What are some things one should be in control of when trading?
There are many methods and styles when it comes to trading but arguably all of them have a couple of things in common when you wrap your head around the key aspects that tie everything together i.e. what makes sense.
Trading is often a lonely endeavour, so it really helps to nail down some of the key details to try and succeed as much as you can, as often as you can.
Let's take a look at what some of those things are and how one can manage them better to get more out of your trading approach.
Time
More often than not, one of the things that limits retail traders is the factor of time. Not everyone has the luxury to commit or devote a massive amount of time in a day to trade and that usually creates a huge limiting factor on how one can go about trading.
That said, despite the limitations, I would argue that one should still be diligent in following up with the market meticulously otherwise you may get way in over your head.
Being able to spend less time trading or understanding what is happening in the market doesn't mean you have to sacrifice the quality of your trades.
It could likely mean you are less able to spot or capitalise on certain opportunities in the market, but your trading approach should always be consistent.
Take for example the short example in trading gold I mentioned earlier here.
To build that sort of fundamental view towards gold doesn't require too expensive a time and all you need to do is to pair it with your trading approach or technical analysis, and you can form your own trading plan on how to go about that.
While it is easy to use the excuse of less time afforded to just focus on certain areas in the market, it is something that should not be taken for granted especially if it starts to affect your trading performance if you cannot focus on the right things.
Risk Management
This is arguably one of the least talked about topics when it comes to trading, mostly because it isn't something that is labelled as 'sexy'.
Nobody likes talking about managing risk but I would say it is the most important aspect when it comes to trading.
At the end of the day, risk management is subject to each and every individual's own risk appetite. There is no "right" or "wrong" approach to it, but one should always exert caution and logic when it comes to deciding how much risk you should be taking.
A common and standard approach is one should never risk anything more than 10-20% of their capital in cumulative trades at any given point in time.
That figure differs from person to person depending on their risk profile and there might be exceptions to that from time to time as well. However, sticking with a standard approach will allow you to train up your discipline and manage your risk accordingly.
This is where stop losses come into play to limit your exposure and while it is easy to argue that a 10-20% approach seems too little and too risk averse, it is also easy to fall into that pit trap where a single trade nets you a 50-60% loss in capital if you're not careful and if you get caught on the wrong side of prevailing market conditions.
Again, there is no "right" or "wrong" approach when it comes to this but the most important thing is to not let emotions get in the way of your risk management.
Trading Psychology
Building from the last line of keeping your emotions in-check when trading, it is important to always have a level head when you go about making any decisions in the market.
It is easy to say "never ever let emotions get the better of you" but in practice, these things can be really difficult - especially in the early stages of your career.
The first few times are always the hardest to accept defeat but it is important to not react rashly and take the time to compose yourself.
There are times such as for example when the pound spiked up on the back of stronger retail sales data towards its 200-hour moving average and you're looking to fade that move because your fundamental view is for a weaker currency overall.
But yet, the market still drove price beyond that and towards the next key risk level and triggering your stop loss.
Sometimes the market does what it does and we have to accept that the best we can do is read the tea leaves and go with what seems to be the best odds of winning.
It doesn't turn out right all the time but it is important to take a step back and reevaluate, even if it is just a small trade and what not.
From the example above, there will be a temptation to short the pound again at a higher level but you have to ask yourself, how has the technical picture changed now? How has the market sentiment changed as well?
Sometimes when things just don't go your way on certain days or weeks, just take a step back and go for a run/jog or go do something else to keep your mind busy.
Don't overthink things and most importantly, never fall into the trap of getting suckered into revenge trading. Practice makes perfect. And that saying is very apt when building a strong foundation when it comes to managing your trading psychology.
Summary
Outside of the basics when it comes to trading, the aspects above are some of the key things that a trader also needs to manage and consider pretty much all the time.
If you're looking for other things to wrap your head around and looking for a better understanding on how to manage them, you can check these out:
