Important lessons from many years of trading
“Why pay” for apprenticeship “if you take the same lessons for free from other traders”? I would like to show you the most important lessons in trading, in my opinion, that I have learned from my many years in the financial markets.
- Lagging indicators are useful
Most indicators are inherently lagging since they are derived from the price. Nevertheless, they are helpful. For example, you can see an uptrend when the moving average over 50 periods intersects/crosses the moving average over 100 periods (and vice versa a downtrend). Sometimes the most important things lie in simplicity - A stable trader needs clear rules
Develop a personal trading plan and stick to it. Follow it every day. If you break your rules consistently and do not trade according to plan, your trading performance will be a shaky story. However, if you follow your trading plan consistently, your performance remains stable -and ever improving. - Price matters
The numerous worldwide breaking news can distract any trader. At one time, the financial crisis in Greece is on the brink of bursting, next thing you know and the GDP in China is different than expected, then the US central bank wants to raise interest rates and China bans Bitcoin transactions. Do not be too impressed, because in the end only one thing counts: the price. - The most important thing about trading: the expected value
The expected value is the combination of the profit ratio, the average amount of your profits, the loss rate, and the average amount of your losses:
(Profit ratio x average profit) – (loss rate x average loss) – (commission + slippage)
If you have a positive expectation, your method will win over the long term. - You do not have to predict the price
Do casinos know whether they will win in the next round? No. Do they know if they will win in the next 1000 rounds? Yes, according to the law of large numbers. Their results are random in the short term, but approach the expected value in the long term. This also applies to trading, provided that you have a positive expectation value and adequate risk management. - If you choose the wrong markets, you are out
The only two types of markets that interest me are the strongest and the weakest. Why is it like this? The strongest/weakest markets tend to have weaker setbacks and continue the trend. If I want to short a market, I should trade the weakest and vice versa, go long the strongest – in other words, buy in strength and sell in weakness as there is a good reason why markets actually behave like this. - The best trading method in the world
The truth is: There is no best trading strategy. But there is the best strategy for YOU. This depends on two things: your trading goal and your personality. If you want to earn a steady and regular income with frequent smaller winnings, day or swing trading would suit you. If you want to build your fortune with rarer but bigger profits, position trading might be more suitable to you. - Trade only in your time frame
My mistake was to use too many time frames. This paralysed my analysis. Because of contradictory signals on the individual time-frames I never made up my mind in entering the market. The problem has puzzled me for a long time, the solution is so simple: Handle only your time frame and forget the rest. Which does not mean, by the way, that you cannot examine two or three time frames.
Trading Bible