Let me start by clarifying the following – in our industry, the financial industry, all cases are unique and different strategies work for different types of traders but almost every market participant shares one thing in common: they want to improve their performance.
Today I’m going to share with you, possible problems that you may run into as you try to optimize your strategy and some tips on how to effectively handle those issues. I am by no means saying that you should blindly follow any strategy. As I’ve already said, every case is unique and there is no universal handbook. You trial and error until you find what works best for you.
TREAT YOUR TRADING LIKE A BUSINESS
Take a moment to go back and think of how you’ve been treating your trading. Was every trade a business transaction where you weighed the potential rewards against the potential losses, or did you just click away? If you haven’t been calculating your moves, then you may want to revaluate your stance towards the markets. To put things into perspective with a simple example, imagine you’re running a restaurant.
Your biggest fear would be not having enough customers which would ultimately result in very poor sales. If your restaurant’s total costs surpass your total revenue then you’re at a loss, or “out of the money” in trading language. Very similarly, if your losing trades outweigh your profitable trades, then consequently you’re in the minus. This example is meant to get you in the business transaction spirit. When you start strategically calculating each trade, weighing the potential cost to ‘your online trading business’ you will most probably find yourself being more cautious and perhaps even more reserved, because every losing trade would cost your business potential revenue. The aim is to keep revenue as high as possible while limiting costs and perhaps this is an accurate way to look at the markets in.
TRY TO IMPROVE YOUR CURRENT STRATEGY
I don’t think I can find any negative connotation connected to the word ‘improve.’ There’s always room for improvement, and this goes beyond trading methods and strategies. Tweaking and improving your current strategy will require plenty of data tracking, analyzing your past performance and of course as a previously mentioned, trial and error. In a nutshell, what most traders don’t like doing but it’s ultimately what makes the difference between the pros and amateurs. This goes back to one of my all-time favorite quotes by Abraham Lincoln who said, “give me six hours to chop down a tree and I will spend the first four sharpening the axe.” I’d say the philosophy when trading the financial markets is very similar.
There are many ways to improve your current methods and one of them is by making sure to implement your take profits and stop losses. In this way you can also curb some of the stress that comes with trading as you can rest assured that you will at least not zero-out. Ideally, you would only change one variable at a time. This will also make tracking your performance easier as you will know what result can be traced back to what change otherwise you might end up with a strategy that works, and you have no idea why. Of course, any changes should be implemented on sample sizes and not your entire portfolio so that you can confidently conclude that your tweak has indeed increased your returns.
Then you can implement as you see fit. Below you will find a simple infographic that demonstrates two ways of finding a profitable strategy. This of course takes time and requires effort which is usually why many traders just choose to not do it, although it’s pretty much a must.
Image courtesy of: https://www.tradeciety.com
ALL IN ALL
To conclude, the above could serve as a guide to help you develop your own, unique strategy that works for the specific assets and instruments you trade on. This is a serious industry, and if you want to trade like a professional you have to adopt the business mindset. Like I said, there’s no one thing that works for everyone so trial and error until your trader loads.
This article is for educational and informative purposes only and should not be considered as investment or trading advice.