It takes many qualities to become a consistently profitable trader, the most fundamental being strong risk management skills, precise order execution capabilities and of course, a solid understanding of how the market really works. This understanding is rarely found in the realms of conventional technical analysis books and webinars, but rather by truly understanding how money is really made and lost in the markets on a daily basis. Here at Online Trading Academy we teach our students to act and think very differently about the money markets to most other retail traders who are currently active in the markets, guiding them to emulate the most successful speculators there are: the institutions.
Why are institutions so good at what they do you might ask? Well, for a start they treat their speculative activities as a business just like any other and they understand that all businesses exist and grow over time by following a very simple recipe for success. That is the following:
1 – They research and educate themselves on their market and how it behaves
2 – The execute their day to day activities by following a strict and comprehensive business plan
3 – They follow their rules and recognize that these rules and processes are in place to protect them
4 – They source their products and services at a wholesale cost
5 – They provide their products and services at a retail cost
6 – They keep their expenses and costs as low as possible and their profits high
Now of course there is much more flesh which we could put on these bones but in a nutshell, I think that it would be fair to say that there are very few businesses in the world which don’t adhere to the above principles. Typically in most things we do in life, when we have a set of solid guidelines and we follow them, we get the results we are looking for. It is during those times when we deviate from the plan that we run into trouble and tend to derail from the progress which was being made. 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 which 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 get 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 and time is also an important factor in the equation as well. One student may have plenty of time across the week to dedicate to honing their skills of analysis and work constantly on developing their trading plan, while another may be much more limited for available time, only being able to spend a few hours a week on their goals. However, one thing which I have noticed is the issue of consistency as a deciding factor in overall student success and this is unquestionably a factor which cannot be ignored in any way whatsoever. Let me explain.
On 23rd May of last week (at the time of writing this article) I was hosting a Live Trading and Analysis session in the ongoing XLT (Extended Learning Track). We typically run sessions throughout the week at varying times and this session was at the open of the London session at 8am UK time. About midway in the session during our analysis of the opportunities which were setting up for us, one of the students posted in the chat window that there was a buying setup approaching on the EURCHF currency pair that they were keen to get some analysis on. I grabbed a shot of the recording which looked like this:
At the time prices had been crashing down 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 where our stop loss order would be if the trade did not work out in our favor and watched it unravel in real time:
Literally within a few minutes, the prices dropped through our zone of demand, resulting in a very small loss on the trade. No big deal to us as we know that we can’t get every trade right. However, as this was happening, we then looked to the chart for the next setup and below we found another less obvious level of demand on the chart where we could take a second low risk, high potential reward buying opportunity. Now, you may find it strange as to why we were looking to buy this market when it was falling and after it had already stopped us out once for a small loss. If you do, then this is normal, as it can be quite a strange, if not alien concept at first and especially if you don’t understand how money is really made and lost in the financial markets. The reason for us buying again however, is because the second trade also matched our plan and we are trained to trade our plan without emotion. The only way to ever really attain consistency in the markets after all, is by being consistent. Here is the result of the second level as it played out:
As we 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 a stop out on a trade, it can be incredibly difficult to step up and take the next trade which 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, just like any other business requires rules, discipline and consistency – pretty much like anything else in life you can think of. I hope this was useful for you.
Happy speculating and take care,