Trading isn’t easy…….. But it is simple!!!
Trading isn’t easy. You will never hear me say that it is. But it is simple, in the fact that it is just a process. In reality it’s just a set of rules that manage your behaviour.
The problem is Traders make it complicated and that’s why it isn’t easy.
Over the next few segments of Simon says well go through some of the things traders do that make trading difficult.
The second section is called: Have a Kit Kat!
One of the big examples of how traders make it difficult for themselves is that they don’t recognise when they should take a break from trading.
Remember the old TV add – Have a break, have a Kit Kat?
Well, there are many times when you need to take a break from trading, and knowing when, will help to consolidate your profits and enhance your mindset.
Many traders fail to realise the whole idea of knowing when to take a break.
I don’t care how good your trading system is or how well it has done for you in the past, the simple fact is that the market is a highly dynamic environment that is continually changing and no single trading system or strategy can possibly suit all its different personalities.
This has been proven time and time again by the introduction of fully automated trading systems that look fantastic for a period of time (and everyone jumps into them) and then, for no apparent reason, they just implode – and lose everything.
The simple reason is that the trading system or the strategies it used, didn’t suit the market at that particular time.
The system simply shouldn’t have been in the market at that time, but being fully automated it just keeps going and going.
Individual traders are just as susceptible to fall into the trap of believing they have to be in the market at all times.
One of the main driving forces behind this destructive, obsessive behaviour is: the fear of missing out.
The fear of missing out is so powerful that it can keep traders in the market even when they are clearly on a one way road to destruction. They fear that they will miss the chance to make it big! Or if they are in a hole, they feel they will miss the chance to get their money back.
This fear, which is actually a type of greed by the way, keeps them trading even when all the evidence suggests they need to stop and adjust what they are doing.
That’s why it is so important to recognise when to take a break.
There are a number of signs you need to look for, to suggest you need to have a spell from trading.
Remember how I’ve talked about getting good at trade recording and building a trading framework…. well here’s where it starts to help out.
To start with, in your trading framework you should have some rules that tell you when not to be in the market.
For instance: I won’t be in the market if the index is below my key moving averages (signalling a bearish entry) but the shorter term moving average I use is above my longer term moving average (signalling a bullish trend). These circumstances conflict the trading rules in my trading framework so I stay out of the market, until the rules I use are validated.
I don’t trade when the market doesn’t suit me.
Another way to signal that you shouldn’t be in the market is from your trades records themselves.
You should have some type of rule that says something as simple as:
If I have 3 bad trades in a row I will stop trading and revisit my whole trading game plan and work out I am doing wrong.
Or
If I have X amount of ‘Bad’ trades (could be 3,4,5) in a certain period of time (it could be a week, month or quarter depending on your trading frequency) then I will not trade for the next so many days or weeks or even better until I have made X amount of good paper trades and I know I am back in control.
So, what do I mean by a bad trade?
Well a bad trade isn’t a losing trade – if the trade has been managed correctly.
It also doesn’t mean a trade that has abruptly blown through your stop loss due to some unforseen sudden news – a blindside.
But it does mean trades that have not been managed and have ended up costing you more than your predetermined risk amount at the start of the trade.
So if you have a number of bad trades according to your trading framework, you need to stop trading and regroup. You will need to go back over your trading structure or framework and find out where the problem is.
It is important to stop.
Trading is all about confidence. When you can trust yourself to make the right decision at the right time in any situation then your confidence sores and so does your ability to make money in the market.
If you have a number of bad trades and just keep throwing good money after bad in the hope that somehow everything is going to magically change, you actually end up in a no win situation. Because even if you happen strike it lucky and get a big winner, you have no idea as to why or how you did it and you will just keep repeating the same gambling mentality until you have no money left at all.
You will have absolutely no confidence in what you’re doing.
It is important to realise too, that if your trading routine is has changed, you need to step back and not trade until you adjust to it.
This could be due to you feeling run down or if you’re really busy outside the market with work or renovations on your house or you have some kind of personal issue in your life at the moment. All of these will just make it harder and will eventually force you to make poor decisions.
You have to understand that the market isn’t going anywhere. It will always be there with its countless opportunities.
You will find that once you have your trading framework and routine in place, you will actually have too many opportunities to trade and you will be looking for reasons not to trade them, rather than thinking, I’m going to miss out.
So, take the time to get yourself and your trading together.
That’s why Simon Says
Trading isn’t easy….but it is simple
Remember to have a Kit Kat.
After a week that saw $2.5 trillion wiped off global stock markets, there is pressure to reassure markets that governments have both the will and ability to reduce their huge and growing public debt loads.
