And here are a few ways I intend to ensure that my trading is on the up and up in 2013 …
1. I will devote more time to money management.
Money management isn’t a one-stop shop, but something you should always be on top of and re-evaluating. Always know what your risk is on a trade; know what percentage of your trading fund that is; and watch yourself for multiplying your risk by trading matched instruments (like having too much investing in one sector of the stock market, or correlated currencies).
To this end, I will spend less time looking at charts, and more time looking at my spreadsheets and trading journals, always on the look out for areas where I may be over-leveraging myself, or over-exposing myself to one sector.
2. I will trade less, but trade smarter.
I have a terrible tendency to trade because I’m at my computer screen and feel that I should be “doing something”. I need to constantly remind myself that sitting out is “doing something”. I trade too often – getting in and out of the market, at a cost to myself (and to the benefit of my broker!)
Trading less frequently can work like a filter on your trading – it should ensure that I select the best trades to put my money on, and will filter out the weaker set-ups.
In 2013, I will be a more patient trader – I can watch the markets from the sidelines without always having to be in the thick of it all the time.
I must not trade because I am bored, or simply because I can! Learn to sit tight.
3. I will limit my time in the markets.
This is slightly different to resolution 2. The more time my money is in the markets, the more risk I’m taking with it – so I will try to close my positions within a reasonable time frame for that trade. I will enter all trades with a timescale in mind. I won’t leave short-term positions just “dangling” open, hoping that the markets will come back in my favour. Instead, I will take my money out and use it elsewhere.
4. I must remember that I cannot see into the future.
I must avoid falling into the trap of thinking that I can judge market tops and bottoms. If the price of something is falling and looks cheap – don’t be tempted to go bargain hunting until the tide has turned in your favour.
Trying to judge turning points in the markets is too difficult – however experienced I am, I will never be able to do it consistently. I may get lucky occasionally, but more often than not, this type of trading will lose me money. Likewise, I mustn’t be tempted to average down – it’s a trick that gamblers fall into.
5. Don’t get greedy.
Greed is an emotion that can make people behave in ways they wouldn’t normally do. It leads traders to take bigger risks than they should: to over-leverage; to trade with funds they can’t afford to lose; to hold on to an open position for longer than they should …
The list of trading crimes that greed can lead us into is a long one. But the essence is this: greedy trading is usually high-risk trading.
Trading the financial markets is not a way to get rich quick. If an opportunity is offering incredible returns – the risks will be high, too, so don’t throw all your money into it.
I will balance my risk profile carefully – not too much risk, and not too little. This is the way to create a solid and consistent return.
6. I will not get emotional.
I will use disciplined trading strategies to keep me on the straight and narrow. Getting cross with the markets for a bad trade is about as useful as kicking a stone that you’ve just stubbed your toe on. Likewise, I shouldn’t get carried away when I have a run of successful trades. If I feel myself getting too emotional, I need to go through my disciplined strategy and stick to it. If I can’t do that – I need to walk away until I’ve calmed down.
If I find myself getting carried away with a trading story – beware! Choosing trades is not about picking something you “like” or “find interesting” – it’s about making a profit, nothing more.
7. I will not be shaken by the bumps in the road.
Trading is inherently “lumpy” – profits come in bursts, and losses have a nasty habit of bunching together. By watching my risk profile and never overstretching myself, the jolts and starts of trading won’t bother me in 2013.
8. I will not “thrill seek” – that’s what gamblers do.
I’m embarrassed to admit that one of the things that drew me to the financial markets in the first place was the thrill of trading. I can talk the talk about how I’m here because of business sense and money, but that’s not entirely true. When a trade is going my way, I get a surge of adrenaline; when it goes against me, I enjoy the thrill of hoping that it will turn around.
In 2013 I will try to keep a check on this “playing”. These “thrill-seeking” trades sometimes bring in big profits, but they also accumulate big losses, and over the long-term, they cost me money.
9. I will not hide from my mistakes – I will learn from them.
If I don’t confront my trading errors and weaknesses, I’ll never improve as a trader. The nature of the markets is that they are unpredictable, therefore I will inevitably get it wrong some of the time.
I will keep a record of the mistakes that I make. I will not hide that record at the back of the drawer and never look at it. I will take it out and read it – however painful this is!
The very worst way to hide from my losses is by letting them run – in the belief that it isn’t a loss until I’ve closed the trade! This is how small losses turn into large ones. I must remember, there is no shame in being wrong – getting it wrong is all part of trading.
10. I will not think that I am clever.
The best trading strategies are simple, but disciplined. When I think I’m being smart, I’m usually trying to second guess the markets – this is a fool’s errand, because no one knows what the markets will do.
Stop thinking – start looking and watching.
I must not think that making my trading system ever more complex will make it more successful – no technical analysis is infallible – every trading signal will have times when it’s wrong because trading is not an exact science. Accept this and make my strategies workable and practical – aim for profitability, not perfection.