Dear Clients,
We've had our first losing week since we've opened business. We've lost 132 pips this week and I would like to give you a few words of hope to relieve the tension that some of you might have been experiencing lately.
If there's anything that trading is different from other activities in life, it would be the fact that there's nothing guaranteed. That is the true nature of the market. The market, in essence, does not have consistency in terms of how it moves. It is naturally operated in a chaotic environment. And you as a trader, have absolutely no control over it. The causes of this chaos are many.
-Economic and political events that change history and break records.
-World economies.
-News.
-Investors.
-Traders.
-Laws and regulations.
-Wars.
-Rumors.
-Analysts and economists opinions.
-Greed.
-etc just to name a few.
As you can see it's just a cocktail of the most chaotic factors that you can imagine. Do you have control over any of the factors mentioned above? I had a client complaining that I was placing some crazy trades and they did not seem to be feasible for him. He was claiming that I was selling when everything was oversold. If things were that simple, everyone would be millionaires by now I think. The next following day when we placed a buy signal we had a loss. Do you see what I'm saying? Where is the logic or consistency in this market environment? As gloomy as it may sound. Losing is just a routine part of the job. Accept this as is. This is why trading is different from other things in life. How can you survive in such an inconsistent environment? We must be consistent in our actions because that's the only actual thing we have control over. Consistency in our mindset first before anything else. Or else, nothing would be consistent at all and we would lose everything. Isn't our goal to make money in a consistent basis?
What is the definition of a consistent winner?
A consistent winner is the one who has a combination of wins and losses in a sense that, over time, he or she will have more wins and losses in terms of probabilities. Learn to think in probabilities, as elegantly stated by Mark Douglas.
Why is a losing week not significant to us?
If there's one big thing that I learned in trading, is to think of probabilities. A losing week does not mean anything to us. Mathematically it is not a significant number that disrupts the overall pattern. Warren Buffet had negative quarters as well. And even after such a long period of losses when went straight back to consistent gains. Patience is the essential. The market is always evolving so to speak. Do we need to evolve with it? Yes, we do and we are always doing it. Do we need to change the overall structure of our strategies? NO. Never. This is where most traders go wrong and end up destroying their careers as traders. Before you ask what is wrong with the structure, you must ask if there is anything wrong at all to begin with. If you were worried that there is something fundamentally wrong with our system then you can stop worrying about it yet. Of course we are assessing and evolving our system as we trade. But nothing will change fundamentally. Even if we had another losing week it wouldn't be significant enough for us to change the overall structure of our strategy. Because that is not yet a probable outcome for the future. We have our performance section to prove this and you know we are honest in terms of our records. We do not hide losing trades. This is where a lot of signal services or trade rooms go wrong. Lack of patience and observation. Lack of honesty. And above all lack of consistency in their actions. Along with lack of faith in their own system.
Once traders(I mean almost all of them) experience losses, they will struggle to fix/change/modify/tweak something inside of them too soon without realizing that that is just the true nature of the market in action. What if you are changing something that there was nothing wrong with it to begin with? Then more losses will surely follow. Can you absolutely guarantee that just because you had a few losses there is something wrong with your system in a fundamental basis? The answer is No. Of course there are exceptions if you were losing in a consistent basis in the first place. But if you were positive from a long term perspective in the past, then you are far from modifying the structure of your system. Therefore there's no reason to panic. (Unless you've already lost half of your account within a few negative trades because of poor money management skills.)
Why is losing harder than winning?
Most people would think this is so because losing invokes stress. That is a fact. But to analyse and neutralize the effects of stress we must look into this matter deeper. Let me ask you an interesting question. Why can't we remember of the gains in the past compared to the losses in the present? Logically speaking, if you had cashed out 13 winning trades successfully yesterday then even if you had 5 losing trades today, shouldn't you be calm? That is so, however, not easily done. When we are experiencing gains, our minds are focused more on the high of making money. On the other hand, when you are losing, the relative strength of the negative emotion easily surpasses that of the positive emotion that you felt when you felt when you were winning. Mainly because you were expecting to win even before you placed a trade. Expecting to make money; to become financially independent; to achieve your hopes and dreams; to succeed at a super fast rate. These ideas are dangerous in trading. You have not just your money at stake but your everything. How can you maintain a consistent modest rational money management style when you have so many things at stake. In that sense a loss is not only a loss of money but also a loss of your life energy. With this state of mind, when things go against your way, the stress coming from disappointment will lead you to a state of emotional shock in which leads to panic and loss of consistency. The first thing that will naturally come to your mind, will be to change something irrationally. Whether it is your money management plan; your strategy; or your life pattern you will feel like you have to change something. Or look for the next best factor to blame other than yourself. This is called losing consistency. This will lead to a succession of losing trades. This is why losing is harder than winning.
What do we have to do now?
I have pointed out that the market is consisted of factors that are not stable in their nature. They were never meant to be. You do not hold any control over what the market does. In fact, it doesn't even know that you are trading. To make money, in this inconsistent kind of environment, you need to have at least some source of consistency. That source is your actions. The only thing you have control over is your actions. If your actions lose consistency you lose it all. Be consistent with your gains as well as losses. The only difference that you make is when your probable outcomes, in a long term perspective, is more positive than negative. That's it. I will not sugar coat this because that is a successful trader in action. On a practical level you must:
1. Maintain and have faith in your system with consistency. Without this, even if you have the best mentors/analysts/tools in the business at your disposal, I guarantee you that you will start losing big. The moment you lose faith in your system it will start to fail not because of the market conditions, but because your actions will not be consistent with your original plan from then on.
2. Have patience until you are absolutely 100% sure that there's something wrong with the overall structure of your system. It must have taken a long time and a lot of efforts for you to build it from scratch. It wouldn't be just a waste of efforts if you change something that works because of lack of patience. More importantly, it would be a painful experience because you will lose money too.
3. Always gradually adapt to the evolving market condition. A system that is mechanical in nature will wither within a short period of time and is bound to fail. Because the market doesn't conveniently acts consistently for you. It's always changing.
4. ASSESS YOUR RISKS WISELY AND ALWAYS TRADE THE SAME RELATIVE AMOUNT WITH A SOUND MONEY MANAGEMENT PLAN. POOR MONEY MANAGEMENT PLANS COME DIRECTLY FROM GREED. LET GO OF IT IF YOU WANT TO MAKE MONEY. Learn to let go of your hopes and dreams and you will achieve them sooner than you think. There's no need to react violently in front of chaos. Be calm. Your hopes and dreams have always helped you in whatever activities you might have been engaged since you were born. It might have served you in a very useful way because it must have provided you with energy in times of hardship. However, in trading, that is not the way. Let go of the life values that served you throughout your life at least when you are making a trading decision. NEVER RELATE YOUR TRADING ROUTINE WITH YOUR HOPES AND DREAMS IF YOU TRULY WANT THEM TO COME TRUE. Relating them with trading will pull them away further. However, the more you leave them far from trading the closer they will seem to be achievable. It's better to achieve your financial goals at a natural pace than not achieving them at all. This is crucial. Even if you had the best system in the world, you could spent 10 years trading it and you would still be broke, let alone earning pizza money. Let go. Empty your mind from your expectations. Achieve action by non-action and go with the flow. This will maintain your mind calm and free from greed(inconsistent or poor money management plans) even during the toughest times and put you back to the winning streak sooner than you imagine.
What is a sound money management plan?
A sound money management plan is a risk plan that you are comfortable with even when you are met with a succession of probable losing trades. If you have $1M and you are still comfortable trading with micro-lots than so be it. That is the true definition of a sound money management plan. I actually know a lady who does that. Well not exactly 1M but she has over $70000 and she's still trading with micro-lots. I have enough faith in my system because I know my system in a deeper level. I designed this. Therefore I have enough faith and confidence to trade it big. Even so, I trade no more that 0.2 lots per $5000. Even when trading that big I do not get stressed when met with a consecutive multiple losses or negative months, let alone a single negative week. I've had clients already complaining they lost money trading 0.5 lots per $1000(can't remember exactly). And they still didn't know what were they doing wrong. I didn't see any attitude of change in that person either even after told what was wrong. You don't need to be a rocket scientist to figure out the outcome of that money management plan. Now that is sad.
Finally, ask this question to yourself. Did I experience stress this passed week?
If the answer is yes, then you are trading too big. The trade size that I recommend is the best that I know of. However, no one is forcing you to trade that size. Learn about the true definition of a sound money management plan and act with consistency. Define your risk in a way that you are comfortable with. And act in a consistent basis.
What is worth noting is that a person with the proper discipline to maintain consistent sound money management rules could make fortunes with a system that is 55% accurate with no drawdowns. But a person who is inconsistent with his or her money management plan will lose big even when given a system with over 90% accuracy with no drawdowns. If there was 400 pips made in the last month, and 100 pips lost this month and you loss money overall, the answer is obvious. It's not the market or the system that is problematic. It's that person's lack of discipline. Discipline to take responsibility and act consistently.
What is a sound money management plan on a consistent level?
To make things simple,
-Let's say you have $100000 and you trade 1 lot. Let's say you lost your money and now you have $90000. You should be trading 0.9 lots from then on. Not 1 lot. Not 2 lots to gain back your money.
-Let's say you made some money the next week and now you have $110000. You should be trading 1.1 lot. Not 1.2 or 3 lots because you feel like you can take on the market and be on your way to superstardom the next following year. Therefore I urge you to be consistent. There's no room for mistakes when it comes to trading. Whether you do it and flourish or you wither and disappear. It is just the way it is.
I hope this writing helped you. I apologize If my writing style seem agressive sometimes. Still I think it gets the job done. I would prefer you to get angry at me than losing your money.
Best reagards
Sean
ps. Still, good job trading this week guys. Have a good weekend. And please remember, the market is always full of oportunities.
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