Thursday, 7 December 2017

If I Were Starting Again How Would I Set My Targets and Expectations With Trading?





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If I were starting over again with trading, how would I set my targets and expectations?

It can be very difficult as a beginner to know what you should be aiming for, so I am posting this as a type of roadmap. I should warn you, it is unexciting, and it follows a cautious, manageable route. It is EXACTLY what I would do. There are no expectations of wild gains or shoot from the hip ‘all or nothing’ trading (gambling). I am presuming you want to approach this as a career, with a long-term view on something that can serve you well into the future.

I am writing this in terms of day trading, as that is what I mainly do, but the content can relate to whatever type of trading you do.

We are going to start from the period when you find or build the trading plan that you want to use to move you forward. 


The First 3 to 6 Months


Everything is exciting and new. You see large moves on charts and you start to place yourself in the position of catching the bottom of the bullish surge, £50 a point all the way up, making more than you do now from a month of sitting at your desk, in less than one day.

The truth is, you don’t know shit.

I say that in the most loving way possible. I say it thinking back to myself in that initial period, imagining the huge profits as soon as I could get a grasp on support and resistance. You really, truly, do not know anything about trading during this period. The most important thing to do at this time is to learn, and to do it in a safe way.

Right now, you want to make a demo account your best friend. Your focus should be on learning the technical side of trading like the back of your hand. Find strengths and weaknesses in what you do and make adjustments accordingly.

The demo account phase should be at least 3 to 6 months. It is all about building an understanding. This is the foundation to what will come later. If your foundation is solid, it becomes easier to build. If it is half-assed and weak, everything you try to build upon it will be similarly flawed and unlikely to last.

Make yourself stand out from 90% of beginners here. Do it right at the start and do it correctly. Decide to learn and build for the future.


6 Months to a Year


Time to get moving, right? You’ve mastered this thing! Let the money start rolling in!

Well… You still don’t know shit.

Again, I say that in the most loving way possible. Too many people think that success on a demo account naturally transfers onto a live account. I have seen it countless times and sadly, nothing could be further from the truth.

On the demo account, you were learning the technical side of things. On a live account, the psychological side of trading comes crashing in like a ten-ton truck blindsiding you.

Work with minimum position size and your aim should be very simple – tread water. Over the long term (month to month), your account doesn’t need to grow. You are just trying to maintain it. Having one long period of overall breakeven.

During this time, you will make mistakes. You will make so many more than you thought possible. Demo account trader will be left wondering what the hell has happened. You will abandon your rules at the slightest breeze of difficulty and will sit back from your computer after an hour of emotional trading wondering what demon slipped into your head and took control. This is the sort of thing you are now working to get a grasp on and learn to control.

Don’t beat yourself up. Understand that you are still learning. Address the mistakes as they appear. Work every single day on ironing them out. Keep a diary of your trading day and look for the warning signs. When they appear, pounce on them with as much vigour as you can manage. This is you starting to test the foundations and it needs to be done in a thorough way. If you lie to yourself here or brush over the mistakes you make, you are again setting yourself up for failure.

Just look to maintain the account. I cannot stress this point enough. You are not looking to make huge profits here. You are still learning, this time trying to get to grips with the psychological side of things. The good part is that you have already spent long enough on demo account trading that you know what to do every step of the way. Trading responses are ingrained in you. Now you just need to learn to follow them ‘under fire’, so to speak.


Undetermined Timeframe – 3 to 6 Months of Consecutive Consistency


This part takes as long as it takes. It is important you do not rush it or try and skip a stage. If you do not make sure everything lines up properly in this period, you WILL suffer much larger losses and will likely fail as a trader.

During your initial venture into live trading when you are using minimum position sizing, look for consistency. A minimum of 3 months, preferably closer to 6. This is your signal that you are ready to move on.

The important thing in this stage is not to kid yourself. Anyone can throw together 3 months of profitability. But you are shining a spotlight on your progress and are looking for good, solid advancements.

During the months of consistency, you do not need to have all winning trades. You do not need to be making huge profits. What you are looking for is a solid ability to follow your rules. To the letter.

You didn’t move your stop 5 times to make sure you didn’t take losses.

You didn’t revenge trade to make back some money.

You didn’t take a few trades that weren’t part of your plan, ‘just because’.
Again, if you are not honest with yourself here, and instead just say to yourself, ‘I made lots of money over three months’, but that money came from poor trading, I can 100% guarantee you that you will blow your account when you move on. It may take a while to do, but it will absolutely happen.

Look for the consistency. Evaluate yourself and make sure you are happy with what you have been doing. Check your trading diary and look for the warning signs. If you see them, reset and start looking for three months of consecutive consistency once again.


Up the Account and Start the Consistency Search


Now you do know shit. You have started to prove to yourself that you can manage both the technical and the emotional side of trading. VERY few people get to this point, so well done first and foremost. Give yourself a pat on the back. I am serious. Well done. You are already ahead of the vast majority of ‘traders’ out there.

Now you start to up your risk. Instead of trading minimum position size, you can risk 1% of your account per trade, whatever that may be.

For goals, you should have a relatively modest one. I would be looking to finish the months with around 1.5% of gain on account.

That sounds boring, doesn’t it? Like a very small amount.

I don’t care. It is a realistic expectation at this stage. And as long as you continue following your rules and working hard, this is when things start to move forward in terms of monetary return.

Again, look for this to happen for three consecutive months. Again, it MUST come from good trading. If you spot poor trading in your trading diary, it is vital you correct it and once again start looking for the three consecutive months of good trading whilst returning 1.5% per month.


Next Stage


Once you have seen that consistency, then you start pushing yourself a little harder. Again, continue to risk that 1% of account on trades. But now, we are looking for between 1.5% and 3% per month return.

This may not sound difficult, but if you can do this, you are starting to see professional results. Only a minute portion of everyone who comes to trading manages this. Plenty of people throw in large returns each month, but it is always over the short term, and then they crash. You will already be up to 9 months of consecutive, solid trading when you complete this stage.

I would say on average, as a day trader, this means ending the month ‘up’ by 2 to 5 trades. It is achievable and although difficult, it doesn’t put undue stress on you. Again, you are looking for a minimum of 3 consecutive months doing this, all the time making sure you are trading well.

Final Stage 


The first thing to say here is that you do not need to follow this stage. Returning between 1.5% and 3% on your capital month to month is fantastic. However, this is exactly what I would do, so I want to keep going and be as honest as possible.

I would then increase my risk.  I would increase it to 2% of my capital per trade, rather than 1%. For me, this is still well within risk tolerances for good money management.

In terms of what I was looking for each month, it wouldn’t change at all. I would continue looking to be ‘up’ by 2 to 5 trades per month. With the increased risk, this would now equate to between 3% and 6% return per month.

Those are professional results. But it doesn’t mean I would stop trading if say I reached 6% gain on a month. On some months, you will not have a great month and will perhaps make less. On good months (usually one or two per year) everything you touch will work out and you will make much better returns. That is all part of trading and when you have one of those fantastic months, there is not really any better feeling (I know, us traders are a sad lot!)


Summary 


That is the way I would do it guys. It is the way I advise beginners to approach trading. It isn’t exciting, and it may seem protracted, but I promise you, by giving yourself time and taking the pressure off of your shoulders, you stand a much greater chance of making it in this industry. Plenty of people will ignore the advice, thinking it doesn’t make them money fast enough, and I know from experience that in a few years they will still be where they are, searching for the ‘quick fix’, not realising that the long-term approach would actually get them where they want to be.

I would say at a minimum, getting to the ‘Final Stage’ is a two-year process. It may take longer, and there is nothing wrong with that either. If you can’t learn to speak a foreign language fluently in less than two years, there is no way you can expect to master managing your money better than most of the professionals out there in less time than that.

Just remember, the time is going to pass no matter what. Your choice is to decide how much you want to have changed when you reach that future point.

I hope you’ve all had a great trading week!

James Orr