By Rob Colville on April 12, 2013 in
If you don’t have one already, it’s time you thought about getting your trading edge.
It’s an inconvenient truth for some and one which even more people do not like to face up to unless…well, they have done it: Up to 92% of people, who trade financial markets fail and blow up their whole account purely because they do not bother to seek education about how to trade profitably and consistently.
In fact, a broker told us off the record that it is more like 90% of people losing 90% of their trading accounts in 90 days. How do you feel about this?
Now, it would be convenient to blame the broker for this (…and yes, this is tempting!), but that would not tackle the cause of why so many people do this and would simply serve as being a denial of the underlying problem: the majority of people who lose money do so because they do not have your trading edge or trading strategy.
So, why do so many people trade without even bothering to follow or even learn a strategy? Why bother trading if you do not have your trading edge? If you wanted to learn how to drive you would do it in a car (preferably not an old banger with 3 wheels) with a driving instructor (a sober one). If you wanted to learn heart surgery then you would take a step in the right direction and go to medical school.
So to be a profitable financial markets trader and enjoy the long-term success, consistency and trading can give you, it makes sense to learn and implement a profitable strategy from those who are already trading it and have a proven track-record of results to go with it.
So here’s the question: What is your trading edge in the market?
According to Investopedia, an edge or strategy is: “A set of objective rules designating the conditions that must be met for trade entries and exits to occur.”
Having an this will set you apart from the losing majority. Markets are random – they can do anything at anytime and it is our jobs as traders to establish order within the chaos by effectively using technical analysis to identify trades with profit potential through weighing up probabilities that stack in their favour.
Professional traders stay in the game by sitting out of the market unless their very specific rules and conditions have been met. That’s right – you did read it right. They simply sit out of the market if there is no reason based on their strategy for them to be in, leaving the amateurs to place their boredom, frustration and revenge trades.
All too often, the rookie will be putting too much time and attention feverishly looking for opportunities, falling into the trap of even second guessing their rules for entry simply because they do not have an excuse to enter the market. So they then typically bend the rules and enter anyway.
But following a simple set of rules for entry is only that is only 20% of having a strategy, leaving the remaining 80% to the trade’s management and profit targeting.
So, what is your trading edge? Now as you may have guessed, your trading edge is a trading strategy which includes rules for its management and exit just as we entered the market based in a set of rules.
Strategies consist of three components:
It is crucial to have a fixed idea of which time frame you intend to trade and when do you plan to trade it…and even more important to be consistent in your approach in executing this. Deviating from this will cost you.
Are you an early-bird intra-day trader who likes the cut and thrust of entering and exiting the market in the London session or are you more of a night owl, end-of-day trading type who likes to set their orders up on the daily chart in the evening and walk away for 24 hours?
Regardless of what style of trader you are it is crucial that you trade your set-up at the same time on a daily basis in order to take advantage of the flow of opportunity. Markets are random and so too are wins and losses. The one slot in your trading routine you decide to take off will, sods law, be the time when you miss out on a string of winning trades.
So you have turned on your computer at the time you usually trade but the battle is not won yet. Markets do not owe anyone a living just because they have turned up on time…unless you have a very specific idea as to what your trading strategy is and the market gives you an opportunity which fulfils your trading edge’s criteria/rules for entry.
It is crucial that you only trade as and when the rules of your trading strategy or trading edge in the market are fulfilled. I repeat, it is crucial that you only trade as and when the rules of your trading strategy or trading edge in the market are fulfilled. I’ve said it before and I will shout it from the rooftops as this is the main reason why so many people start off their trading “journey” with honourable intentions and end up flunk out all the poorer for doing so. Many simply just trade for trades sake. They think more trades and more time trading equals more money. This is just not the case.
As a money manager of Your Trading Account Ltd, your first objective for any trade is to break even and then your second objective is to make a profit. Every strategy should have rules for management so that you have a very clear picture of what to do in any instance…even if things do not quite go to plan.
While you may have your trading plan etched in stone and a very fixed set of rules which will (or should) qualify or disqualify a set-up in the market but how do you plan to do once the set-up has passed?
What will you do if you are not triggered into the trade? What will you do if it moves against you? What will you do if it moves in your favour? Will you trail your stoploss? Will you scale out half way to profit target? Will you add to the position?
I may give the appearance of jesting but I’m serious! The above questions are certainly considerations as to what I want you to at least consider.
If do not yet have a strategy, then it is high time you think about using one to get your trading edge, and sticking to it. But do not just fall for any old strategy!
Choose a timeframe which suits your personality and a strategy which you understand and has the results to give you the full confidence in it.
If you do not do this then you will be inconsistent in your approach to trading financial markets and it will most likely cost you long term.