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If I had a time machine, one of the things I would do is go back in time to when I first began my trading journey and tell my past self all the things I now know about trading. It would have greatly sped up my progress as a trader and significantly shortened my learning curve.
Unfortunately, there are no time machines just yet. Fortunately for you however, I can share with you the most important trading lessons I have learned over the course of 15 years of trading and analysing the markets.
Here are eight of the most important things I wish I had known when I began trading and that you can take advantage of right now…
“Over-trading” is probably a term you’ve heard before, but what exactly does it mean?
One of the biggest things I realized as I became a more experienced trader, was that in the first few years of my trading experiences I was over-trading and I didn’t even know it.
It’s extremely easy to justify trades and convince yourself that you have a sound reason behind any given trade. But, the real test of a trade is simply whether or not it meets your trading strategy and trading plan criteria. Of course, that assumes you have mastered a trading methodand you have built a trading plan from it. You need to do both of these so that you can develop some structure and routine into your trading processes and so that way you can tell whether or not you’re over-trading.
In short, over-trading is when you take any trade outside of your predefined trading strategy and trading plan. It’s a very, very easy mistake to make, especially for beginning traders, and it’s also a very, very costly one.
This piece of insight would have saved me a lot of hours of frustration and headaches. If I had known that indicators are just a gigantic waste of my time and energy, it would have significantly shortened my learning curve. So, this is your chance to shorten yours by listening to my input on this topic.
I have a good article on why you shouldn’t use indicators, but let me give you some more of my views on this…
I know indicators can seem attractive and ‘fancy’ at first, they make you feel sophisticated when someone sees them all over your computer screen, but that is about the end of their usefulness.
The trading industry and trading ‘educators’ like to package indicators and market them because they are easy to sell. Aspiring traders are very quick to fall for the scam that indicators will ‘help’ them.
It is pretty obvious if you think about it logically…all indicators are derived from price action, so analysing them gives you no advantage on the raw price action of the charts. All it does is add another variable for you to wrap your mind around and try to make sense of, and you don’t need to do that. Trading success for me came from reducing and eliminating variables, not adding them.
Sure, moving averages can quickly draw our eyes to trends and to value areas (support / resistance), but beyond a couple moving averages, I do not use any indicators. Truly, I rarely use moving averages anymore but they can be good for beginners to find trends and levels.
If you can’t read and trade based on the raw price action of the chart, you are going to be working off of second-hand data and that is obviously not ideal. I teach my members exactly the same way I trade; price action analysis with no indicators except a couple moving averages on the daily charts occasionally.
A lot of these points are interconnected. For example, over-trading is often caused by looking at small time frames, such as those below 1 hour charts. If I could go back in time, I would certainly explain to my past self the importance of trading higher time frames instead of lower time frames.
Staring at a 5 minute or even 30 minute chart is going to make you over-trade because you’re going to think you ‘see’ a bunch of potential trades that are actually just market noise. Also, there are many more signals on those short time frames that will fail, simply because those time frames aren’t as significant as higher time frames. So, you may well see a nice looking trade setup that does fit your trading plan criteria, but because it doesn’t carry much weight on a short-time frame chart, it has a higher chance of failing than a similar signal on a 4 hour or daily chart for example.
This one is big, huge in fact; traders often make the mistakes of not giving their trades the time and / or space they need to play out.
In a recent article, I discussed how good trades often take longer than we think to play out. This is true and it means we need to be more patient and take a more ‘set and forget’ approach, but we also need to give our trades more space to play out, meaning wider stop losses. I discuss the average true range in that same article I just mentioned, and how it can help you give your trades enough space so that you don’t get shaken out before they start moving in your favour.
I find that traders run into a lot of trouble because they try to ‘avoid’ losing trades. You may not even know you are doing this, but you are probably guilty of it to some degree, as I was in my early trading days.
If you are doing things like: Trading without stop losses, moving stop losses to breakeven too soon / every trade, taking small profits (less than 1R), closing out trades before they hit your stop loss at your predetermined 1R risk amount and other similar emotion-induced trading errors, YOU ARE trying to avoid losses, and that is the wrong approach my friend.
Simply put, losses are a part of trading, and you have to lose to win, so to speak. The key is to make sure that the losses you take are a normal part of your trading edge. Meaning, you are taking good trades that meet your trading strategy criteria, and the losses you have are just good trades that don’t work out, as every trading method has.
The losses you can and should avoid, are the ones that come from over-trading and not trading your plan and sticking or you method. Those losses are ‘bad losses’, not the normal losses I just mentioned, and you should try to avoid them. Just remember that some losses are normal and cannot be avoided even if you are trading with discipline and patience. This is why you always must manage your risk properly.
Simplifying your trading approach from your charts all the way down to your trading office is a big piece of insight I would have told my former self if I could go back in time to when I started trading.
You don’t need five computer monitors with charts plastered up in indicators and CNBC playing on the flat screen TV. Especially for the beginning trader, these things amount to little more than distractions and unnecessary variables that will cloud your thinking.
In my article on a minimalistic trading approach, I go into detail on how simplifying your trading approach and really your life, can significantly improve your trading results.
This means less trades, less time on the charts, less clutter on your screens and less clutter and confusion in your mind. All of these are cornerstones of my trading approach and a big reason why I finally became a successful trader.
I know to some of you who follow me regularly I might sound like a bit of a ‘broken record’ on this point, but it’s only because it’s so true. You simply cannot become a successful trader if you are solely or overly-focused on ‘profits’, ‘rewards’ and those big lofty trading goals that everyone obviously wants to attain.
Becoming a good trader is what makes you money in the market. To become a good trader you have to be skilled in your approach and that means developing a mastery of your trading strategy and a mastery of yourself and your behaviour in the market, if any of those are missing you will not succeed. You can only attain these things by focusing and becoming passionateabout the trading process and forgetting about the profits and rewards.
The more you focus on the process and on becoming a good trader, the more the money and profits will become attracted to you over time. However, when you are overly-focused on profits / rewards, it causes you to commit all the trading mistakes that I talk so much about like over-analysing, over-trading and over-leveraging your account, because you are trying to ‘force’ the success rather than earning it the right way.
Through my years of trading experience, I’ve realized that market analysis and trade entries can be boiled down into T.L.S. or Trend, Level, Signal.
Traders get all caught up with trying to analyse news, indicators, in using expert advisors and mechanical trading systems, when in reality, all they need to focus on is T.L.S. I teach my students in my trading courses that if you simply can get two out of three of the T.L.S. components lining up, you have the potential for a good trade entry. My point is; your trading strategy does not need to be complicated or involve news analysis, indicators or really anything outside of the market’s trend, key chart levels and price action, this how I teach my students to trade and it’s probably the biggest piece of advice I would give myself if I could travel back in time about 15 years and talk to my former self.
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