“The way to build long-term returns is through preservation of capital and home runs.”
– Stanley Druckenmiller
The first goal of any trader is to trade for another day. You can have the biggest trading account and you can win a bajillion pips on a single trade and they won’t mean a thing if you don’t know how to protect your capital. Aim to maximize your wins and minimize your losses and learn to manage your risk.
“I will keep cutting my position size down as I have losing trades. When I am trading poorly, I keep reducing my position size. That way, I will be trading my smallest position size when my trading is worst.”
– Paul Tudor Jones
A trade’s position size is not a one-size-fits-all slipper. A lot of times it considers the trader’s risk tolerance, his/her confidence on the trade idea, the size of the account, and the volatility of the potential trade. Learn to find your balance and make your position sizes work for you, not against you.
“I don’t think you can consistently be a winning trader if you’re banking on being right more than 50 percent of the time. You have to figure out how to make money being right only 20 to 30 percent of the time.”
– Bill Lipschutz
You don’t have to be right all the time to be profitable. Trading losses are inevitable, after all. With proper risk management and enough flexibility, you can capitalize on ideas that you WERE right about and find a way to protect your capital until you’re right again.
“Unfortunately, the more complex the system, the greater the room for error.”
– George Soros
Sometimes, slapping on a gazillion indicators only brings confusion. As long as you have a good understanding of how the forex market works and you have good trading habits, then you have all the tools you need to become consistently profitable.
“The Heisenberg principle – If something is closely observed, the odds are it is going to be altered in the process. The more a price pattern is observed by speculators the more prone you have false signals; the more the market is a product of non-speculative activity, the greater the significance of technical breakout.”
Be careful of textbook technical setups, as a lot of traders (and banks and brokers) are likely watching them too.
“No trading rules will deliver a profit 100 percent of the time.”
Losses are inevitable for traders. The best you can do is to find a system that is profitable and compatible with your trading personality. Oh, and make sure you stick to it like glue!
“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”
Don’t waste all the time you spent analyzing data and manning your charts by getting only a pip or two from your setup. Don’t be afraid to be a little more aggressive on trade ideas that you’re confident about.
“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go. In the end, what matters isn’t crossing the finish line before anybody else but just making sure that you do cross it.”
Comparing your trading progress to other traders’ is not only fruitless, it’s also counterproductive. Set your own trading goals and concentrate your efforts on meeting them. In forex trading, you must run your own race.