Think Like A Trader Blog

Monday, 4 April 2016

When I First Became Profitable

Reading Time - 4 Minutes

I used to be a super conservative trader. It was actually the way I first became profitable. I was trading my first system I developed on the FTSE 100, and as part of that I did a very large analysis of how the market moved and the best way to protect myself and my small account.

The purpose of this post is to show you that it is better to be careful, especially until you can spot the clues the market gives on whether you are witnessing a small correction or if a move is about to turn against you significantly.

So what did I do?

I should note, even thinking about this now makes me laugh! I had to be so focused on the charts and quick in my reactions. But the key point is, quite simply, that it worked!

I would enter a trade with my standard set stop and pick the VERY closest S/R area. Now this didn’t need to be a key level or even a swing high/low. It was any S/R, even an area where the market had recently stalled by two or three candles. It could even have been the tail of a candlestick.

As soon as the market touched that level (and it was within the first 5 minute candlestick on 80% of trades) I was effectively managing my trade.

After that my rules were:

At +3 I close out if the market returns to break even.
At +5 I close out if the market ticks back to +4
At +10 I close out if the market moves back to +5
At +12 I let my profits run with stop at break even.

What did this do? Well, during a trading day, I would take a few trades with small profits, a few with small losses. I would be waiting for the larger trades to make me my profit.

And… it worked. I was in profit far more than I was in negative. It built my account. But that’s not really the important part. The important part is that it helped me build discipline. It’s difficult coming out of a trade that moves against you and leaves you -2 or -3. Your mind chirps in with ‘just wait for it to go back to break even.’ But by doing it literally hundreds of times, I became good at following rules to the letter.

Now again, I’m not suggesting you use those methods yourself. They fit in with the plan I had and worked very well for me on the FTSE 100.

What it should tell you is that

1)   You can be a safe trader whilst being a profitable trader. I much preferred taking small wins and small losses at that point in my trading, waiting patiently for the larger moves to come in.
2)   Things started going well for me when I began to follow a set of well planned rules.

Now I do a lot less screen watching and am not quite so quick on the trigger! But what I still do is follow my plan.

I hope you all have a great trading week!

1 comment:

  1. Thanks for this-just a reminder AGAIN to stick with my plan! I thought it was just me, as a beginner, who when a trade I was VERY sure of, got close to my SL & I stupidly decided to move my stop loss, "JUST a FEW more pips, I'm SURE it will turn around THEN!!". Of course 9 times out of 10 that either led to a bigger loss than I'd planned on risking--or in a couple of cases I just kept chasing the thing, causing aggravation and inevitably, another loss. The ONLY time it didn't work against me I was "saved" by an unexpected news event. I've found out though that this isn't JUST a "newbie" mistake; I even "caught" an experienced "coach" doing it just yesterday! He admitted it was a mistake, that he "just got caught-up in the moment", but after he spent an hour a few days ago chewing out someone else who did it, and lecturing us about how dangerous it is; I no longer participate in his "group". There were a few other things too-but this just topped it off. I fully realize no one is perfect, it just wasn't the "group" for me. Hopefully, with more experience and as you said, doing it over & over without wandering from my strategy, I'll instill a bit more self-discipline in my trading!