Introduction
In this post, we shall be looking at longevity in trading financial markets such as the forex, commodities, futures, stocks and similar markets. Whether you have been in the market for a week, month, year or even 10 years, this post could come in handy for you.
The blog looks at the importance of staying long (longevity) in the markets, and how that can be attained by following four, clear and simple steps.
What is longevity in the markets, and why does it matter?
The Oxford Dictionary of longevity is “long life, the fact of lasting a long time”. During the formative stages of a beginner trader, one is usually highly motivated and excited by the enormous opportunity presented to them, which has a huge potential for generating wealth.
Motivation and excitement can be a double-edged sword, which on the one hand make one to want to do learn how to trade with view to making money; while on the other hand could render one susceptible to the “demon” of instant gratification and possible low levels of endurance in the process of learning how to trade.
When one finds the learning process challenging, or the actual application of the lessons learned in trading petrifying, one could end up either incorrectly implementing the learned lessons and the strategies, or not implementing them at all.
It is especially during drawdown times that one needs to remain resolute, and soldier on in the journey of trading. Not easy right? I know!
It is thus very important to learn “tricks of the trade” with view to enhancing the probability of staying for a long time in the market, and making tons of money of course!
How does one achieve longevity in trading financial markets?
Step 1: Find a trading system with proven winning edge
As there are many trading systems and strategies, it is crucial to find one system that has a winning edge’ wherein the winning trades outnumber the losing trades in a given period of time. The entire learning process aims to produce an outcome where one finds a suitable system with a winning edge.
Step 2: Manage your risk
Trading financial markets naturally comes with the risk of loss of money which can be quite uncomfortable, frustrating and discouraging. Managing risk entails defining a level in the market where one decides to exit a losing trade.
This level is usually an integral part of the trading system that one adopts in step 1 above, and it is at this level where one knows they were wrong in their analysis of the market direction given a certain time period. The amount of risk is usually limited to 2% (per trade) of the total capital invested.
Step 3: Trading psychology
This aspect of trading involves personality traits such as patience, resilience, greed, fear, confidence and such other traits. The previous two steps, if done properly; will enhance the positive traits of a trader’s psychology.
For instance, if one manages their risk properly, the trait of fear when trading becomes minimized. If one has a system that has a good winning edge, the trait of resilience during drawdown period is positively enhanced. And if on the other hand, one does not manage risk properly, fear could become the order of the day each time one takes a trade. I have found literature on trading psychology very helpful in this regard. Books such as “Bullet Proof Trader” by Steve Ward or “The Disciplined Trader” by Mark Douglas can be quite a good investment.
Step 4: Commitment
Remain committed to step 1 through 3 above!
As mentioned elsewhere in this document, motivation and excitement are transient and therefore short lived. That’s where commitment is required.
Tips for longevity in the markets
· Be patient with yourself during the learning process.
· Never stop learning
· Do not be an island, find trading mates
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