How to Make More Money by Trading Less

11/28/2012 6:00 am EST

Focus: TRADING

Nial Fuller

Founder, Learn To Trade The Market

While it may appear to be counter-intuitive, Nial Fuller of Learn To Trade The Market shows why trading less can actually result in more gains.

Celebration ArmsDo you find that you are spending increasing amounts of time analyzing the markets and checking on your trades but you are still losing money, or even losing more money than you were before? Are you disappointed by your lack of progress as a trader even though you have bought tons of books and taken five different trading courses? If so, you’ll want to read this lesson, because I am going to explain how you can actually make more money over the long-run by trading far less than you probably are right now.

Reading economic news reports is not doing your trading any good

As you probably know already, the reason why traders lose money is because they become emotional while trading. This causes them to do illogical things like moving their stops further from their entry, not taking large profits when they are available in hopes of even bigger profits, closing out a perfectly good trade only because it moves against them a little bit, and many other less than logical things.

One big reason traders become emotional as they trade is because they get stuck in a cycle of trying to “figure” out what is going to happen next by analyzing the heaps of economic variables that affect the markets each day. The truth is that trying to analyze and make use of all the different economic news reports and other variables that affect a market on any given day, is just lunacy. When you sit at your computer for hours trying to find something to confirm your trade, you will probably find it, and you will also probably find something to invalidate your trade if you look long enough. While the Internet is amazing, it also floods our brains with more data than we can possibly make use of at any given time. So, it’s far better to just follow your trading system or strategy and ignore all the thousands of pieces of economic data that can affect the market each day.

FactUltimately, all of these economic variables get filtered through the human brain or through some computerized trading system, either way; their end effect on the market will be displayed via the price action on a raw price chart. Therefore, why would you spend hours upon hours at your computer trying to “figure” out what is going to happen next when you can simply follow the clues offered by a market’s price action?

It’s a FACT that trading less makes you more money

In a recent article from MarketWatch, Paul B. Farrell stated that “Finance professors Terrance Odean and Brad Barber did some long-term research on both American and China investors. Conclusion: The “more you trade the less you earn.” Yes, returns for buy-and-hold investors are a third higher than heavy traders…,”

NEXT PAGE: The Five-Step Program to Trading Less for More Gains

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Now, WHY do you think that is? If you think about it for a while, it’s pretty obvious. People have a natural tendency to find patterns in the markets that aren’t really meaningful, and the more time they spend in front of their charts the more temptation they have to trade. People make up all sorts of reasons to trade, and sometimes they don’t have a reason, they just want to trade. The point is that the less time you spend “trying” to find a trade the easier it will be to avoid emotional trading. Also, the less time you spend analyzing and watching your trades after they are live, the easier it will be to avoid messing them up by moving your stops around, closing them out prematurely, or not taking profits when you should.

What you need to do is this:

  • Master an effective yet simple forex trading strategy.

  • Build a trading plan around it.

  • Trade when your trading edge is present.

  • Do not trade when your edge is not present.

  • Follow your plan and don’t intervene in your trades in most cases.

Stop trying to control the market or force your will upon it; you aren’t going to cause the market to change direction just because you want it to change. You are most objective and clear-thinking before you enter a trade and when you are away from the market while you have a live trade on. There are few instances where meddling in your trades after they are live is the best decision. Over the long-run, it pays to not meddle in your trades, because while you may cut a few would-be losers a bit shorter, you’re also going to prematurely cut off a lot of would-be winners. The emotional storm that you will induce from meddling in your trades all the time will also work to further destroy your trading mindset and hurt your trading account.

Set and Forget

It helps to accept that you will have losing trades from the early going, don’t try to avoid them, just accept them and contain them by never risking more than you are OK with losing. If a trade moves against you, you should not do anything, you should usually just let the trade hit your stop loss for a loss or turn back around in your favor. There are some instances when this is not the case, but it takes a skilled discretionary price action trading eye to know when it’s worth manually closing out a trade, and usually it’s better to just take your predetermined loss since you really never know FOR SURE if a trade will turn back around in your favor or not

I teach and trade with “set and forget” forex trading because it’s worked for me and…

The truth is that if you want to make money in the markets and forge the proper trading mindset, you have to trade like you don’t know what’s going to happen next…because you really don’t know. Traders who trade like they think they “know” what is going to happen in the markets end up losing money every time. The reason is because once you start thinking you “know” what is going to happen, you begin to get a sense of false confidence that drowns out the risk of trading the markets. You also begin to think that since you “know” what’s going to happen next, it’s in your best interest to meddle in your live trades and trade more often than you should. My set and forget forex trading approach allows a trader to manage their trades in agreement with the FACT that you do not know what is going to happen next in the markets, and accepting this fact and trading in line with it is the only way to make consistent money in the markets.

Nial Fuller is CEO and founder of Learn To Trade The Market, the Web’s foremost forex trading education community. The Learn To Trade The Market Price Action Forex Trading community has become a vital education resource for aspiring traders.

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