“Isn’t the promised reward of greater independence,
financial freedom, and life choices worth the risk?” – Louise Bedford
Anyone who says trading is easy is telling a lie. Anyone who
says success in trading isn’t possible is also telling a lie. Trading is
challenging as well as it’s rewarding. The challenges are the blessings that
awaken the trading genius in us.
Even, celebrated psychics have made accurate and failed
predictions. If I was sure I could predict the future with the utmost certainty,
I’d rather buy lotto tickets and enter my lucky numbers. Before the results
were announced, I’d start smiling to my bank because I knew I couldn’t lose! By
behaving as though we know what the market will do, we tend to think we’re very
smart, but the market is kind enough to remind us occasionally that we’re not
always smart. If you don’t forget that you’re a student of the market, that’ll
be your saving grace.
The multitude finds trading difficult, owing to some
preconceived notions. Trading is emotional, for the results of our decisions
are seen on our portfolios immediately. Because of certain preconceived
notions, inexperienced and undisciplined traders inadvertently maximize their
negativity and minimize their positivity: experienced and disciplined traders
do exactly otherwise.
Turning Losing Approaches to Winning
Approaches
How can you turn losses into profits? Your past trading
records can’t be changed but your future trading records can be satisfactory if
you determine to stop using trading approaches that bring you frequent losses
over a long period of time.
The market has symmetry: if you do something and make money,
you’d have lost if you did the opposite. For example, when you sold the AUDJPY
and lost 200 pips, that means you could’ve made a profit of 200 pips if you’d
bought it. This means you need to stop doing what brings you losses and try to
do it the other way round. Let’s give a few examples:
1.
One secret in trading is that less popular trading
instruments are more easily predicted than the popular ones. The less popular
pairs have very little noise affecting them, and tend to move in more predictable
manners. The EURAUD is thus more easily predictable than the EURUSD, since the
EURUSD is very popular and therefore, much affected by noise. It’s the noise
that causes a lot of false signals on the pair. The CHFJPY is more easily
predicted than the USDJPY. If you’re using a trend-following approach, you’ll
find that it works far better on less popular currency trading instruments.
Counter-trend methods tend to work better on popular pairs; and vice versa on
less popular pairs.
2.
If you discover that you’re more prone to making more money
on some pair(s) than the other(s), you need to concentrate on the pair(s) that
favor your trading system most.
3.
When you discover that you tend to make more money on
Forex markets than futures markets, you may want to give Forex markets some
serious thought.
4.
People who lose money by setting risk that’s much
bigger than reward would surely do themselves a big favor by reversing that:
they’ll need to set reward that’s greater than risk. That means better RRR
(like 1:2, 1:3 or more).
5.
If failure to use (optimal) stops constantly has
adverse effects on your portfolio, please try to start using (optimal) stops as
from now. The stop is not a perfect money management tool – no money management
tool is perfect – but the eventual benefit outweighs the short-term
disadvantage. That’s your life insurance in the markets.
6.
If you lose money by cutting your winners and running
your losers, you’ll start making money when you cut your losers and run your
winners.
7.
If you make more money on Monday with, say, swing
trading, then you’d want to continue doing that. Those who lose on Fridays may
want to stop trading on Fridays. If you discover that your hit rate increases
on Tuesdays, Wednesdays and Thursdays, you may want to take trading serious on
those days. If you observe that you make money the most in London session, you
may want to stop trading the Tokyo Session; and the other way round.
8.
If you lose often when you pick tops and bottoms, then
you may want to consider selling at bottoms and buying at tops. If you’ve a
strategy that loses too much (always) for long periods of time; if that strategy
loses more money in protracted losing streaks than it makes in short-term
winning streaks, then you’ll experience your breakthrough if you open opposite orders
when the strategy gives you signals, e.g., like going short when it gives a
‘buy’ signal.
Is a higher hit rate part of the solution? A gambler that
uses a system with 90% hit rate can still ruin her/his portfolio; whereas a
skilled risk manager can have a permanently satisfactory and rewarding career
with only 40% hit rate. With some effort, the hit rate can be improved or some
losing trades can be avoided by applying filter and/or staying out of a losing
streak. Indeed, one way of improving our trading results is to try to avoid
some bogus signals as well. We’ve some ways of doing this, but that’ll be the
subject of another article.
Conclusion: In
summary, the easiest way to turn consistent losing into consistent profiting is
to change your trading approaches according to principles that ensure success
in the markets. Stop doing what doesn’t work for you and embrace what works for
you. If something makes you constant loss, you’ll make money by going contrary
to it.
This article is concluded with the quote below:
“By matching the amount of risk you take with your
tolerance for risk, you can trade more calmly, and that usually means you'll
trade more profitably.” – Joe
Ross
