Posted by: Bevan | June 14, 2009

Reality Bites

As I look back on the past couple of months I’m delighted to say it is with satisfaction.  Unusual you might say if you glanced at my equity curve and saw a 6% loss for the month.  However the past few months have been winning months in the sense that I have been trading as a winning trader.  Even my loss this month has been contained and I have successfully halted trading for the rest of the month with no temptation to ‘dabble’ or ‘make up losses’ so far.  This is unusual for me as one of the flaws I identified in myself a few months ago when I assessed my objectives was my need for action.  You get what you want out of the markets, and frankly these days I’d rather have profits and a smoother equity curve that might place me in the advantageous position of being able to manage other people’s money, rather than excitement.

I feel that all the good advise I’ve been hammering into my head in an attempt to imprint the mindset of a successful trader has made some progress.  May ended up being a 13% month which I was delighted with.  Even then I didn’t follow my plan 100% accurately – there was a trade I didn’t take in Short Sterling after a few losses in that market which would have substantially increased that figure – another lesson learnt.  Some reading this, especially new traders, might sneeze at that return, especially if they’ve been reading internet marketing trading gurus such as Knowledge Into Action who create an expectation of 94% accuracy and £1000s a week in profits.  I think one of the factors that drives new (and old but unsuccessful) traders to the wall is unrealistic expectations.  Find yourself a nice spreadsheet that will work out compounding profits and you’ll realise that if you contribute capital regularly 5% returns per  month will have you financially free in a few years with a good sized (six figure) account that’ll let you trade for a living without stress.  Thats certainly my goal.  Will I try developing strategies that will gain more than that?  Of course but they’ll have to prove themselves well before they have any real money invested in them.

Compounding Gains

In fact I don’t see adopting a different or extra trading strategies as being the secret.  I see obtaining that extra edge coming from an even more iron-fisted adherence to discipline.  I’ve only ever seen lapses from my tradeplan cost me money, not gain it, and analysing the past its amazing what a difference two or three poorly thought out decisions make.

One of the few decent blogs I’ve managed to find which is an honest reflection of an individual trading the markets (rather than someone trying to sell a trading education course through an affiliate scheme) is ForexSpirit.  He started his blog in March 2006, initially trading a method learnt from Dirk du Toit, author of Birdwatching In Lion Country.  I think any aspiring trader would find reading this blog very educational, and I give Colin full credit for his candour.  I might discuss Dirk’s methods in the future, but I wanted to draw on a recent article by Colin called Trading Truths.  I think that all of us would find value in completing such an exercise – Van Tharp would call it identifying our beliefs about the market.  Something that jumped out at me was a statement “Is there really any advantage to taking numerous smaller trades on a daily scalping basis versus taking fewer potentially intra-day trades when all I really want to achieve is a 10-20% monthly return?”.  Now I know its important not to hold ourselves back with limiting belief’s, and many top money managers certainly should be looking for returns in this region.  Anyone though who is looking at trading for the long run with consistency and has not acheived consistent results to date should not be putting that kind of pressure on themselves.  Its unnecessary and I believe it leads to a lot of mistakes and to a false dissatisfaction with results which leads to unproductive ‘system hunting’ and a loss of focus.

Immersion in reading good, grounded trading books has been my main method for keeping on track, and building and reinforcing my set of beliefs about trading.  I have an extraordinary curiosity and desire to learn more, however the trick is to aim this knowledge at material which reinforces good habits and concentrates on the areas I can work on which will have the most productive effect.  Most trading books, and internet forums which look so attractive and which can while away so much time are focussed on the wrong areas, mainly on finding the perfect trading setup (always illustrated by a pertinant chart example!).  I’ve learnt that this is one of the least important areas to work on, and certainly I wouldn’t say my entry technique is particularly accurate on a percentage basis.  Instead I’m going to focus on optimising my mental percentages.

Advertisements

Responses

  1. […] psychological work (see this post) was largely informed by the early chapters of Van Tharp’s book Trade Your Way to Financial […]


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: