How to improve your trading results
Become a one-trick pony
A jack of all trades is usually a master of none, and all seasoned traders, sooner or later, realize that consistent results require a high level of focus. If you are dabbling in a variety of assets, or employ several trading strategies to plan your entries, your performance is probably not as consistent as you would like and this can be remedied by simply narrowing your focus and mastering a single trading strategy or asset.
Find a trading strategy that you understand perfectly and commit to a single financial instrument that you believe favors your strategy the most. Eventually, you will learn how to interpret the price movements and identify the most favorable opportunities that complement your trading strategy.
Spend more time learning and less time trading
Volatile financial markets such as currency pairs and commodities enjoy the most trading volume because large price movements take place daily and traders can take advantage of these fluctuations by simply opening a trade.
However, making accurate predictions regarding the market’s direction is not as easy as it seems, and most traders fail to invest the time to learn about what makes the price move in a certain direction. Instead, they position themselves without a clear trading plan and without properly assessing the underlying risk and end up overtrading and risking more than they can afford to lose.
This is highly counterproductive, especially when you consider that access to high quality education is freely available through a number of reputable online sources and the majority of regulated brokers offer some form of free learning materials to all clients.
Therefore, if you have a hard time achieving consistent results, it’s highly recommended that you don’t waste your time looking for the next opportunity that may come up and instead focus on how you can improve your understanding of the market you are trading as well as how to minimize your risk exposure.
Past results are not an indication of future performance
Some traders look at a price chart and believe that recent trends or old patterns are likely to continue indefinitely or resurface in the future. While they may prove to be correct, some of the time, this is not a way to achieve consistency. Market sentiment can change rapidly, and an uptrend can shift to a downtrend without warning or reason.
If you are simply trading off what the recent price action is telling you, you are ignoring the bigger picture and the overall market direction. Also, price data can often tell a different story depending on what timeframe you are watching.
Be more conservative, but don’t miss opportunities
If you aim to eliminate your downside risk in the markets completely, then you are likely to be disappointed as well as miss a lot of great opportunities to take your trading to the next level.
While it’s impossible to take advantage of every favorable movement in the market, if you avoid trading a good setup because it doesn’t meet all the criteria of your risk management strategy, you are likely to miss out on some great opportunities to grow your account.
With proper stops and position sizing, you can always make sure that you don’t risk a large percentage of your trading account balance, but not taking a trade at all sometimes is much worse than losing that 2-3% of your equity.
Tighten up your stops and profit targets
One of the most common reasons that traders lose out on trades is because they fail to make their exit on time. Even though their initial assessment is correct, and the market moved according to their predictions, most of the time, the price can shift direction at the last minute before hitting the profit target.
This can be beyond frustrating when it happens, but nevertheless, it’s a common occurrence and sometimes you need to either lower your expectations and if need be, close out your trades manually – a few pips before your target to guarantee a profitable exit.
Trade popular markets
A forex trading account usually gives you access to much more than just the currency pairs. Commodities such as gold and oil, as well as stocks and indices are quite popular among traders and therefore available on most major brokers’ offering.
However, there are hundreds if not thousands of assets in these markets available to trade and while most of them can prove to be profitable for traders, the truth is that you have much better chances at success by trading just the major, or most popular ones.
This is because of how important market liquidity and trading volume are in creating the best trading conditions for your trading. In the currency markets, major currency pairs such as the EUR/USD and GBP/USD are the ones that are traded the most and consequently are the most competitive.
Therefore, trading these major currency pairs allows traders to trade with lower spreads, minimizing their trading costs as well as making their profit targets easier to hit. The deep liquidity also helps by providing better execution times and higher probability of getting the order filled at the requested price and avoid slippage and requotes.
As such, there is little reason to pivot into less liquid and even more volatile currency pairs. Most experienced traders and institutional traders focus solely on these markets and you should be doing the same.
Sign up for an account with CM Trading to gain access to the most advanced trading tools and tutorials and the best trading conditions available in the industry.
Register here to get started!