Today’s blog post will be a little different than usual. You know that the FXRenew Pathway is about leading by example, and guiding retail traders on their way to consistency. Today it won’t be Sam or myself illustrating anything. Today we are passing the baton to Austin, who has beaten the odds and reached consistency and wants to share what has worked for him.
Since all retail traders face similar challenges, what worked for Austin might very well work for you too.
Against the Odds
A recent report by ASIC (Australia’s financial regulator) has once again proven just how challenging the trading game is. Roughly 30%-40% of retail traders are profitable, but of these an even smaller percentage remains profitable over the longer term.
These numbers haven’t changed at all in the past 10 years, which means bad trading habits continue to invade and permeate retail clubs. So if you’re breaking even already, or finding yourself barely positive on your account, pat yourself on the back! It’s already a great accomplishment.
What Austin (and Pete, who explained his journey in this webinar) has accomplished is absolutely brilliant. Through his journey with us, he has evidently:
- shifted his mindset
- killed bad habits
- embraced sound trading habits.
Without further ado, here are Austin’s lessons for other retail traders to take on-board.
Filtering Candidates via Market Types
Sam’s method of market type analysis using Bolinger Bands as a graphical reference for both market types and volatility and his simple but effective macro fundamental analysis form the basis for my own trading system and approach to the FX markets.- Austin
Market types provide us with a functional framework – both for entering and, perhaps more importantly, for exiting your trades. Market types help you notice what is going on, and then responding effectively to what’s happening. It’s a clear and logical structure that helps avoid analysis paralysis and focuses your attention on what’s in front of you.
However, it’s easy to see market types when they have already happened. But when you’re staring at the right edge of your chart wondering what comes next, you need to take market types a step further and consider market type transitions. Austin has evidently mastered the concept but here is the general idea. Primary market types all have a certain market type that follows:
- Bull normal. Followed by a bull volatile or sideways quiet.
- Bull volatile. Followed by a sideways volatile or a bear volatile
- Bear normal. Followed by a bear volatile or a sideways quiet
- Bear volatile. Followed by a bull volatile of a sideways volatile
- Sideways quiet. Followed by a bull or bear normal, or a sideways volatile
- Sideways volatile. Followed by a bull or bear normal or a sideways quiet.
So if you are in a bull normal market, you can expect a bull volatile to happen next, or if you are in a sideways quiet you can start to stalk the break-out to a new trend. This is the real art of mastering market types.
Avoid Short-Term Charts
I was trading a 4 hour system where I would use daily charts for setups and manage the trades every 4 hours so I had to be available, awake and alert at 4 hour intervals. This was difficult and proved ineffective. Now I use weekly and daily charts for analysis and manage and review my trades using daily charts every morning (my time) after the N Y session closes. – Austin
We have previously discussed how short-sightedness can harm your trading career and yet most retail forums are full of people trading intraday charts. Austin had time constraints to work with and demonstrated maturity when he decided that his trading habits had to fit in with his daily work habits – and not the other way around. In his own words:
Doing my analysis and trade management after a good nights sleep helped me focus on what I am doing with a clear head. Trading a daily/weekly system allow me to […] take advantage of the main fundamental drivers that make real moves in the market […]. I find the important areas of support and resistance are much easier to determine on the longer time frame charts.
Focus on the Process, not the Money
Justin insisted that I should avoid thinking of my objectives and performance in monetary terms or I would find it very difficult to succeed as a trader. I was reluctant to agree but […] these changes made a huge difference to my ability to follow my plan, think about and execute my trades without emotional repercussions.
Once again Austin did something very difficult: he removed a prior belief and substituted it with a new belief. This is commendable because it’s not easy to do. We are usually all blinded by our beliefs and past experiences. It is effectively challenging to humble yourself to the point you are willing to accept a suggestion and change your mind about something.
As Austin told us, there’s nothing “technical” about this input. It’s entirely about the mindset. But it allowed him to overcome a huge obstable that we’ve talked about previously here, here and here.
Position Size is Linked to Capitalization
I think most of us start trading grossly under capitalised and so have great difficultly managing trades and risk effectively. To compensate we use tighter stops than we should. We trade a small number of lots ( usually micro ). We scale out to protect profits at the wrong time limiting the opportunity to let profits run as well as the physiological effect like fear of loosing, seeing trades being prematurely closed on stops that were too close […] I think it is extremely important to work out a strategy to deal with under-capitalisation that gives us a chance of success. For me this was to calculate the difference between potential risk (my original stop loss) 1R and real risk ( the average R on losing trades) and adjusting my position size according to what I call my real risk. – Austin
Austin did what the original systematic traders did in the 1960s/70s: he experimented. He obviously kept good trading records, and then referenced them in order to work out a solution to his problem: how can I trade larger size, and reach higher objectives, while keeping my risk under control?
His solution is simple & subtle: he noticed how his actual losses – due to his trade management – were smaller than 1R. So in effect, he is sizing his positions based on what his risk management allows him to do.
For some background, we have spoken about objectives and position sizing here, here and here.
Cut Your Losses and Let Your Profits Run
In the past I was so focused on cutting my losses and protecting my account I failed to realise how I was suffocating my chance of making profits. I had to change my thinking and incorporate rules in my trading system that give me the opportunity to make multiple R profits within a framework of good risk management. I do this by only taking trades that have a reasonable chance of making several R profits and employing trade management rules that allow this to happen. I found the simple idea of cutting losses and letting profits run very difficult to put into practice. – Austin
Again, Austin had to overcome one of the typical issues retail traders have: scaling out or taking profit too quickly, usually out of fear (of being stopped out) or euphoria (of seeing some profit and wanting to take it while it’s there). These emotional reactions simply block any kind of progress.
Usually it all boils down to an implicit need to “be right” and not see any losses on the trading account. Here’s a simple chart of Oanda client positions that demonstrates this dynamic of holding onto losses instead of cutting them at their knees.
Source: Oanda’s MT4 Open Order Indicator
Notice how there are open short positions (orange) which have been held for over 500 pips (from 0.8300 to 0.8800). If most retail traders hold onto losses and cut profits, and most retail traders never reach consistency, you need to invert their habits. Austin did this and through his trade management structure, developed a way to hold onto winners and cut losses.
Only through a robust trade management framework can you do this properly. Without clear rules on when to react and what to do, your emotions will take over and limit your profit potential, because profitable trading habits go strongly against human nature.
Over to You
As Austin has demonstrated, reaching consistency is possible but it takes more effort than most people are willing to deploy. Being humble enough to ask for help; eliminating limiting beliefs; experimenting; taking note of what influences your bottom line the most.
This is why Austin succeeded where most retail traders do not: he put in the time & effort. He used all our Training Resources, listened to our suggestions in the workshop, worked with them and moulded them to his own character. He turned away from the pursuit of money, and turned his work into a pursuit of consistency.
Austin is now building his track record and we will continue to encourage him and hope he will become one of FXRenew’s future signal providers.
About the Author
Justin is a Forex trader and Coach. He is co-owner of www.fxrenew.com, a provider of Forex signals from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.
The post Meet Austin: The Retail Trader that Beat the Odds and Reached Consistency appeared first on FX Renew.