The purpose of this article is to help traders gauge their progress regarding their trading skill. I know that this will help traders improve their perception of the market and chances of making profitable trades consistently. This article focuses on four signs I consider the most important differentiator between a rookie trader and a maturing trader.
#First You Manage Risk, Then You Manage Reward
So many traders in the beginning stages of their trading process decide whether to get in a trade because of the potential profit. They think, ‘a trade has a huge profit potential and it’s going to win (optimism bias) so looking at the risk doesn’t matter too much’. However, a maturing trader thinks otherwise. They look at the risk or downside of a trading before considering any profit potential. Their way of looking at a potential trading opportunity helps to minimize emotional involvement and also reduces the risk of committing only a little percentage of capital to a trade idea. In summary, a maturing trader always considers the downside of a potential trade before considering the upside.
#Following a Strategy, No More Holy Grail Searching
Another sign that dictates if you are becoming a mature trader is if you are following a good strategy and not continually searching for a holy grail. Maturing traders understands that trading is not a perfect science and all trading systems and strategies have some weaknesses in them. Therefore a maturing trader’s focus is to following a strategy with a probable 60% success rate and be willing to accept the 40% failure associated with the system or strategy. The acceptance of this phenomenon shows that a trader is indeed maturing.
#Avoiding Emotional Trading
The second sign that shows that you are becoming a mature trader is avoiding emotional trading. That means no more nervous feelings when you place your trade, no more trigger happy index fingers and no more overplaying the markets to compensate losses. Avoiding emotional trading is a difficult task to do and cannot be done by many traders. However, a trader with the ability to exhibit what has been said is indeed a maturing trader.
#Avoiding Mental Stops
A mature trader always has a fixed stop. Fixing stops is so important to any mature trader; this approach towards trading ensures safety of a traders account. I consider this very vital because having a mental stop which is contrary to a fixed stop will always result in major capital losses. For instance, a few months ago traders who had mental stops lost almost all their capital after the Swiss National Bank interest rate announcement. The SNB announcement moved the market so fast it was impossible for any trader using a mental stop to exit a trade position. Therefore ensuring the placement of stops before a trade is the sure way to go.
By Raymond Avornyo
The short answer is that you can't. No matter how hard we traders, we mere mortals try, we still cannot predict the future.
Moreover, as with many aspects of trading, there is no absolute answer.
The above being said, there are ways to determine if the probabilities on a particular trade might be skewed in my favor. In other words, I have an "edge"...
Here's what works for me...
First off, I will look at the strength of the longer term trend and the amount of room the pair has to move in the direction of my trade. If the trend is weak and there are numerous levels of support or resistance the pair has to move through, the less likely the profit target will be hit. If the target is hit, it will likely be a long and bumpy ride.
If the longer term trend is strong and there is little or no support or resistance in its path, the trade will have a greater probability that the profit target (limit) will be hi