Learning to trade forex and futures – random thoughts

Here are a few of the lessons that I have learned the hard way in my career. Hopefully I can save you the effort and losses of having to learn them from scratch yourselves.

Do not concern yourself about whether this trade was a winner or a loser it is just one trade in a long series of trades.  Concentrate on implementing the plan correctly rather than worrying about individual outcomes. Always think in terms of probabilities i.e. if I repeat this action 100 times will I be making money or losing money. Trading is all about managing and exploiting probabilities. On any single trade you can do everything  “right” and still lose money but if you followed your plan then it was not a bad trade. None of us can be right 100% of the time

Always start your market analysis by determining the trend of the market. It is much easier to make money trading with the trend than against the trend. The best trading opportunities occur when you’re trading with the trend and better still when the short, medium and long-term trends are all confirming each other by heading in the same direction.

K.I.S.S – Keep It Simple Stupid. The simple stuff works whilst the complicated stuff often just confuses. The best systems are the simplest systems. There is generally a direct relationship between the number of rules used in a strategy and the likelihood of it failing in the future. Using just a few parameters will produce a robust system. Using too many parameters will produce an unstable over optimised system –  system robustness is generally  inversely proportional to the number of degrees of freedom in the system.

Trade only strategies that you have first proved to work by forward testing either by  paper trading or using a demo account. Purchased strategies rarely if ever live up to the hype so they must be tested before being traded. Strategies you build yourself are often accidentally fitted to historical data and this only becomes apparent when you forward test on new data.

Standing aside or being flat the market is a position of itself and often times a very good one !   Much of the time markets are difficult to trade and the wise trader will wait for the opportunities that favour him before entering trades. Like a good army commander we should always carefully select a time and place to have the next battle where the odds clearly favour us.

Spend time analysing your losses. Each of these losses would have cost you a lot of money at least make sure you learn any necessary lessons. Most traders are too frustrated and angry and disappointed with a losing trade to sit back and logically analyse where they may have gone wrong or what they could have done differently. Success in trading is a process not an instant destination. We all keep having to learn new lessons and taking small steps forward. Those that keep improving their game step-by-step  will eventually succeed. As that old saying goes “insanity is doing what you have always done but somehow expecting a different result to occur”. We must keep modifying our  behaviour and trying new techniques until we have  honed our skills to the degree that we can  make consistent profits.