Trading is a discipline

On hindsight, we are all geniuses. The investor who predicts market behavior correctly after the releases of big news stand to make the money. But, its probably very hard to do that.

The market, being the brain of thousands of investors making decisions to buy / sell at the same time can be very unpredictable, fickle and often both. But, the market is still the most efficient machine to determine what prices of assets should be.

This is the giant machine that I have come to respect and behold.

I used to be a hit and hope, impatient, emotional investor. And hence I have lost a lot of money. And more than what I've planned for.

But I guess this experience in losing has taught me valuable lessons, which I guess I wouldn't internalize as much as if the money was not mine or it was a substantially smaller sum.

Number 1: Be happy to cut losses while they are small. Ironic but I guess this is the most important to me. Its all about the maths, if I can keep my losses contained, I will have a chance of making an net profit at the end of the day. I try to keep my losses limited to 50-100 pips per FX trade.

Number 2: Perceiving the right risk-reward positions gives me a competitive edge. I strive to determine where supply and demand imbalances are and then leave orders at levels which I think are reversal points or, a floor/ceiling in the case of a continuing trend. Technical Analysis is very useful for this. If you ask me, circa 200 pips of an FX profit is pretty decent, or 2-4x your loss limit. You can see a few of these moves within a week in the FX market.

Number 3: Be very patient for the right opportunities. In the market, opportunities will present themselves often. I won't want to chase a price after it has gone higher because I think I've missed out on a good entry. As I said, trading is a discipline, literally.

Number 4: Take profits. 'Nobody ever loses by taking a profit'. Greed is probably the only thing which makes an investor think the price will always continue to go in his favor. In volatile markets like now, I take profits unless there is a good fundamental reason for me to not do so.