Trader Lesson: How to Avoid the 90-90-90 Scenario
09/21/2017 5:37 am EST
Here are eight specific things you have to think about and understand to prosper as a trader. CBOT veteran Jeff Wecker shares many other ideas for swing trading and day trading. Look for more Trading Lessons every Friday on MoneyShow.com.
You don’t want to be a part of that club…the 90% of retail traders who lose 90% of their money in 90 days. You can avoid it but you have to think differently than the crowd.
First, realize that you are not in this business to trade; you are in it to make money. And to do that you need patience. In fact, I would say that lack of patience is the number one problem of traders who come to me for coaching, and we always solve that before we move on.
Now, to survive and prosper as a trader, here are some specific things you have to think about and understand, otherwise you're likely to become just grist for the mill:
1. Do you use wide stops (30-100 ticks)? If so, you’re just making the brokers rich and guaranteeing losses on your part. After all, the market always trades towards the stops. How else will it shake out all the weak players before making the real move.? Using the right techniques, you can learn to enter swing and long-term trades with no more than 15 pips of risk. Now with a technique like that, you are probably going to lose on 5 out of six trades but 1 out of 6 is going to net you 300-900 ticks. The trick, of course, is to be able to pick the right ”flash” points” to enter the market.
2. Statistics show there are certain times to fade various chart formations, oscillators and other technicals. There's tremendous money to be made here. Why?. Because all of those who trade standard formations will be scrambling to get out when they fail, and they'll help push the market in your direction and fast.
3. Do you know when to reverse your position? Since the market loves to catch everyone going the wrong way, this is a great and highly profitable tactic, but you have to know how and when to do it.
4. How do you handle your swing and long-term trades? Do you try to trade in and out of them or leave them alone? Statistics show you which works best.
5. On your day trades, how do you ensure you have the least number of contracts on when the market turns? How do you feed your winners out to the market?
6. Do you know the exact differences in accuracy between the various time-lapse charts? In other words, looking at all the charts from a tick chart to monthlies, which ones are the most and least reliable when applying various studies and formations? Which ones can you fade?
7. And here’s one of the most important things that my students learn: how to make a plan. One of the big causes of trader failure is lack of or loss of confidence which basically comes from not having a plan. It’s the plan that keeps you from panicking, from hanging onto losers, and taking profits too quickly. And finally, it’s the plan that prevents you from making the same mistakes that have hurt you over and over again in the past.
8. Additionally, I encourage the traders I coach to: Trade less. Earn more. They learn to understand that it’s better to make 20 ticks with 95% certainty than to try to make 100 ticks with only a 10% certainty. And in this way, you keep your liquidity costs low and add to your earnings at the end of the year.
Personally, I have always focused on catching the biggest swing and long-term trades with the lowest risk and therefore the best risk/reward ratios. Real fortunes are made with low-risk entry and then having methods to stay in the winners.
You can learn how to do these things in either private Skype sessions or in our international Skype roundtable: Currencies, Coffee, and Croissants (CCC). This is a group of international traders and bankers (open to all) who meet and discuss trades on Skype 24/7. Members drop in and leave as their schedule permits.