For most traders, trading is all about pulling up their charts and some currency instruments and trading as and when their trading system signals a buy or a sell. Confront a trader in and most cases, they will vehemently defend their trading patterns. Comments such as “I don’t read the fundamentals because price already discounts it” or “I am an intraday trader so I don’t bother much with the weekly charts” are some of the common comments one can come across.
But does it really help in increasing your bottom line P/L? Here are five habits that every aspiring trader who wants to be successful in their trading should follow.
1. The Big Picture
We live in an increasing interconnected world today and events as far away as China tend to affect the markets in the west and vice versa. If you deny these facts, then probably a brief lesson in the financial markets history is on the cards. Remember the famed ‘taper tantrum’ most recently and how it affected the emerging markets?
A good trader usually starts their day by taking a look at the day’s events and a recap of the previous day and what’s been happening across the markets on the other side of the pond.
This doesn’t mean that traders need to subscribe to a Wall Street Journal subscription, but a simple Google news search can help keep you abreast of the latest developments.
2. The Charts
Whether you are a swing trader or scalping off the 10 or 5 minute charts, it always helps to spend just a bit of time to scan through the monthly, weekly and daily charts to understand that context in price action.
True, you might get lucky with some long positions on a 5 minute chart while the weekly chart printed a bearish engulfing, but remember that this doesn’t always work out. By keeping an eye on the larger timeframes, it helps to visually build a case and perhaps even gain a better understanding on whats happening on the lower time frame charts.
3. Balanced Risk
Got too many positions exposed to the USD? You might want to re-balance your exposure to a single currency. A sudden unscheduled news event is all it takes to wreck havoc with your trading equity and one doesn’t have to look too far than the SNBomb which devastated both traders and brokers regardless.
Trading or having a balanced exposure against a few currencies helps to maintain your trading equity so that any such black swan events or even an unwarranted comment from a Central Banker will protect your bottom line equity against wild market swings
4. Book profits at regular intervals
It is said to let your winners run. But that doesn’t mean you have to keep your position open all the time. Booking partial profits ensures that you take some profits consistently from the markets whenever the situation is right. It also helps traders in managing their trades better. It doesn’t matter if you are left with just 0.01 lots running as your final position. Money is money and when the market gives you an opportunity to book profits, do it without hesitation
5. Trade what you see, not what you feel
Quite often traders end up cutting their winning positions by closing out too early or allowing their losers to run because of what they feel. This could be either based on their gut feel or even a mere passing remark on a forum by another trader. No matter the noise that a trader comes across in these days of social media saturation, the fact remains that traders should stick to the facts and trade what their trading system or the charts tell them. Succumbing to peer social pressure, especially in trading is definitely not a trait to have.
The above five pointers are definitely not the be all guidelines for successful traders but at the very least, they do offer some starting point for traders, especially those who are struggling to make consistent profits.