Trading must be treated like a business if you want to achieve profitability. The problem is that many traders approach their trading with the same attitude as they do with a hobby, extreme sport or gambling: adrenaline based decisions. This activity is fun for a while but when the boredom sets in then they quickly move on to something else.
The solution to profits in Forex trading is simple: find the “boredom”!
When trading is “boring”, trading becomes successful. Why? Because Forex traders are then using a systematic and well balanced approach with a smart business mentality. This enables traders to trade consistently and apply their edge day in and day out.
Sound boring? Good, then you are on the right track!
Today’s post will focus on explaining what the smart, well-balanced, systematic, and business-like approach to Forex trading really is.
LET’S START THE TRADING ADVENTURE
Before a trader even starts with setting up a strategy, they should first of all begin with defining what success is and how they can measure it:
- The first step of success is having a clear understanding of your vision and motivation. You want to discover what drives your desire for success and to identify the determination that will keep you going no matter what. Read more here.
- Then you must set up SMART goals and sub goals for measurement purposes. Read more on expectations and goals.
THE BUSINESS APPROACH OF FOREX TRADING
A balanced business-like approach incorporates the following seven (7) elements:
- An entry strategy (trading plan);
- An exit strategy (trading plan);
- Risk management;
- Money management;
- Trading psychology;
- Portfolio management (handling of multiple strategies);
The purpose of this post is not to dive into details, but to show the bigger picture. The above mentioned criteria are at the core of a balanced system or approach.
Without a balanced approach, you will not be able to move forward. Compare the above criteria with car parts: if a part of the car is missing like the wheel or engine it will not move forward. No matter how great the engine is, the car is not in a functional state if the tires are missing.
The same can be said for trading too. Your entry strategy can be fabulous, but if any of the other parts are missing then essentially the value of all other components are reduced to zero, absolutely nothing.
Many traders attach specific importance to their strategy, which in fact is often oriented on entry. But as long as all the other criteria are not properly addressed, then your strength or edge in any of these fields will be irrelevant.
Only when all the criteria have been sufficiently addressed and are meeting a minimum standard, is it possible for traders to excel in one or two fields and capitalize on their edge. As explained in this post traders must first have a solid defense (minimum level for all fields) before offense (capitalizing on your strengths and edge) has an effect.
THE PROCESS IN THE APPROACH
All parts of your balanced business-like approach need to be properly prepared, implemented and monitored to enable success. What do I mean with prepared, implemented and monitored?
- Being prepared means setting up all the decisions you want to make in the heat of the trading;
- Implementing means actually doing what you wanted to do in your plan;
- And monitoring is checking whether you indeed implemented correctly (according to plan). Monitoring needs to be done via evaluations, which was discussed previously (how a trader can limit mistakes and build consistencies via evaluations).
By approaching all 7 criteria with a proper process (prepare, implement and monitor), traders enable themselves to improve their approach. Otherwise it’s anyone’s guess why something works or not. By doing this systematically, they are able to detect potential improvement points and are able to identify what solutions have improved their trading or not. Without this process all decisions are random and made in the dark.
All of the 7 criteria need to be equally prepared, implemented and monitored before you can expect trading results to improve. Once again, it is great if you prepare, implement and monitor the entry strategy but if you do not complete the same with the exit strategy, then your trading is vulnerable to a systematic failure. Remember: the process leads to a consistent profitability.
Finding out whether each part of your plan is optimally set up is difficult. No matter how close to flawlessness, improvements can always be made but you need to keep in mind that perfection is impossible. In fact, chasing perfection can cost you way too much time, energy and efforts and ultimately create frustration, annoyance and worse results. It is more efficient to have all 7 criteria working well and coherent at 90% then having 1 part at 100% and others way lower.
You can use the following matrix to make sure that all of the 7 pillars are properly addressed:
Prepared? Implementing? Monitoring?
An entry strategy: Yes/no plan Yes/no or …% Yes/no or …%
An exit strategy: Yes/no plan Yes/no or …% Yes/no or …%
Risk management: Yes/no plan Yes/no or …% Yes/no or …%
Money management: Yes/no plan Yes/no or …% Yes/no or …%
Trading psychology: Yes/no plan Yes/no or …% Yes/no or …%
Portfolio management: Yes/no plan Yes/no or …% Yes/no or …%
Evaluations: Yes/no plan Yes/no or …% Yes/no or …%
Obviously the best process is one where everything is filled in with “yes” with the exception of portfolio management, because having multiple strategies is certainly not a must.
Forex traders position themselves for constant improvement and growth when they approach the 7 pillars of Forex trading with a proper process. Traders are able to reduce their dependence on external factors and luck and increase their confidence.
What do you think? Are you already implementing something similar?
Do you see ways how you can improve your trading approach?
Let us know down below!
Thanks for sharing and Happy Hunting!
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