It takes many qualities to become a consistently profitable trader, with the most fundamental qualities being strong risk management skills, precise order execution capabilities, and of course, a solid understanding of how the market works. This understanding is rarely found in the realms of conventional technical analysis books and webinars. New traders learn by making and losing money in the markets on a daily basis. At Online Trading Academy, we teach our students to act and think differently about the money markets than other retail traders currently active in the markets. We guide them to emulate the most successful speculators: the institutions.
Why are institutions good at what they do? Well, for a start they treat their speculative activities as a business, and they understand that all businesses exist and grow over time by following a very simple recipe for success. That is the following:
They research and educate themselves on their market and how it behaves.
The execute their day-to-day activities by following a strict and comprehensive business plan.
They follow their rules and recognize that these rules and processes are in place to protect them.
They source their products and services at a wholesale cost.
They provide their products and services at a retail cost.
They keep their expenses and costs as low as possible and their profits high.
Now of course, there is much more flesh we could put on these bones, but in a nutshell, I think that it would be fair to say that there are few businesses in the world that don’t adhere to the above principles. Typically in most things we do in life, when we have solid guidelines and we follow them, we get the results we seek. It is during those times when we deviate from the plan that we run into trouble and tend to derail from making progress. Maybe it is because we think that we can do things better, or because we have a challenging time or set of results and want to alleviate the pain. Whatever the reason, when you have a plan of action that is working for you, it is vital to always stick to that plan and remain consistent at all times.
I personally have worked with literally thousands of students from around the world, and many of them have reached their trading goals in relatively short periods of time whereas others have taken much longer journeys to their destination. Is there a definitive explanation as to why it takes some longer than others? Well, we have to factor in that some individuals have a steeper learning curve than others, plus time is also an important factor in the equation. Some students may have plenty of time during the week to dedicate to honing their skills of analysis and work on developing their trading plans while others may only have limited time, spending just a few hours a week on their goals. However, I've noticed that consistency is a deciding factor in overall student success, and consistency is a factor that cannot be ignored. Let me explain.
On May 23 (at the time of this article's writing), I was hosting a Live Trading and Analysis session in London in the ongoing XLT (Extended Learning Track). About midway in the session, during our analysis of the setup opportunities, one of the students posted in the chat window that a buying setup approaching on the EURCHF currency pair, and the group wanted analysis. I grabbed a shot of the recording, which looked like this:
At the time, prices had been crashing in a fast fashion and approached a level where demand was objectively greater than supply, thus suggesting to us that a low-risk, high-reward trade was on offer. As is normal during the XLT session, we setup the buy and stop-loss order, which is used if the simulated trade does work out.
Literally within a few minutes, the prices dropped through our zone of demand, resulting in a very small loss. This was no big deal to us as we know that we can’t win every trade. However, as this happened, we looked to the chart for the next setup, and we found another less obvious level of demand on the chart below where we could take a second low-risk, high-reward buying opportunity. You may find it strange as to why we looked to buy this market when it fell and had already stopped us out once for a small loss. If you do, this is normal, as it can be quite a strange concept at first, especially if you don’t understand how traders make and lose money in the financial markets. We bought again because the second trade also matched our plan, and we trade our plan without emotion. The only way to attain consistency in the markets after all is by being consistent. Here is the result of the second level as it played out:
As you can see, this was a very successful buy, which gave the students an impressive risk to reward ratio and also easily negated the previous small loss on the demand level above.
While it looks easy enough to show you in this article, you must also remember that in the heat of the moment after just getting stopped out on a trade, it can be incredibly difficult to step up and take the next trade that comes along without any question or hesitation. This is just like any other business, though, isn’t it? We can’t always be certain that the work we do is going to please our boss, or when we serve a customer that they will be happy with the service. There are no guarantees in life at all, yet if we fail to be consistent in what we do, how can we ever hope to discover what works for us and what does not? Trading like other businesses requires rules, discipline, and consistency.
Editor's note: This story by Sam Evans originally appeared on Online Trading Academy
To read more from Online Trading Academy, see:
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No positions in stocks mentioned.