Know your edge!

Warm greetings to my readers, I hope this first blog of 2012 finds you well!
 
I have been fortunate this month to have been able to put my trades on auto pilot thus enabling me to devote more time to training, coaching and presenting. The beautiful nature of trading enables you to spend literally minutes each day to manage your trades whilst freeing up time for other pursuits. The only industry I know where less time can equate to more money. A beautiful concept 🙂
 
[subscribelocker] Looking back on January and all the training I did, one thing that keeps striking me as a major stumbling block is the lack of clarity new traders have over there trading style. As a new trader (0-3 months) this is difficult as you need to trial a number of styles before finding resonance with one. However I find it surprisingly common that more relatively seasoned traders (3-18 months) still have no real distinguished understanding of their style and more importantly, the parameters of these. What this ultimately leads to is continuous disappointment when a losing streak arises and the ensuing search for the ‘holy grail’ continues.
 
As traders we lose trades. Simple as that. Not even Mr Buffett can win 100% of the time. All we need however is an ‘edge’ in our trading approach. I categorise trading styles into the following:
 
1. High Success Rate but low reward per trade.
 
2. Low Success Rate but high reward per trade.
 
No one style is better than the other, you need to become self aware and find a match between your style and your personality. When you find a fit it is then essential that you understand what the normal parameters of your style are so that you know what are normal trading results and which are not.
 
For example. I fall into bracket 2 (even though my early days I was option 1, my circumstances changed and so did my style). I know that I have a low success rate, sometimes even as low as 50%. I know that I have to encounter moderate to high drawdowns because of this. However I am absolutely confident that so long as my trading is consistent and I follow my strict rules, that my profitable trades more than cover my losing trades and give me that all important edge. I look for trades that have the potential to offer me as a minimum 2-3x’s the risk on the trade, in reward.
 
By understanding my style, and having absolute confidence in it, I don’t get despondent by losing streaks, I don’t blame the strategy, the weather, my mates. I understand that this is a normal parameter in a highly successful trading strategy and essential it ensures that my mindset is always optimum for trading. It brings me back to earlier blogs on ‘bouncebackability’ and how you must respond positively to a losing trade or run of losing trades. It comes back to ‘how strong is your mental metal’ and sticking with your system even when it let’s you down. Go back through my blogs and re-read them if you need to and you will see that they can really help provide you with a stronger trading mindset, which in my personal opining is the key item to becoming successful in trading.
 
Take time now to define your trading style. Understand which category above you fit into and then continuously remind yourself of this whenever you hit a bad patch. What you feel maybe the end of the world, is in fact just a normal drawdown period for your style and what normally occurs after a drawdown (as long as your are consistent and following your rules) is a sustained profitable period which pushes you to where you want to be.
 
I will leave you on this point, to show you how simple yet effective trading is. I took 4 trades in January. 2 winners, 2 losers. A 50% success rate, a 50% failure rate however the profitable trades produced even better rewards than I expected and enabled me to have my best month on record.
 
You can do exactly the same. Heed the advice and profit.
 
Happy trading and best regards
 
Tom
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