Perseverance and Trading Success

Q: Do I have to accept some big losses in the beginning?

A: No, you don’t have to suffer big losses, use a simulator account. Learn what methods and systems work for you and which ones fail. I don’t see the point in wasting real money on testing a system anymore these days (wasted enough in the past). When you feel you have an equity curve that is generally rising over a month or two, then you can try it with a small pot of real money. Patience, like anything worthwhile, is the key. Unlike many things in this buy-now-pay-later, get-rich-quick world, you have to put the effort in. There is no easy system. Even the idiot’s way of making money (buy property and sell it a year later for profit) is falling apart.

And learn discipline and money management.

Q: How come elite traders succeed and continue bouncing back even after repeated failures?

A: One thing to consider with most master traders is their tenacity to stay the course. Great traders become great because they can push through the tough times. Taking a look at the 20-year trading records of people like Bill Eckhardt is a good example. He’s had strings of 6-months of losses and even losing years, but he keeps coming back.

The same can be said for top sportsmen – they can go through periods of several years without winning yet still come back. Greg Norman’s performance in the recent British Open is an example of tenacity.

In fact there appears to be a much stronger relationship between perseverance and trading success than some unique trading gift or “secret”, and success.

Although some forms of perseverance wouldn’t be too fruitful.

eg., just reading copious amounts on how to trade Vs. copious amounts of screen time.

a perseverance quote I quite like: if your dream should fall and shatter into 10,000 pieces, don’t be afraid to pick up one of the pieces and start all over again.

When times are tough the elite trader will make losses but still survive, whereas the amateur trading during the same period will probably be wiped out and be dragged out of trading for good.

So if an elite trader is struggling, what chance does the amateur trader have?

In my opinion, however, certain market conditions are just too plain hard to trade even if you tweak. In such instances the best trading strategy would be not to trade!

Q: I am very new to the CFD trading scene and am finding it difficult to pin point a trading strategy that I may be able to adopt as a full time venture…

Are there any other pertinent points I should be aware of when trying to replace my current job with full time trading? I’m starting out with approx. 10k. Is this a viable amount? – Julie

A: Best of luck and good attitude. Just be clear that it’s not easy and if you get cocky you’ll blow that 10k in a heartbeat. Use small positions to start with and trade with less than 10% of your capital. You need to get your mind to work like a trader – no emotion, just doing your job.

Preparation, practice, patience, persistence are the qualities you need to develop to become a profitable full time trader and this takes time. Plan on at least a two year training yourself before you have the skills to be able to support yourself by trading.

All traders acknowledge that the key to making money consistently by trading is to have a system. This doesn’t mean any system, but one that gives the trader an edge on the market, and which factors in the costs of trading. Not any trading system but one that works for you and is proven by backtesting.

Here is a simple view of how you can expect a year of trading to go -:

1st Quarter – Your system does not quite work and you lose some capital.
2nd Quarter – You get edgy, pull back, system sort of works, make back most losses.
3rd Quater – Swings and roundabouts, break even.
4th Quater – All the moons align and your system delivers all it was designed to do.

If it was designed to give you 10 grand a month, you end the year with 30 grand profit, not 120 grand as it was designed

So you need to be able to trade a system that when it works it can sustain you 4 times over. Because it won’t work every day, every week…etc

Q: I would appreciate some advice or tips on when to exit a losing or winning trade?

A: Well, to start with if everyone knew exactly when to enter and when to exit a market, wouldn’t trading be simple?

However, even the best traders cannot do that, the most they can aim for is to grab a bigger slice of any move and exit with good gains before the market turns against them.

Here, I’ll assume that you already know the basics that you shouldn’t trade against a trend and the dangers of attempting to pick a market top or bottom, on support and resistance, and on letting profits profits run while cutting losses before they get out of hand as well as trading the ‘breakouts’.

To start with if you are in a trade, you should already have a plan of action which should include entry and exit points; you can of course adapt this plan according to the changing market situation but you shouldn’t enter a trade in the heat of the moment.

On when to pull out when you’re on the losing side try this; as soon as you enter a trade place a sell stop order below the market if you’re long (and vice versa if short) based on the amount of money you are prepared to risk on any one trade. Thereby, you should never be in a position (and on the losing end) without knowing where your exit point is going to be.

If you are in profit you could employ trailing stops – i.e. setting sell stops at a certain level below the current market that allows you to remain in the winning trade until the market turns round.

I can’t tell you at what percentage you should set stops or trailing stops as the markets are different at different periods and traders have different views on how much they are willing to risk. However, the general rule is to place stops/trailing stops just below a support point which is not too far below the market (if you’re long).

Usually, entry and exit points are based on support and resistance levels – an alternative is to enter a market that is already trending. Here you wait for a small pullback in the general uptrend or an upside correction in a general downtrend (since markets don’t go up or down in a straight line). The challenge here is to determine whether the pullback or correction is indeed just a minor correction and not the end of the trend.

Q: You start with £1000. You make £1000. You then lose £1000. Considering only the result, have you lost money or are you back to where you started?

A: Answer is the former. Having made the £1000 that is then part of your capital for future transactions. Otherwise in the future you can say, ‘oh, that £1000 I lost…that’s not really a loss, that’s the money I made back in 1868 in that slave company I invested in…’.

Q: I am trading the indices but my stop loss is always getting hit!!

A: Frankly it is hard to trade the index markets when they are swinging sharply with intraday moves of 300 points or more. You need to adapt your trading strategy to account for the volatility – for instance instead of trading 10 FTSE CFD contracts with a 100-point stop loss as in normal market conditions it might be better to reduce your trade size to say, 5 FTSE CFD contracts with a 200 point stop. The maximum potential loss size would remain the same as the 10 FTSE CFD exposure but you reduce the risk of being stopped out early and should still be able to benefit from any upswings.