What is your trading style ?

Anyone can trade. Let’s look at what you need to be a good trader:

Being able to make decisions and admit you are wrong- we all think we qualify on this score but when is the last time you admitted that someone else had a point? Are you in a profession that requires precision ie engineering, medicine or even accountancy? Some people should have others manage their money for them. Trading involves being wrong a lot. If you can’t live with that fact you will eventually get your head handed to you. The market is always right despite the many good reasons you had for doing a trade.

Discipline- this involves strict money management. The one thing you can control is your profit and loss. Leave stop losses. Make sure you have objectives and stick to them.

Adhere to the same time line for all your trades. If not, I guarantee that your losers will become long-term “investments”. Does selling your winners and keeping you losers sound like a recipe for success?

Have a game plan for market movements- Aim to be in a position where you are comfortable buying, selling or doing nothing. This sounds a bit bizarre and is a bit difficult to achieve on a full time basis. It should be an objective…. think- can I sleep at night? Am I comfortable with my positions? If not, take less risk. What you want to avoid is the situation we all face where you can’t buy, can’t sell but have to do something. You should try to ensure that you are not stressed out by your trading. If you are, the emotions in play will be fear, anger and greed. If you can remain emotionally objective, you will be able to capitalize on others fear and greed. Be patient, wait for opportunities you feel comfortable with. It’s ok to do nothing.

What about charting and trading “systems”? For the most part, they are ways to avoid taking the responsibilities outlined above and should be avoided by the novice. To start to things are important, prices and P+L. A chart will be a handy tool to explain why you have lost money. Believe me, if a trading system is any good, they wouldn’t be selling it to you. Don’t believe the “proof” involved in curve fitted past trading examples. Try to eliminate the noise of this negative information and focus on yourself, prices and your P+L.

Let’s try an example- you have bought a security or currency that has gone straight down. It hasn’t met your stop loss objective and then starts to go back up to your in rate. Do you hang on or do you sell? If it goes back down, you will be totally stressed for not having done anything. If it goes up, you will be upset that you were right and you didn’t capitalize. Remember keeping your reptilian brain at bay is an objective. The generic answer here is to sell half of your position. This will keep your mind clear whether it goes up or down.

Try this one for a lesson in the humility you will need to trade- You believe that you should buy something. Do the opposite and sell. Now watch how you react when it goes down – you are basically lucky. If it goes up –you were right all along do you keep the position? Chances are you will pull the trigger very quickly. Keep in mind that most of the time you will make money by being lucky, not by being skillful. Trading is about managing your luck.