Products You May Like
How to make experience work for you
Practice
makes perfect. There are few axioms that are more frequently repeated than that
one. Probably because it actually works.
Trading
though is completely different beast – a bull or a bear. When trading with a
virtual balance, emotions such as fear, ego, greed and “revenge trading” are
practically non-existent. Once your money is on the line though even someone that
has months’ worth of consistent returns – could easily choke when they go live.
So how can you practice to become perfect?
Take it easy
Certain
markets such as Cryptocurrencies,
energy commodities and some currencies are extremely volatile. Although the
term carries a negative connotation, volatility can actually benefit
experienced traders and some strategies such as intraday may require some level
of volatility for a return on the investment.
BTC/USD – example of volatility
Trading
on less active markets can give you a chance to analyze and act without the
pressure of constantly fluctuating price movement. Another benefit is that less
volatile market generally moves less, so if you are the wrong side of a trade,
you stand to lose less than if you were trading on a volatile market.
Experience
Most
of the negative emotions traders experience are associated with losing.
Experience will teach most traders that losing is part of the game. To stay
viable and sustain your account, you must look at the big picture and not focus
on individual losing trades.
NZD/CAD – example of less volatility
“I bought a company in the mid-90’s called
Dexter Shoe and paid $400 million for it. And it went to zero. And I gave about
$400 million worth of Berkshire stock, which is probably now worth $400
billion. But I’ve made lots of dumb decisions. That’s part of the game.” ~ Warren
Buffet.
To prove
this point just this week even the Oracle of Omaha – Warren Buffet – lost $3.74
billion after U.S. stocks dropped for the third consecutive day. Although the amount
he lost is probably worth the budget of most small countries (or a little less
than the 3.8 billion dollars New
Zealand’s budget puts aside for capital investment), Buffet is still
worth a staggering $86.5 billion dollars. You can see how in that context,
although the losses are significant – they seem manageable.
Use your errors
Mistakes
(or losses) are an opportunity for growth and learning. This is why its important to keep a trading
journal and log all the reasons that lead you to opening a certain position,
the fundamental or technical data that informed that trade. Think of it like
athletes that watch themselves play previous games to refine their technic or
form with the purpose to become more effective competitors.
The
best boxer in history Mohamed Ali moved fast and hit hard – but was also
extremely adaptable in the ring to changing situations.
Cool down and stretch
Most
athletes know that a cool down period and stretching is an important part of
recovery and muscle building. Trading in concept isn’t that much different – if
you are hurting you should take a break.
If
you don’t you risk serious injury (to your account instead of body). Some
professional traders say that after three consecutive losses or wins they will
stop for a moment and take a walk. This can help take you out of the frame of
mind established by the series of trades and negate the potential for impulsive
trading.
If
you start feeling fear, greed or anger take over you, stand up, breath and
maybe walk away for a moment. Of course,
no matter what kind of exercises you do, partnering with the right broker is
another important part of the equation. The right broker will offer you tools
for risk management and the support necessary to gain a competitive
edge.
This
article was submitted by EasyMarkets