Imagine that you went outside in the winter in a warm hat, a good jacket, and quite reasonable mittens, but barefoot. Or in high winter boots and everything else, but without a coat. Such forgetfulness will not please you.
In professional trading, the same thing. If you have come to the international financial market seriously and permanently, you need to take care of a comprehensive approach to the activities from which you plan to make a profit. Focusing on the details, we often forget about the whole. What is the use if you have chosen an excellent entry point, but do not know how to accompany the transaction and exit from it in time? In the long run, such a trader will inevitably fail, no matter how grand entry points he has.
Or suppose that everything is in order not only with inputs, but also with support (timely "topping up" or vice versa - fractional closing of laws), but you do not pay attention to risk management. A collapse awaits you in the future. The most beautiful trading system will ruin you if you open, for example, with a volume of 0.5 lots, having a deposit of $ 1,000.
Consider the components of successful trading:
- risk management
- trading system
- Just note that one without the other loses all meaning.
Trading is a constant struggle with your passions, especially greed and fear. Wrong actions on the market are just expressions of these passions. For example, you opened a long position on EURUSD, and the price powerfully went down by 1,000 ticks. Losses are growing every minute. Greed, in this case, is expressed in an unwillingness to accept losses.
Another example: the same long position on EURUSD, but the price is going well in your direction, profit is increasing before our eyes. But here comes a small pullback, the profit decreases slightly, and the trader closes the deal after 200 ticks, comforting himself with the saying "Better a bird in the hands ...". And the price after that goes up for another two weeks. Such behavior is a manifestation of fear. Fear of losing profits.
A greedy or cowardly trader will not succeed in the market. By the way, to distinguish a professional from a beginner is extremely simple: look at the statement for a minute. Many small profitable trades (suppression of profit) and a lower number of large unprofitable ones (letting losses grow) are not a professional in front of you. Test yourself right now.
As already mentioned, the best trading strategy will ruin you if you violate the principles of risk management. Conversely, an insufficient lot size (for example, 0.01 with a deposit of $ 10,000) will not bring you the desired profit. We need a middle ground, which is determined only experimentally, about your trading system. Better on a demo account, do not risk real money unnecessarily.
Trading System (TS)
Many consider this component the most important, but we hold a slightly different point of view. We repeat (it definitely won't be superfluous): the trading system works only in combination with other components. By analogy with a car: A vehicle is an engine. It can be excellent in all respects, but if you continuously violate the rules of the road (in our case, risk management). You won't have to ride for a long time - an accident is inevitable. Or the engine is in order, but the gas tank (deposit) is empty, there are no available funds. Account management is lost - you won't leave anywhere.
And again: even a profitable trading system will not work if there is a discipline violation. A well-known person in the world of finance, Richard Dennis (who managed to "disperse" $ 400 of initial capital to $ 200,000,000), said that he could print his trading rules in a newspaper - they are so simple. The question is that no one will abide by them; the majority will not have enough discipline. We agree with this statement.
We are all, or at least have, experience in employment. And if you dig a little deeper, almost the whole life of a modern person - a kindergarten, school, institute, work - takes place in conditions when someone else is watching our discipline. The teacher or boss, it doesn't matter. We are in a hurry to work by 09:00 not because we chose this time as optimal for the start of the working day, but because these are the requirements for which they may be asked to fail. Or did not have time to complete the task on time, the authorities will remind.
And suddenly, a person finds himself in a completely different environment; trading is complete independence. And full responsibility for everything. Nobody cares if you stop your losses or not. Everyone is indifferent if you allow your profit to grow. It is your money.
And many traders "stumble" precisely on the lack of self-discipline.
Set real goals. For a private trader with limited capital of 5-10% per month - this is a success that few achieve. For example, in the West, managers of significant hedge funds (together with investors) are merely happy when they earn 25% per annum.
Experiment constantly. If your trading system makes a profit and the drawdown is within acceptable limits (focus on 30%, everything above is a signal of problems), try to increase the lot size slightly. The reduction went up - hang up, return to the previous value.
Your trading system is not a frozen monolith, but an improved continuously weapon with which you make a profit like a hunter in the woods. Make a habit (say, once a week), being in a calm state of mind, analyze your TS. Remove that which does not work. Use the noticed patterns of market behavior.