You know how some people make things look easy?
They land the great job … they always have enough money for good holidays … their Facebook feed is full of happy family photos …
In trading, there are those who are always banging on about their big wins or big losses, where every day brings a new investment drama … and there are those traders who seem to sail through the ups and downs of the market, with a sense of calm.
Of course, making stuff look easy is generally hard work … but there are some simple skills that these traders employ every day that genuinely make the difference …
1. Trusting the trend
Traders who make it look easy are almost always following medium or long-term trends. This is because they know that trend following makes rational sense – look at any price chart over a reasonable period and you’ll see the power of trend following methods is undeniable.
But that level of trust requires an acceptance that we don’t know which way markets will move today, next week, next month. Successful traders accept the uncertainty of the markets, because they have made calculated risks.
2. Don’t force it
As any savvy teenager knows, you don’t want to look too keen.
But people who are drawn to trading as an income source, tend to be life’s getters … the people who aren’t happy just waiting for success to land in their laps. We want to create the perfect opportunities for profit.
Therefore, the idea of sitting back and waiting for the perfect trade set-ups can be tough for us to accept!
But those traders who make taking profits look easy are the ones who know when to say no. They’ll accept that the trend isn’t strong enough, or that the perfect entry point has passed.
So, rather than chasing after a profit, they’ll just sit on their hands. Because the reality is that more opportunities will come. Successful trend trading needs us to be patient enough to wait for confirmation of a trend, but also to accept if we’ve missed a move, and to wait for the next slice of the action.
In the same way, the successful trader won’t overplay his hand. When you do see a great set-up, keep your risk levels sensible and accept that you’re in this game for the long term.
3. Accepting failures
If your trading method goes for 50 point profits, with a 100-point stop loss, you’ll find (as long as it’s a successful system) that you will win more often than you lose. Out of 10 trades, you might win 7 of them, and lose 3 of them.
However, if you go for big profits, say with a profit target of 200 points, with a stop distance of just 50 points … you’ll find that you lose pretty often. You might lose 75% of your trades … even 79% of your trades … and still be profitable in the long run.
For many years, I traded with high win rates, preferring to take lots of small winners in return for the occasional hefty loss. However, I found that I took a fair bit of stick from other traders for this style.
Traders told me again and again that they hated those big losers, especially if two or three of them bunched together (as losing trades have a nasty habit of doing!)
So, as I’ve become more involved in longer term trend trading, I’ve began exploring the other side of the story, looking for big profits in return for small losses. And I’ve had to make peace with frequent small losing trades, while I hang on in there for the ‘big win’.
For me, the reality is that neither method is particularly comfortable! However you dress it up … losing trades suck!
But, if you can find the right balance between holding out for a win, and losses not feeling too much of a jolt, then that’s where the calm, making-it-look-easy success story lies. Your comfort zone will be personal to you, and it may take a bit of hit-and-miss to find it – but it’s definitely worthwhile.
4. Trust in your methods
Those traders who make it look easy aren’t constantly chopping and changing their trading methods. Instead, they trust in the methodology they use, being able to keep their act together through the downs, because they are confident that the ups will come.
Trust is a difficult thing to ‘learn’, but I’m not talking about a blind faith here. It comes from having an understanding of what should work, and looking through charts for confirmation that it really will work in action.
If your trust in a system is wavering, look back – has this happened in the past? How bad have drawdowns been? And has it always pulled through?
5. The more you know, the more you know you don’t know
Just as we learn to accept our failures, we also need to accept the things about the markets that are unknowable.
Despite what pundits would have you believe, we don’t know how far a trend will run They often run much further than expectations, while pundits stand on the sidelines shouting ‘bubble’, and technical indicators scream ‘overbought’ at us! The successful trader ignores these messages, and just locks in profits, while waiting for markets to keep moving upwards.
This is important for trend-following systems, as (in order to counteract those small losses), we need to ensure that our winners are substantial when they come along.
The Zen trader
I’d like to tell you that I’ve mastered all these skills, and that I always glide swan-like through the choppy waters of the markets. But there are plenty of times when I doubt myself … question my methods … and swear at my screen …
But I am a lot calmer and more confident in my trading than I was 10 years ago. I find drawdowns less stressful, and have the faith to hold on, because I’ve seen my methods work again and again.
And finally, the best secret to making it look easy is to be forgiving of our mistakes. We all make them, and sometimes they can be painful (and costly!). I’m not suggesting we forget them – learning from our errors is a vital part of improvement. But don’t waste energy giving yourself a hard time.