How to Keep The Right Perspective When Trading
Without a doubt, the learning process to successful trading is not a short one. It is one that takes time, akin to virtually all other skill based endeavors. Be it sports, playing a musical instruments, or martial arts.
Although we want to become black belt traders, or virtuoso readers of price action in a jiffy, in 99% of the cases, your time line from here to success will likely not be as quick as you’d prefer.
Because of the extended time on our journey from A to B, it is common as bikes in Amsterdam for us to lose perspective, and go off the rails.
Putting Things In Perspective
Take a look at the graph below. What you are seeing is a snapshot of an equity curve from one of the strategies in my price action course.
Now take a look at the second image below, which is the entire equity curve over several years.
When you look at its entirety, you are seeing is a price action strategy that made 108% return! This is across only one ONE PAIR, and only ONE TIME FRAME.
Some highlights of the performance are below:
Profit Factor of 2.3
Expected Payoff of 112.28
Maximal Drawdown of 14.27%
% Profitable Trades 68.04%
Greatest Win 36% Larger Than Greatest Loss
Max Consecutive Profit Almost 200% Greater than Max Consecutive Loss
Without a doubt, this is a strategy that makes money, consistently, preserves capital, with a balanced risk to reward ratio.
Below is the table from the performance test, showing you the same performance.
Most Un-Successful Traders Make This Mistake
For those who are not trading profitably, most likely when you are in a draw down, you don’t give the strategy enough time to work itself out. You see the equity curve falling, and think something has to be changed.
In reality, there could be nothing wrong with the strategy. Maybe this particular strategy won’t perform well in that market, yet this price action strategy makes money over time.
Now imagine if you changed strategies at the end of the first graph. You would have missed out on over 85% of the entire profit that strategy made. You would have lost several years of consistently profitable trading. That alone would have put you in top 5% of all traders. Food 4 thought.
Building A Healthy Perspective
Generally developing traders are more hyper-sensitive to every single trade, each win and loss. But look at this from a different perspective:
Imagine being a new archer having this same approach – that you gauge your confidence based on each shot.
That map would be all over the place, and drive a person batty as to how they are doing, because naturally one will be an inconsistent shooter in the beginning.
Instead, look to a great basketball player, and tell me if their confidence wanes from missing one free throw. They don’t make this mistake. They keep the right perspective and mindset by focusing on the process, not result. They keep the right perspective.
Changing strategies every month or so will take you in circles (like the dog that chases its tail).
So avoid changing your trading plan and strategy every month. Stick to the one you got for at least 90 days, once you’ve refined it. Commit to learning/trading it inside and out.
By doing this, you are (at the very least) building a skill set towards successful trading. Even if the strategy does not work out, you are developing one of the most important qualities in trading – discipline.
And with discipline comes confidence, which is something most un-successful traders lack. Remember, the draw down of the first chart was the prelude to a 108% return, (doubling your account in a few years).
Ask yourself if you have done this (changed strategies after a small losing period). Ask yourself if you’ve focused on result more than process. Then see how you can change this to keep the right perspective when trading.
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