This is the third installment of my common sense trading tips. These tips are what the tile says, they are based on a common sense approach to trading. I firmly believe if something makes sense to you, then you will have more confidence putting it into practice in real-time trading.
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11. Treat Trading as a Business and Not a Casino
Let me state clearly that TRADING IS NOT GAMBLING. If you want to gamble go to a casino. If you want to be a trader, read the following.
If you were running a business you would deduct expenses from sales to see if you are making a profit. You would also calculate profit per sale and measure that against your overhead.
Treat trading as a business and keep a log of your trades. Calculate your average profit per winning trade, average loss per losing trade, and percentage of winners vs. losers. If this does not produce a profit or a profit not worth the risk you are taking, then reassess your approach and set goals.
With limited capital, it is important that your business strategy has a formula that produces a profit or you will eventually run out of money.
I was quoted 20 years ago saying the following and it still holds true today:
Tip: “Those who treat forex trading as if they were in a casino will see the same long-term results as when they go to Las Vegas,” he says, adding: “If you treat forex trading like a business, including proper money management, you have a better chance of success.” …Newsweek International, March 15, 2004
12. Remove the Word HOPE from your Trading Dictionary.
I have written about this on numerous occasions but it is worth reiterating as I still see traders hanging on to losing positions in the hope the market will recover. If your analysis does not support your trade cut your loss and start again.
Winning traders do not use hope in this instance of sitting on a losing trade like the majority, they have risk/money management rules that force them to get out of the losing trade.
TIP: TAKE THE WORD HOPE OUT OF YOUR TRADING DICTIONARY. IT HAS NO PLACE IN YOUR TRADING.Â
13. Beware of Widening Broker Spreads
This may sound obvious but you will be surprised how many trades get stopped out by a widening broker spread.
So, beware of brokers’ spreads widening during times of reduced liquidity and increased volatility, such as after key news events (e.g. US employment report) and when the new trading day starts.
Tip: You need to especially beware of placing stops during times when spreads may widen. During these times your stop can get triggered by a widening spread even though the actual market does not trade at your stop-out price. There is nothing more frustrating than getting stopped out when the actual price traded is not even close to where your stop was triggered.
14: Take Emotion Out of Trading
The market is mindless and not your enemy. Don’t place trades based in emotion. It has no place in your trading decision.
Don’t get caught up in the frenzy of a market move and trade just because a currency (or any instrument) feels bid or offered)
TIP: Too many traders take it personally and want to get back at the market for a loss. They then wind up repeating losing trades as they fight the market. Treat the market for what it is, a mindless entity.
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15: Treat Your Trading as a Marathon and Not a Sprint
A long-time friend reminded me of one of my basic principles of trading, which is to treat trading as a marathon and not a sprint. Â He has a good memory as he wrote:
Your statement has made it into mainstream media… i am a marathon runner not a sprinter…
What does this mean?
Don’t look to make losses back in one trade and don’t look to hit the jackpot on every trade.
If you want to be in the trading game for the long haul, treat it as a marathon and pace yourself. There will be plenty of opportunities for taking a shot at a big trade but do it when your analysis suggests a good risk/reward opportunity.
In the meantime, look to build consistency and profits. On the other side, losses are part of the game so factor them into your business plan.
Tip: It requires discipline to be a marathon runner while a sprinter can get by for a while with raw speed but will not succeed without proper technique.
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Jay Meisler’s Common Sense Trading Tips – Part 1
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