Nobody knows where the market will lead us tomorrow. Will Greece leave the Euro Zone or not, what impact will that have on the euro? Will we witness a EUR/USD parity? Nobody knows. Short of a crystal ball or a private meeting with Nostradamus, the only thing we as market participants can do is formulate our own analyses, opening our positions and exposure in the frame and manner in which we think the market will move.
Individuals naturally favor certainty, however, trading brings a big dose of uncertainty, and if you are too scared thinking about where the market is going then that means you ultimately don’t have a good back up plan, because wherever the market goes it is essential to have such contingency measures in place.
It is important as a trader to distinguish a timetable for success, i.e. will my system be profitable after six months or some other timeframe? While shorter timeframes are constantly profitable and in many cases preferred, the best strategies and portfolios are the ones that remain stable and positive at least ten months of the calendar year.
What Defines Success?
Success is measured in a variety of different ways and as traders we all are almost always successful at some juncture, using a variety of different techniques or strategies. For example, many traders have achieved remarkable success with automatic systems.
What is interesting for me is that if a trader utilizes manual techniques, he will feel that he does not believe in automated strategy, and conversely, algorithmic systems users will assert that manual trader is successful. While nobody is immune to bias, it is clear that traders of all different styles can achieve success given the latitude and scope of the FX market.
The beauty of all this is that individuals and experts alike have at their disposal, specifics, numbers and statistics of thousands of trading accounts worldwide. However, the goal remains the same: At the end of the day all we care about is the results on our accounts.
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As we explained in the first article we must be absolutely clear about what we are looking for in terms of performance.
Progressive Trading Conditions
From 2008 to the present, we have experienced almost every market condition possible, i.e. the fall of 3722 pips on EUR/USD, making it one of the most volatile years in history. As such, we can say with a backtest that we can have almost all possible scenarios already been here before.
Back in 2008 the average spread rate on EUR/GBP was around 5-6 pips + commission, however, in today’s market that spread is around 1.2 pips with commission included, which shows me that trading terms are much better today than before.
While the conditions have improved for traders, we invariably need to be sure that our strategies are profitable and this perspective we can get from tests and historical analyses. From then on, supplementing our knowledge and skills we can make our systems even better.
For example, if some strategy is only making profit one or two days in the week and on the other days on average is in negative territory, then by excluding this strategy on these non-profitable days, will give us much more money for our money being risked. Many times how we see things (what we see and what we don’t see) can have a major impact on our trading.
In addition, we can have turn our attention to some different dimensions:
- Dimension of time
- Dimension of average positive day
- Dimension of average negative day
- Dimension of the biggest winner
- Dimension of the biggest looser
- Dimension of the number of trades
All these different perspectives give us another look on the trading style and strategy which can lead to different approaches and in better results. At the end of the day we are human beings with emotions, and we care about our emotions, eying everyday results. Unfortunately, sometimes this way of thinking makes us lose long-term perspective.