It ‘s very simple: how many of you really have the chance to put in the time and effort to trade on short timeframes to profit from smaller market fluctuations? In order to get rich quick, of course.
Pretty much no one! Because it’s not possible, either!
If you think you can daytrade, maybe on a 15, 10 or even 5 minute timeframe, while not being in front of the computer constantly, then you are strongly mistaken.
There is no way you can follow your system in a disciplined, emotional-balanced and un-distracted manner if you are even slightly engaged in a full-time or part-time job or if you are taking care of your kids all day long.
Trading is a business. And you should treat it like one.
It doesn’t matter if you look at backtest or documentation matters, or the state of mind you need to be in when executing your strategy.
It is no different from anybody else who does business in another sector. He would go to his office in the morning and follow a work routine there. He wouldn’t even have the idea to look at his undertaking from a “This is easy and doesn’t take a lot of work, I can do business by the pool and will be rich over night.” standpoint.
Neither should you. Successful Trading is a business just like any other.
In order to succeed, you need to decide on what you want from trading. This could be making a living, gaining a little bit every month to avoid having to attend to a 9-5 job, it could also be the dream of getting rich. Maybe you need money for real estate, a car or to put your children through college. Freedom, paying back debt and so on.
Once you know what your actual goal in trading is, you can move on to look at the most important aspect of it all: the process.
When dealing with this issue you are looking at method, risk management and what your emotions are doing to you while executing and sitting through a drawdown/profit. These are the three important areas you will have to manage.
Depending on your very personality, it will become clear if you should trade a trendfollowing appraoch, fundamentals or different variations of technical analysis. You will also find out what timeframe is most suitable to your style of trading and your likes. Once you are consistent with ONE strategy and timeframe, you will automatically get in touch with you emotions – greed and fear, hope and frustration, you know, the ones you can read about everywhere. But only you can master your own psyche and then better “control” what influences your behavior when making trading desicions.
Thinking about many traders wanting to trade intraday because it seems there you can make money every day, it’s logical their every day routine will be influenced by much stress, distractions from work, everyday chores etc. While on the way to “finally making it in trading” they choose the wrong path to let their accounts grow. They meddle, are un-focused and they switch or manipulate systems all the time. It is simply impossible to seriously trade on an intraday timeframe, even if your trades are taken on an hourly basis, while attending to a work engagement. You can’t guarantee your focus, concentration, reliability of execution and documentation process. In this regard, it is similarily unrealistic to think that you could trade off of news announcements and reports while not being focused on your charts in your office or home without anything interfering. There is just no way to consistently achieve positive returns if you can’t commit 100%. At this point we haven’t even talked about the flawed logic of trading costs when it comes to daytrading. Refer to this businessinsider article for details.
Forgetting about the big picture, as Jack Schwager put it (thanks to Rayner Teo for pic!), most people are brainwashed by financial media to engage in short-term trading, that just isn’t as profitable as other approaches. So, it naturally follows that other timeframes, higher ones, require much less effort in monitoring time while being able to still trade the same strategy – simply on another timeframe.
This way you only need to do you chart work at the end of every day or every week. It is much less stressful and you are acutally able to take an hour each day just for you to analyze the markets. And then when you are done, you are done.
You won’t carry emotions around with you all day. Your approach and your whole process will be structured and you can arrange time for documentation.
Then it will become clearer to you what you are acutally doing, you are able to spot mistakes and you can make changes to your strategy as you recognize the necessity.
All of a sudden you have created a decent way of appraoching and dealing with fulfilling your goal. Whatever trading may be to you, you will only get everything you want from it if you look at it seriously. Just like the professionals a successful trader has spend years on perfecting the art of his trading and continously improves on Risk, Strategy and the psychological factors.
Long-term trendfollowing, which pretty much means you are looking to be in a market for a few weeks up to many months, brings the freedom of actually having a life, maybe even working in a job you like, because you truely have something to contribute to that field, all trades just running in the background accumulating profits. There is no stress and no thinking about the markets. Instead of that you are thinking WITH the markets, putting in pending orders wherever the market tells you that it’s going. If it doesn’t work, you have a well-thought out and backtested strategy to manage your position and risk to get out of anything that doesn’t go your way before it has become too large of a loss.
There is also the benefit of participating in dozens of markets at the same time. While you can’t focus on 50 markets when you are daytrading, heck, you can probably not even do a handful of markets simultaneously due to focus-issues, this is no problem in long-term trend trading. The basic philosophy being that you just follow the market flow, only controlling what you can control – letting profits take care of themselves. Paying attention to the one important factor: How much can I lose in this trade?, you would just be letting profits run however far they want to run, and lock them in once the trend starts to bend.
This is actually a really boring process that has nothing to do with the hype of trading that you will see in financial media. You should just be calm and flow along with whatever the markets are presenting to you. React by the ways of your system, and then, over the long haul, if you are actually able to maintain discipline, focus and if you actually are willing to work on yourself, your perception and emotions, you might have a shot at making it to achieve your goals. There are quite a few issues though, that come up along the way.
The main one arising for most reading this will probably be patience and greed. Only risking at max. 3% on each trade seems so small, letting a trade run for weeks or months, seems to take so long.
But this is the nature of the game. There is no way to change markets, they are a living organism that consists of all the desicions and behavior patterns of us humans (traders).
A trend takes a long time to set up, a long time to unfold and a long time to bend. This is the very nature of it, so why not just accept it instead of complaining about it?
Why not take part in 50 markets and speculate on a new trend in each of them whenever there is a signal? There will be plenty of opportunities, even on high timeframes such as the daily and weekly. Plus, on these long-term charts trends that actually do occur will run for thousands of points, instead of a hundred or even less on intraday timeframes. All you do is put in one order, and then you wait. You don’t meddle, you sit tight, and you wait. You wait so long as the markets tell you to wait.
Remember, you have no say in whatever is going to happen. Your only chance of making money in the market environment is not to pressure the market and force your will onto it. It is to adapt to the flow of whatever happens and extract some $ out of it. Slowly and steadily wins the race. While all the other traders make 15 trades per day, the long-term trendfollower won’t have that amount of trades in an entire month. That’s because it’s surreal to think that every month, there are 15 trends happening in a portfolio that looks at 50 markets. If that were the case, the coffee you buy would permanently tripple and then half its value in a one-month period. The same would go for the stock market, price of gas, oil and gold. And all other markets! It would be a chaotic economic world altogether without any stability.
Only when there is a fundamental change happening in a market, can there really be a big trend that sends the respective market to a higher or lower new price level. This is what we want to participate in since it makes the most profit with the least amount of work and stress anyway, and doing it on a variety of different markets should turn the probability of catching a trend in our favor. By giving the market time and room we are able to let the market grow and flow by itself without our interference. Profits can then just run wherever the market runs, and be taken off as soon as the market doesn’t go our way anymore.
There is no top / bottom picking, there is no buying the dip and selling into rallies.
The market is a very friendly environment that provides anyboy participating in it with many opportunities to profit from market movements. It is you who is off if you perceive the market or trading as risky, dangerous and are afraid of it. If you always ensure that you are trading on the right side of the market, that is with the overall trend, then there is no way you are bugging the trend, the path of least resistance of price movement is therefore on your side.
It is impossible to pick tops or bottoms, simply because you would be bugging the trend doing it, which leads to anxiety, negatively fueled excitedness, being out of control and thereby being in a non-optimal psychological state of mind. Usually that won’t lead to the long-term success achieving your goals as you have laid them out for you.
Re-consider what your circumstances in life are, how much time you are able to devote to trading and other tasks, what life you want to have and what would make the best sense to appraoch this endeveour of making money in regard to timeframe, system and emotions.
These are some of the most important fundamental questions you should have definitive answers to if you are serious about making it in trading.
It is only after you have answered them that you are able to move on, put your focus on the actual process and then give it enough time to see how it unfolds, all the while backtesting, reviewing and documenting the process in order to constantly improve.
As you have seen, this is an actual process that can’t become successful if you don’t have the devotion, passion and especially if you don’t decide on what you can set aside (time, money, energy etc.) for it.
Trading in passing won’t be a way to do it.