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6 Steps to Improve Your Trading Results
01/23/2014 6:00 am EST
Even though January is almost over, it’s not too late to put together some good habits to follow for a more profitable year, and Frank Kollar of Fibtimer.com offers his suggestions.
Most everyone makes some sort of New Year's resolution. And, most everyone fails at following them for very long. The problem with such resolutions is, they are made because you already have trouble sticking to them, so one more promise is not going to change things for very long. But if this year was different, what would your resolution be? Below is a list of suggestions.
The most important "first step" is to set realistic goals. It makes no sense to set yourself up for failure by setting a goal that it unlikely to be achieved.
Do not set a goal to reach a specific profit for the year. Those new to market timing will most likely set a profit goal of 30% to 40%. Can such profit be achieved? Of course it can, but no one knows ahead of time what kind of markets we will see in 2014, so such a resolution might very well be doomed to failure from the start
We could see a continued bull market, or even a bear market.
So here is a more realistic profit goal. One that can be followed with reasonable expectations of success.
Promise to stick to your chosen timing strategies, so that you can make as much profit as possible, given what year 2014 offers us.
This is realistic. You will make as much as you can, depending on what the markets offer us.
Sticking to the Strategy
We have said this, and written this, so many times. But it is so critical that we must again say it here.
NO ONE makes money in the markets without following a trading plan. A strategy designed to profit by using the ups and downs of the markets to determine whether you are in a bullish or bearish position.
Trading plans are what make the professionals rich. They are the difference between winning, and losing.
And if you trade a plan, you have to stick to it. The reasons you can come up with to abandon a plan cannot be counted. They are so numerous that no article could list them all. And they always feel right at the time they are made.
But there is one sign which will tell you that you are making a fatal mistake. If you are acting on emotion and making a decision other than what your followed strategy tells you to make, you are setting yourself up for disaster.
Trading plans are not just designed to keep us bullish during a bull market. That is easy. Everyone is bullish then.
Trading plans are not just designed to keep us bearish during a bear market. Again, an easy thing considering everyone will be bearish.
Trading plans are designed to keep us from making rash decisions are times when the markets are volatile, when emotions are high, when the vast majority of investors and traders are panicking and making mistakes. This is when your chosen plan will keep you safe.
So if you decide to make an emotional exit right at a crucial moment, why did you bother to use a trading plan in the first place? You will be jumping out of the frying pan and into the fire. It's up to you, but a super New Year's resolution for this year would be, "stick to the plan!"
Another great resolution would be to avoid impulsive trading.
It is not necessary to trade all the time to be profitable. What is important is to not allow any trade to become a big loser.
This takes us right back to following the trading plan. Impulsive trading is a trait that can only be stopped if you recognize it as a problem. If you are trading when your strategy has not issued a signal, you are likely being impulsive.
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Look back at all your impulsive trades of the past. How many of them turned into disasters? How many of them became big losers?
Impulsive trading puts you right in with the majority of traders, and the majority are usually wrong. They are especially wrong at times of high emotions, such as market tops, market bottoms, reactions to news events, etc.
Don't allow yourself to trade unless your trading plan tells you to. Try to relax and realize that the plan is unemotional, and allowing your emotions to rule will cost you money. The plan will not.
Winning All the Time?
Recognize that losing is a part of the game? Every successful trader takes losses. If those losses cause you to jump ship, you will then be without a plan and riding the emotional roller coaster along with everyone else.
Trading plans keep losses very small. This is what is important, not the fact that you had a loss. Trading plans also keep you "in" winning trades. The urge to take a profit is another reason why market timers act impulsively. Everyone wants to profit, but giving up a big profit to lock in a small one is one of the most common reasons for failure.
Small losses and small winners do not make you successful. Small losses and big winners do. You must stay with the winning trades.
We do not exit winning trades until the trend reverses.
Pulling The Trigger
For all those who have difficulty with being impulsive, there are also those who recognize the importance of following a trading plan, but when the signal is issued, have a great deal of trouble executing it.
If the market has rallied that day, and the signal is a bearish one, they decide to wait a day and see if it is correct. Then maybe another day, and another.
Signals are often not profitable immediately. They are often made against the prevailing sentiment. Those who procrastinate will likely find themselves on the outside looking in. If they wait for the trade to be profitable, they will have lost some of the profits for themselves.
Second guessing a buy or sell signal is a sure way to miss out on profits, or increase your risk of losses.
Spread your investments out a bit. Having several timing positions that are in different sectors brings in solid gains year after year, while limiting losses to only a portion of your investments
Select several of our timing strategies. Some aggressive, and some conservative. If any one of them under performs, you will be very happy you diversified.
You cannot know ahead of time what the markets are going to do. Anyone who promises you that "they know" is lying. Anyone who promises huge gains is lying. Any service that shows huge gains very year, with no losses is lying. Real-time is different than back testing. Back testing is always profitable. Real-time separates the hucksters from the professionals.
Promise yourself to stick with your selected timing strategies absolutely. Take every trade. Take those trades when they are supposed to be taken, not after the fact.
Do not place all your investments in any one strategy. Especially do not place it all in the most aggressive strategy just because that strategy has shown good previous gains. No one knows what the future will bring. Diversify.
Remember that life is short. Investing is important for your future, but it is not the end all. Spend time with your families. Relax and smell the roses.
By Frank Kollar, Editor, Fibtimer.com
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