Personality and Consistency in Forex Trading

[RichardCox 10]

In a market that is as large as the forex, building an edge and maintaining that edge can seem like a daunting task. New traders often find themselves in situations where the first few trades go well, leverage is then maximized in anticipation of huge gains, and then a string of losers destroys the trading account beyond repair. This is an experience that has been had by most (if not all) experienced traders, and this can be a costly but valuable lesson on the road to a successful trading career. One of the things that should be understood first is that the behaviors described above represent the exact opposite of trading consistency, and consistency is what you will need (more than anything else) to develop a successful trading career.

 

Playing to Your Strengths

 

One commonly cited trading fact that might not seem apparent in the early stages is that aiming toward consistency is more important than aiming toward the 100% perfect trading system. Traders that are able to develop a system that plays to their strengths, time availability, and investment goals are the ones that will be able to gain an edge on the rest of the market. This is because playing to your strengths will make consistency easier to achieve, and this is where your focus should be - rather than in looking to try to capture every pip out of every market move. Finding the “perfect trading system” or capturing 100% of every market moves are unrealistic pursuits. What is possible is looking internally to see which styles and approaches work best for your investment profile and then to apply those methods using strict rules that can be regularly followed and repeated on a consistent basis.

 

Imagine someone approached Kobe Bryant and suggested that he suppress his love of basketball and the natural talent he has developed playing the sport because he could make more money playing baseball. In hindsight, most people would say choosing baseball (and ignoring his natural impulses) would have been an unwise choice. This analogy can be applied to trading in the various occasions we see new traders persuaded to use advertised investment systems that promise great gains but do nothing to take the personality profile of the trader into consideration.

But when traders use automated systems, those traders will have no way of understanding the risks involved with the systems and when losses do occur, traders will usually scrap the system entirely and waste a good deal of time and money on something that yielded no real advantages (intellectual or financial).

 

Forgetting the “Perfect Strategy”

 

Another common characteristic of new traders can be seen when looking for the “holy grail” or the “perfect” trading strategy. But the unfortunate reality that what works well for one trader is not necessarily got to “rain profits” for another trader. But the fact that there is no “perfect” system should be viewed as a positive - because now you can stop looking. Instead, you should be looking for the system that is perfect for you. It is your mindset and personality that is the most important component of any trading system, so you can save your time, energy, and sanity spent looking for a Holy Grail system that just doesn’t exist. In place of this, you should be looking for a trading system that allows you to spot high probability setups with consistency. Repeatability over time is the ultimate goal, rather than a system that can be followed blindly and applied to any trading style.

 

Consistency Over “Perfection”

 

When attaching your personality to your regular trading system, you should only rely on indicators that you can fully understand and are comfortable reading. The formulas before most of the commonly used indicators are relatively simple to understand, and there are many helpful articles on this site that can guide you in the right direction. It never makes sense to use an indicator if you do not understand how its calculations are made, and you are comfortable with the way it displays signals.

 

Money management techniques are also a central issue here, as some traders are willing to take on more risk than others. Are you an aggressive trader or a conservative trader? In all cases, you money management system must be one that will allow you to remain cool, calm, and collected under even the most volatile market conditions. For the most part, indicators are used to give exit and entry signals, as these tools will provide price action signals that are relatively easy to spot and understand. Not all indicators look (or behave) the same, however, so it is important to choose indicators that move in ways that work well with your natural reactions. Indicators work along with your money management system in ways that cannot be duplicated by another trader. The combination of all of these factors will create your unique niche, and allow you to develop your edge over the market in the longer term.

 

Looking at Hypothetical Reactions

 

To exemplify this, we can look at two hypothetical examples in a long term uptrend. Let’s assume that the uptrend ran for 500 pips, and that the “beginner’s mindset” will be deemed as a failure if all of those pips are not captured in a long position. In some cases, it might be possible to capture all of these pips, but when using a system that is consistent and repeatable, this will not be the case in the vast majority of trading situations. A repeatable system that promises to capture 100% of a trading move simply does not exist, and thus it is unrealistic to have expectations like this. More often, the beginner trader will wait too long to exit a position and a corrective downward move will be seen (forcing the trader to give back some portion of the original gains). This unfortunate occurrence is all too common and comes as the result of the beginner's mindset focused on finding the perfect system.

 

Instead, the experienced trader’s focus is elsewhere: for example, on identifying trades with strong risk to reward ratios. For the experienced traders, the proverbial “holy grail” comes with high probability trading setups that can be regularly identified with simplicity and consistency. These long term scenarios (a large number of trades) is far more important than any individual trade. In the hypothetical long term uptrend example above, the experienced trader would exit the position once risk to reward ratios are satisfied and the trend has started to reach an exhaustion point.

 

Conclusion: Focus on Consistency, Not Perfection

 

It is natural for traders to want to squeeze every possible pip out of a market move, but the unfortunate reality is that in trading it is simply not possible to hit the “bullseye” on every shot. Because of this, experienced traders avoid this practice altogether and instead choose to focus on systems that match the personality of the individual and can be repeated with high levels of consistency. With this, it becomes clear that trading takes work, and that there is not Holy Grail trading system that can be applied to everyone. Instead, the best approach is to look for trading opportunities that match your personal requirements for high probability scenarios using indicator setups that are easy to use and understand. Of course, losses will be seen but the main goal here is to find systems that generate profits over the long run, not in single instances.