3 Lessons From Trading Experience in 2016
The year 2016 has just ended. Market movements in 2016 can be said to be rather “crowded” and in fact there are at least three important things that we can make as lessons for dealing with the forex trading market in the following years. What are you doing? Let’s start.
1. Don’t rush to “chase” big events
Volatility is indeed a “good friend” for short-term traders and in fact indeed the best time to “catch” opportunities in volatility is when there is big economic data or geopolitical news.
In 2016 alone we can see that there are a number of major events that trigger significant volatility, such as the Brexit referendum and the United States presidential election (US presidential election).
Many traders try to “guess” price movements even before the two big events are proclaimed. Those who “bet” that Britain will remain in EU membership, or those who believe that Donald Trump will not win the US presidential election, have not succeeded in making a profit. Even the “stronghold” of traders who think Donald Trump’s victory will be bad for the USD must also bow to the ground when market sentiment turns 180 degrees quickly.
The lesson that can be taken from this event is that there are times when we have to be patient to let the market turmoil subside a little before making a decision. Because there are often many opportunities to capture small corrections as the formation of a clear trend, which can last for weeks, even months.
2. Remember always: “The trend is your friend”
The phrase “the trend is your friend” – maybe – for some traders it sounds outdated, that’s probably why they tend to ignore this most basic trading concept.
Our main task as a trader is to manage risk when we are wrong. One of the implementations is to minimize losses as much as possible.Conversely, when we are right (profit), then the challenge faced is to maximize the profit and this is possible if we make transactions in line with the ongoing trend.
That’s the interesting thing about forex trading . If risk management is carried out correctly and combined with complying with the concept of “the trend is your friend”, then the potential to increase profits will far outweigh the risks.
3. Be faithful to the trading plan
Classic mistakes and always repetitive – and is a “big sin” in trading – what traders often do is “betrayal” of the trading plan that they compose themselves.
There are many things that can cause a trader to betray his own trading plan. Among them is the loss of confidence due to new losses.
You should consider each transaction as a “new beginning”, so that you can still maintain confidence. Do not let the losses experienced make you become too cautious, thus reducing the risk tolerance limit from what has been specified in the trading plan . Do not limit the potential benefits that can be generated by a strategy that is already good just because fear will experience more losses. Lowering the risk tolerance limit just because fears like this will actually make it harder for you to cover the losses that have occurred before.
There is no reason to – for example – reduce risk tolerance per transaction from 10% to 5% just because you experienced a previous loss. That should be able to enter a position of 1 lot, reduced to 0.5 lots.This is not necessary.
On the contrary, there are also many traders who then feel too confident because they only get big profits. For example, there are traders who had a big profit because they managed to get a chance from the movement of GBPUSD during the Brexit referendum. In the next transaction, because he felt angry, he became more aggressive and doubled the lot. This is dangerous because when he experiences a loss, it quickly eliminates the profits that have been obtained previously. Fatal error in risk management.
Hopefully in 2017 we can improve forex trading performance by taking lessons from the mistakes we have made in 2016.
Welcome to the new year, hopefully more success.