Thursday, October 22, 2009

WHY YOU SHOULD TRADE LESS TO WIN MORE

The fact remains that there are some people who love to trade 10, 15, 20 ,40 rounds of trades per day. After all anyone who is really honest with themselves will admit that we trade most often times not only for money, but for excitement of being traders. As a trader you will always want the market go your predicted way. Its our drug of choice and we are all junkies to one degree or another.

Trading is first and foremost a passion. How many jobs do you know where people can't wait for Monday (or in our case Sunday night)? We are all fortunate to be involved in an enterprise that we care so much about and enjoy. But trading is also a business. And the cold hard, truth of the business of trading is that the more you trade the more you lose.

Of course there are exceptions to this rule. Some traders are extremely adept at high frequency trading and can churn out profits doing excessive round turns per day. Those traders, however, are few and far between. Doing this, you are really busy enriching the forex brokers. I call them the idiot savants of trading because they tend to have a supernatural feel for price action. See this scenario: "many times have I booked hundreds of pips of profit in Europe only to give them all back during North America trade". Who is fooling who?

The reason why frequent trading is so hard is because most of the time price action is random. The more often you enter the market the more likely you are to step in front of some monster order on the other side and get rolled over by the flow. Again, trading so much makes it easy to loose focus and thereby fail to apply the rules of our trading system.

While it is all good and well to pontificate about discipline and patience it is also utterly unrealistic to expect us flawed human beings to follow such advice. That is why it is crucial to have a garbage account in which we unleash all of our gambling instincts without doing any serious harm to our net worth/real capital.

With so many brokers now offering micro lots, the creation of a garbage/gambling account couldn't be easier. They key is to make sure your well reasoned disciplined trades go into you real account, and all your impulse trades go into the garbage account. If we can't realistically follow the dictum of Trade Less Win More, we should at least attempt to minimize the damage of our cravings.

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