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Your Trading Advantage – Why & How

By Robert Colville on January 29, 2014

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It’s an inconvenient truth (that means most don’t want to face or acknowledge it) even if they’ve 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.

These people have one thing in common: they don’t have a trading advantage!

How do you feel about this?

Wouldn’t it be convenient to blame the broker for this?  Yes, this is tempting, but completely fails to tackle the root cause of this devastating problem for 90% of traders. What is your trading advantage?

What is the REAL cause of trading failure?

trading advantageThe majority of traders who lose money do so because they do not have a clear trading advantage – a strategy.

The Lazy Trader asks:   Why do so many people trade without even bothering to follow or even learn a trading strategy? 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.

What makes the most sense?  If you really want to be a profitable financial markets trader, and enjoy the long-term success that consistency in trading can give you, do you make up your trading strategy as you go? OR Does it makes sense to learn to trade 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 advantage in the market? According to Investopedia, a trading advantage or edge is: “A set of objective rules designating the conditions that must be met for trade entries and exits to occur.” Having a solid, proven strategy will set you apart from the losing 90%.

Lazy Trader News Flash:  Markets are random – they can do anything at anytime. It is our job as traders to establish order within the chaos.  How?  By effectively using technical analysis to identify trades with profit potential, which lets us weigh up probabilities that stack in our favour.

Professional traders stay in the game by sitting out of the market unless their very specific rules and conditions have been met. Yes! 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. That’s one trading advantage.

All too often, the rookie trader 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. 

You already know the disastrous results from this NON-strategy. But following a simple set of rules for entry is only is only 20% of having a strategy, leaving the remaining 80% to the trade’s management and profit targeting. Now as you may have guessed, a trading advantage or edge also includes rules for its management and exit, just as we entered the market based on a set of rules. What are the three components of a solid trading strategy?

Your Trading Advantage #1: Timing

article-picIt 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 trader 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. This is another trading advantage…

Your Trading Advantage #2: Trade selection

Diamond MinerSo 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 advantage’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 advantage 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

Your Trading Advantage #3: Trade management

DCF 1.0As 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 then, how do you plan what 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 critical considerations.  Please take the time to at least consider.  

Summary

You may well be saying, Adam, this sounds like a LOT of WORK, choosing and implementing a trading strategy.  How does that fit with being a Lazy Trader? 

The Lazy Trader is first and foremost a successful trader.  Your Strategy is your trading advantage.  Using your strategy which will be ultimately your trading advantage:

  • You may place fewer trades, but you will control your risks and losses. 
  • You will be using objective standards of entry, exit and management. 
  • You won’t be dragged into the whirlpool of emotional or boredom trading. 
  • The trades you do place will have significantly higher likelihood of success.
  • You will escape the 90% who lose their money.

 If do not yet have a strategy, then it is high time you think about using one 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 proven results to give you the full confidence in it. Failure to do this means you will be inconsistent in your approach to trading financial markets – and it will most likely cost you long term.

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Robert Colville

The Lazy Trader is a fund level Forex Trader who trades for no more than ten minutes a day. If you want to learn to trade successfully in his set-and-forget style, have a look at his online trading course

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Robert Colville

The Lazy Trader is a fund level Forex Trader who trades for no more than ten minutes a day. If you want to learn to trade successfully in his set-and-forget style, have a look at his online trading course

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