Forex Trading Errors
Forex Trading Errors
Forex Trading Errors
Traders and their errors
I've always said that trading is mostly for psychological components.Trader should spend a lot of their time to work on their attitude. Fact that most "super trader" at least a year have been working on their psychological adjustment before they began their trading plans and trading systems is developed. If mistakes are made in trading, these are often psychological.
Let us, therefore, the "psychology of trading" viewed from the perspective of "mistakes" made. If you do not follow your own trading rules, then you make a mistake. This is simple and if you make this mistake over and over again, it is called self sabotage. Self-sabotage is another area in psychology, offers ample opportunities to improve your results in trading.
But we will focus our attention to errors that are associated with a certain category of traders. At the outset I want to show you a way how to measure the errors that affect your trading behavior. The efficiency of trading will be implemented by measuring how effective a trader here is to conduct error-free trades. If a trader makes five errors in 100 trades, then it is 95% efficient.
In the last five years, my Super Trader documented their mistakes neatly, so that my team and I could take the efficiency of individual traders under the microscope. And I found out that the value of 95% reflects a very good efficiency in trading.
But some traders did not reach 75%, a terrible value! It means that these people make a mistake in every fourth trade. This is of utmost importance for a particular type of traders, the mechanical trader. This guy thinks he can eliminate trading problems associated with psychology, by mechanical trades. Many people seek to trade then mechanically to have the computer all the decisions because they think they can rule out that all human error. One of my best friends once said to me that psychology of trading in its type does not matter, since his trade works fully automatically. I replied: "With the way you could but sometimes miss a good trade." 18 years after this statement of mine he had to close his business. His "partner" of the computer had decided against a particular trade and just this one trade would have given him the financial means for the entire year ...
I always said you can trade only his beliefs about the market.Therefore, we have a look at typical beliefs that usually has a mechanical trader.
I can however compensate for this shortcoming with a mechanical system.
But mechanical trading is truly objective? I think that it is not, because it also gives a variety of sources of error that can even affect an automated trading system. Bad data, incorrect software error in the programming of setups etc.
With bad data is the trouble going on already. If their price data always displayed properly, or breaks the flow of data from sometimes, and it shows "Error"? What makes their trading software in such a case? Is this possibly a trade off? In addition, the historical price data may not be correct if, for example, stock splits or dividends are not included. With errors of this kind of mechanical traders have to do regularly.
Once I wanted to find out whether I can develop an effective, automated stock trading system. So I looked for 'efficient' shares, bought it and secured it with a trailing stop of 25%. I used a data set of the S & P 500, which quotes the last 40 years included. The data appeared to be well prepared and splits and dividend payments were taken into account.
I was very pleased with the initial results, because my system threw a small profit. But by then I was not aware that the system is trading on the basis of false information because the data set allowed the system shares for each IPO time to buy, but these were later part of the S & P 500 Index. The backtest my system bought shares of Microsoft, eBay, Intel and many other companies - before anyone knew that one day the S & P would be listed 500th Why? Because my data set representing the state of today and back this data 40 years into the past. The baking test was then performed on the basis of false data, the gains were achieved through shares of companies that it did not exist on the exchange.
Part 2
The mechanical trader under the magnifying glass
In the first part of this column, we have found some sources of error that the mechanical trading approach may negatively affect, for mechanical trading is not really objective. For this approach play bad data, faulty software, and bugs in the programming of setups an important role. In the second part further sources of error in the mechanical trader is illuminated.
What was on 6 May 2010 the matter? The Dow Jones lost 1000 points in just 20 minutes. Blue chips such as Procter & Gamble grade of 20 points and the title of Accenture, was virtually a penny stock. Several reasons were decisive, that this mini-crash occurred, but which also had a major impact on automated trading systems. For a crash happens every now and then times now, and that is the great challenge for mechanical systems, to deal with such things.
Note: Of course, that day trader without mechanical approach of the course, affected to fall. A client of mine said he used trailing stops of 25% and was still stopped out with each stock. But there were also traders, the huge profits generated. Ken Long, one of our coach, the week in 3rd to 7 May with his approach to trading profits of 100R retracted. As always, he acted very cautious and conservative in his trades and was very anxious to have under control the risks.
There is another category of errors in mechanical trading systems: the set of narrow and strict criteria. Because the criteria of Trade setups are often defined in a precise, mechanical systems miss many good or even great trades that traders make easy with a self-defined commercial approach.
Mechanical systems sometimes miss an entry into a trade that would wonderful, just a speck ... a trader with a self-determined trading approach may however at any time decide when he gets out and even if he should make the decision even intuitive. This is of course for the phase-out of a position. To strict criteria in the determination of Trade Setups can sometimes be bad for the mechanical trader.
Limited opportunities
It give a lot of errors in mechanical trading systems and seen as just in the choice and the set of criteria. And that's just the point that counts is crucial. Once you set your own rules in a way, sometimes too precise, that a computer can execute their trades, they fall into the trap criteria. Enter their program note too much information, too little relevant information or unnecessary information. Or how to say programmers to maintain, "If you type crap, then crap is just that."
Therefore, their automated forex trading system should also not good or excellent trades due to the strict rules that have been made for him.By limiting the underlying logic of the mechanical trading systems, you as a trader that actually existing potential or the real opportunities available for highly profitable trades. In comparison, a trader with a self-determined approach to trading, in which he can vary to achieve even better results in general, as a mechanical system, even if both use the same trading approach.
Successful Trader
Traders their trading approach are few and decide among the world's most successful traders. You of course have a set of rules. These, however, taken in contrast to the mechanical traders, flexible and wider. I can say one thing with certainty:
Every graduate of my Super Tra is the program either a mechanical trader or become a trader with a rules-based, self-determined approach to trading. The latter have made up their daily business practice usually their own, to support their success.
Thus, only a small selection of stocks is analyzed and tracked their share price. People pay attention to strong and distinctive course corrections, or in different indices. You never risk more than 0.5% of their capital for each item. You shall ensure that the risk / reward ratio is at least 3 to 1 per trade. Use trailing stops and trading no more than 4 positions simultaneously. And finally: more than you think and change their rules, if at the end of the month does not jump out at least a profit of 5R.
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