I’ve spoken to a lot of traders who’ve had a tough summer in the markets, so the good news is that there’s a chill in the air … the nights are drawing in … and hopefully markets will fall back into line as the big suits get back from their summer holidays.
But for some traders who’ve been put through the mill recently, it might be too late. Some will be left feeling too shaken and bruised to get back into the markets … and some will have blown their trading funds.
The trick to ensuring that this doesn’t happen to you is to be prepared.
Trading Wisdom: A Survival Checklist
Just as the boxer in the ring knows how to take a punch, we traders have to accept that sometimes the markets will turn round and try to knock us off our feet. So we need to be ready at all times …
1. Risk management
This is without the doubt the most crucial way to keep yourself safe, whatever the trading conditions.
Never risk more than 2% on one trade. Set yourself a maximum drawdown for a day, week and month – to get a realistic idea of how much you’re prepared to lose, you need to do this before you start trading – not in the middle of a losing run, when traders will often throw good money after bad.
If you hit this maximum drawdown level, stop trading for the rest of that period. It may seem frustrating and counter-intuitive, when you want to win back your money – but, in the long term, this could save your life.
2. Understand your emotions
I could advise you to trade without emotion, but it’s just not realistic – we’re humans, not robots. And all of us will experience anger, frustration, pride, excitement, and cravings for revenge. Try to recognize these behaviours and avoid trading when they rear their ugly heads.
3. Accept responsibility for your actions
When you put your faith in a set of rules, it’s all too easy to give up responsibility for your actions. I’ve heard traders blame just about anything and everything …
“Mr Forex Guru lost me all my money because I bought his strategy just before it took a turn for the worse.”
“My broker has been deliberately hunting down my stop losses to make me lose my trades.”
“Stochastics are useless – they keep getting me into losing trades.”
While rules and discipline are essential in trading, blindly following what someone or something tells you to do is no way to take control of your financial future.
If we’re constantly placing blame for bad decisions elsewhere, then we’re not going to learn from those mistakes and put them right in the future – instead, we’ll just get angry, frustrated – and poorer!
4. Have a plan – and follow it!
Always trade with a clear set of parameters – know what the rules are for getting into a trade, for taking profits and for cutting losses.
Lots of traders have fantastic trading plans in their heads, scribbled in a book, or even plugged into a spreadsheet. But when they log onto their spread-betting account, suddenly all those great plans and intentions seem to evaporate!
5. Know when to take a step back
If at any point in your trading you feel that you’re getting “in too deep”, the best course of action is to take a break.
Not trading can be an active position to take.
The markets aren’t going anywhere – they’ll still be there next week, next month, next year.
