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COVID-19 Trading Lessons



As the world navigates its way through the coronavirus pandemic that has impacted everyone’s life, it is timely that we look forward to our trading post-COVID-19 and also look back on some of the lessons we have learned in the last 12 months.  

What have we been reminded of in the last 12 months?

1. Think positively.  

So importantly, have confidence in yourself. If you don't feel good about what you're doing, you must work on it and change what you are doing.  

2. Your Trading Plan will help you.  

The primary role of your trading plan is to keep you out of trades, not to get you in.  Let it do this for you.  Part of being a great trader is trading what you see, not what you believe.  We have seen volatility explode a few months ago and for some traders, this would have been enough reason to abstain from trading for a little while, until that excessive volatility returned to normal.  Make sure you look at your charts and the markets objectively, and don’t trade unless all of your criterion are met.  

3. Don’t trade for exhilaration.

I have never believed that trading should provide you a rush of adrenaline or a natural high.  If you want some exhilaration, jump out of an aircraft at 5000 feet.  You should avoid trading for emotion’s sake and control yourself to not feel too high after a profit or too low after a loss.  If you have a well-developed trading strategy, it does not matter whether any particular trade makes a profit or a loss - what matters is that the probabilities over time are in your favour.  You should measure yourself on whether you followed your rules and executed your strategy, rather than how high or low you are feeling at any point in time.  The process of trading is much easier when you focus on execution of a system rather than on whether each individual trade was right or not, because you take your ego out of the process.  This makes you more methodical, objective, and rational, which should lead to better trading performance.  

4. Avoid too much news.

It is incredible how often prices will head in one direction to start the day however completely reverse and close in the opposite direction at the end of the trading session.  It is prudent to not overreact to intraday news, and focus on the bigger picture.  Those who trade very short-term time frames do need to focus on these moves, but most traders don’t need to.  

5. Accept full responsibility.

You are ultimately responsible for your trading performance.  Not just in trading, but in life too, those with a losing mentality, will always look for somebody else to blame when things don’t go their way.  Winning traders hold themselves accountable and look inwards if their system starts to lose its way and has a run of poor performance.  When you accept full responsibility, you commit that in any market environment you will find the way to win. 

6. Enter trades open minded.

When you enter a trade, you really don’t know how it is going to end up.  You should be open minded and treat every new trade as a potential loser and a potential winner. Then manage your trade well and know how to tell the difference.  

7. Trading is a microcosm of your life. 

You are who you are.  When you trade, you don’t become a different person.  If you are ill disciplined in your life, that will be reflected in your trading.  Further, if you are feeling down about something else in your life, the execution of your trading plan and your trading observations will not pick up as many opportunities as you won’t see the same opportunities as if you had a positive frame of mind. 

8. Watch out for major moves.

You should avoid trading after major moves, especially if the only reason for your decision is that you just saw the major move and feel as though you missed out on it. We have seen this often in the last few months with significant moves in a variety of financial products.  

The coronavirus pandemic has had a significant impact on financial markets and while many things have changed, it is important to realise that many things stay the same.  The trading principles that work in financial markets have stood the test of time.  

Here are some further issues for you to focus on as you look ahead.  

Develop an edge.

Too many traders attempt to develop multiple strategies, thinking that will provide them greater opportunity to make money, rather than focusing on one strategy.  You should attempt to develop one strategy that provides a statistical edge and then become the global expert in that strategy.  No one should know or understand your strategy better than you.  In this edge, you must assess the level of risk to reward ratio ensure the winning performance numbers are in your favour.  

Trade your plan.

If you fail to plan, you are planning to fail.  This has stood the test of time.  You cannot trade profitably over many years, if you don’t know what you are doing and why you are doing it.  You must know under what conditions you will enter a trade, how much money to commit to that trade and how you will exit that trade.  If you are trading with no plan, your emotions will take over and force you into a reactive mentality.  Develop a written trading plan.  

Trade with discipline.

This goes without saying - once you have a trading strategy that provides you an edge, you must execute that strategy with great discipline.  The more robust and complete your rules are, the less wiggle room you will have and therefore less opportunity to make it up as you go along.  The importance of this character attribute cannot be overstated.  

Manage your Money.

While discipline and your psychology are paramount, from a decision-making standpoint, all your decisions that relate to managing your money are the most important.  Take care of your money and remember your trading losses and how you manage them will ultimately determine your trading success, not your profits.  

Take it seriously.

Again, you are ultimately responsible for your own trading success or otherwise.  You must fight through the inevitable obstacles and have a determination not to quit when things are not going your way.  You must define your maximum risk tolerance and make sure you do everything in your power to keep your equity in an overall uptrend.  Commitment is enhanced by continuous testing of new ideas and regular monitoring of your existing approach. 

Good trading!

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The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.

This post was written by Graeme Watkins

CEO Valutrades Limited, Graeme Watkins is an FX and CFD market veteran with more than 10 years experience. Key roles include management, senior systems and controls, sales, project management and operations. Graeme has help significant roles for both brokerages and technology platforms.