the keenest eye, managing risk with exacting precision, and leaving fear and emotion on the sidelines where they belong, you’ll soon see how “set and forget” trades can become a reality for you, too.