There are some nuisances that come with trading that might make your trading journey hard, and it might be better to accept rather than trying to fight it. If you can’t accept the fact that anything can happen in a market for instance, I do believe that you’ll find your journey in trading might come with some struggles – that’s more so than the other traders who do accept it – and the sooner you accept it, the easier you might make said journey.
I wrote the above first because it applies to all traders and it just means that no one can predict with 100% certainty what will / can happen next in a market. No matter how profitable a system might be and how great it’s predictiveness; markets have so many variables going into it that determines its supply and demand and in turn influences its trends (up / down, big up / sharply down, sideways), its volatility (low / high), flash crashes, market crashes and much more. On a macro level, this is because of different forces influencing supply and demand like politics, wars, pandemics (COVID – most recent), a global economy (think about the trade wars which also ties in with politics) etc. That was just on a macro level, but there are also many forces in play on a micro level for each instrument on each specific market at any time. So, we as traders have to accept that we can’t predict what will happen next in a market and the sooner we do, the easier our trading journey will become.
The above can be very frustrating to the trader that believes there is a trading strategy out there with 100 % success rate, or one that gives consistent trading profits on a daily / weekly / monthly / yearly basis. Of course this trader would always be strategy hopping and in the end will be much better off just sticking to a trading plan on a consistent basis. So markets are unpredictable and trying to execute your trading strategy on markets in a consistent manner is not so easy but it is something every trader should accept in order to make trading easier. But there are also different components of your trading strategy / plan that each come with its own set of nuisances / drawbacks that might be better to just accept and which iI would like to make you aware of – and that’s coming up next.
I will be breaking down the general components of a trading plan / strategy next. I will try to give some examples of how things might be difficult to deal with and might be better to just accept. In its simplest form, a trading plan / strategy will normally have three requirements which is an entry, profit level and stop loss level which I will draw from in the following sections.
For the entry method I will use the limit order as an example. Many traders use limit orders to enter the market because this way let’s them set the price for where they want to enter the market. The most common reason they do this is to achieve a better risk to reward ratio. The problem that a trader will encounter with the limit order is that orders will not be filled, hence trades will be missed. Worse is that the trade that was missed might go straight to the profit target and the next trade will be filled but might end up being a loss. Just as with limit orders, market and stop (buy and sell stops) orders have their own sets of difficulties to deal with as traders. My point is whatever order you choose – based on your testing – as part of your trading plan to enter the market will pose the trader with some drawbacks to deal with, but whichever one you choose, it might be better to accept it as part of the trading game to make your trading journey easier.
Now let’s take a look at profit targets. There are different ways to manage a trade, but for the sake of this post, I’m going to use the set and forget strategy. With the set and forget strategy you enter a trade, set your stop loss and profit target then “forget” about the trade; that is to say you wait till either you are stopped out or your profit target is reached. It goes without saying that it will be a real bummer if you got stopped out on a trade and upon further inspection you find out that your profit target was almost reached before the trade turned again. Again, there are many ways of managing a trade, but all of them have drawbacks just like with the set and forget strategy. Your job is -based on your testing – to implement it and see it as a part of the game with its drawbacks as all the other methods will also have their own drawbacks.
With selecting your stop loss method as part of your trading plan, I can give examples as I did above like what are the drawbacks with wide stop losses, tight stop losses or the ones in between? In the end you are going to have to read up more on what the different drawbacks are, backtest different ones, pick and implement one and then accept your outcomes as a part of your trading plan.
I’m not saying that once all your backtesting is done and you start implementing your trading plan / strategy you just need to accept all outcomes blindly and just keep executing your plan…a trading plan / strategy must be monitored (please keep a journal) and after you have enough trades (large enough sample) you can check if a modification is needed (but most of the time it will not be the strategy, but the trader that need to work on him / herself). All I am trying to say is that as part of your trading plan you will have a way to enter, set profit targets and stop loss levels and that all of them have drawbacks. It is up to you to test your strategy and once you implement it that you don’t judge methods for entering and exiting from one, two or just a couple of trades. To put it another way; it might be better to just accept these trading nuisances (or at least try to accept it) as from my experience the alternative comes with a whole lot of frustration, swearing, being moody, stress and fear (i’m not mentioning it all here, but you get the picture); accepting it might not eliminate these nuisances but at the very least it might reduce it.
Regards,
Trading SOS SOS