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LESSONS I’VE
LEARNED FROM 11
YEARS OF TRADING
11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
I planned to buy and hold it for the next 20 years—to be like Warren Buffet.
After a few days, the stock price dropped 10% and I freaked out.
So I did what was “logical” which was to stop the pain and exit my position.
And that, my friend, was my official entry into the financial markets.
Fast forward to today, I’ve been trading the markets for 11 years now.
I’ve lost money. I’ve made money. And I’m still a student of the markets.
So in today’s post, I’d like to share with you 11 of my biggest lessons I’ve learned from 11 years
of trading.
Interested?
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11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
You buy when the price is at the lower band and sell when it’s at the upper band.
The first few trades I did were winners, then the losses came and I figured this trading strategy
doesn’t work.
I spent half a year learning how to draw these patterns (guess I’m a slower learner).
At the start, I had some wins but slowly, the losses kicked in and eroded all my profits.
This brought me to the world of price action trading, support and resistance, candlestick
patterns, etc.
“It’s always a few winners and then the losses pile up and take everything away.”
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11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
My actions were inconsistent. And because my actions were inconsistent, I got inconsistent
results (duh).
If you want consistent results from trading, you must have consistent actions.
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11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
But that’s not all because you must also have an in edge in the markets.
Simple.
This means your trading strategy must yield a positive result in the long-run.
If it doesn’t, then no amount of consistency will save you because you’ll end up a consistent
loser.
You can be consistent with your risk management, bet size, games you place, etc.
In the long-run, you’ll still lose consistently because you don’t have an edge over the casino.
Agree?
You must have an edge in the markets because without it, no amount of consistency, risk
management, trading psychology, etc. will save you.
Next…
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11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
You can’t tell if you have an edge based on chart analysis, risk management, psychology, etc.
Now, don’t panic because the formula is easy to understand that even a 10-year old can do it.
Let me explain…
Let’s assume you have the following metrics from your trading…
Next, plug those numbers into the formula and you’ll get…
= $300 – $240
= $60
Two things…
#1: It means your trading strategy has a positive expectancy (otherwise known as an edge).
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11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
#2: In the long-run, you can expect to make an average of $60 per trade.
Now…
Your expectancy will vary from one trading strategy to the next (and from trader to trader).
It’s possible to have an edge with a low winning rate because your average gain is much higher
than average loss.
Likewise, it’s also possible to have an edge with a higher average loss than gain because your
winning rate is high.
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11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
You don’t have the time to crunch a vast amount of data, do fundamental analysis, identify key
drivers of the market, etc.
So, how do you know which direction the market will go?
That’s it.
Here’s an example:
As you can see, the price is heading higher so we’ll look for buying opportunities—no shorting.
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11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
“What if the price is heading higher but fundamentals are bearish. Do I buy or sell?”
Based on my experience, it’s more profitable to follow the price regardless of fundamentals.
Here’s why…
When the market goes up on bad news, it’s probably because the market is already in an
uptrend, and the bad news wasn’t “strong” enough to trigger a correction or reversal.
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11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
I applied a simple Trend Following strategy to different markets (credits to Andrea Unger for
sharing it in Trading Mentors).
2. Hold the long position till the price hits the previous day low, and go short
3. Hold the short position till the price breaks above the previous day high, and go long
And here are the results of two markets that proves my point…
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11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
GBP/USD: Equity curve in an uptrend when a Trend Following approach is traded on it.
This tells you GBP/USD is a trending market as it makes money when a Trend Following
approach is traded on it.
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11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
AUD/CAD: Equity curve making new lows when a Trend Following approach is traded on it.
Clearly, AUD/CAD is a mean reverting market as it loses money when a Trend Following
approach is traded on it.
If you know a market’s behaviour, you can stack the odds in your favour.
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11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
Simple.
But as you know, the market is always changing. It can move from an uptrend to a downtrend,
range to breakout, etc.
This means a trading strategy can only profit from a certain market condition before it goes into
a drawdown when market conditions change.
(An example: trend followers make money in trending markets but go into a drawdown when
the market goes into a range.)
So if you agree with what I just said, then you can understand why the holy grail doesn’t exist.
All you need is a trading edge, consistency with your actions, and…
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11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
Both adopt a trading strategy that wins 50% of the time with an average of 1:2 risk to reward.
Over the next 8 trades, the outcomes are Lose Lose Lose Lose Win Win Win Win.
But with proper risk management, you can contain these losses till it feels like an “ant bite”.
Anyway, if you want to learn how to develop risk management in your trading, then read The
Complete Guide To Risk Management.
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11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
“But I’ve heard of traders taking a few thousand dollars and turning it into millions.”
Yes, it’s possible to make big returns from trading in a short period.
How?
And if you get a 1-to-1 risk-to-reward ratio, you’ve just doubled your account.
Because if you encounter a single loss, that’s the end of your account.
As a get-rich-slow scheme.
But if you stick with it long enough, it’s possible to grow your account to 7-figures (and beyond).
Here’s how…
Now if you do this consistently for 30 years, do you know how much money you’ll have?
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11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
$8,278,170.
In other words, when you think long-term, the sky is the limit.
Unfortunately, most traders are fixated in the now that they miss the big picture.
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11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
I said the holy grail doesn’t exist because market conditions change.
But, what if I tell you there’s “secret” technique which allows you to profit even in different
market conditions.
Great!
So if one trading strategy underperforms, the other profitable trading strategy can “cushion”
the damage (and possibly even keep your portfolio in the green).
You’re wondering:
Let me explain…
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11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
You’re about to see the backtest result of a trend following system from 2000 to 2020.
As you can see, it had 3 losing years in 2009, 2012, and 2018.
So, let’s add another trading system to the portfolio—the pullback stock trading system.
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11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
Here is the result of the pullback stock trading system from 2000 to 2020.
For this trading system, we had 3 losing years in 2008, 2011, and 2018.
Now, what if we assign 50% of our capital to the trend following system and 50% of our capital
to the pullback stock trading system, what would our portfolio results be?
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11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
Here’s the result…
As you can see, we only have 1 losing year (instead of the 3 we had earlier).
Pro Tip:
If you want to achieve better returns relative to risk, you can diversify across 3, 4 or even 5
uncorrelated trading systems.
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11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
No matter how good you are as a trader, you’ll encounter losing streaks, losing weeks, and
possibly even losing years.
If you do not prepare for it, you’ll face difficulties putting food on the table, paying your bills,
etc.
And in such scenarios, it’s difficult to make good trading decisions because you’re trading with
money you can’t afford to lose.
You’ll average into your losses hoping to make it back quickly or widen your stop loss so you
don’t lose your money.
It could be having a job, an online business, affiliate marketing, etc.—the more sources you
have, the better.
• Affiliate marketing (recommend products & services you believe in and get paid for it)
• Coaching program
• Online course
You want to focus on digging a well till water comes up before you move on and dig another
well.
Otherwise, if you dig many wells at once, you’ll end up with no water because you didn’t dig
deep enough.
And it’s the same thing for building multiple sources of income.
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11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
Price action, candlestick patterns, and chart patterns are lagging tools as well.
Let me explain…
Yes, it is.
So my point is this:
Yes, indicators lag the market but it doesn’t mean they are useless (or evil).
You must know what makes the indicator goes up (or down), how the value is derived, and the
concept behind it.
For example:
Well, it’s an indicator that calculates the average price over a given period, and appears as a
“squiggly line” on your chart.
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11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
#2: Know the purpose of your trading indicator
Once you understand how an indicator works, the next thing is to know the purpose of it.
So using moving average as an example, it can be used to define the trend, identify your area of
value, manage your trades, etc.
And finally…
This means you shouldn’t have multiple indicators with the same purpose.
For example:
If you use moving average to define the trend, then don’t add in the ADX indicator because it
serves the same purpose.
Or if you use the RSI indicator to identify overbought/oversold areas, then don’t use the
Stochastic indicator because it behaves similarly.
Anyway, if you want to learn more about using trading indicators, then go read Why You Lose
Money With Trading Indicators And How To Avoid It.
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11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
Just because you have access to multiple timeframes doesn’t mean you need to use them all.
For example:
If you’re trading on the 15-min timeframe, then the monthly timeframe is irrelevant because
it’s too “far away” from your trading timeframe.
Here’s how…
I’ll explain…
• If you’re a day trader, then you can trade between the 3-min and 30-min timeframe
• If you’re swing trader, then you can trade between the 30-mins to 4-hour timeframe
• If you’re a longer-term trader, then you can trade from the 4-hour timeframe and above
Next…
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11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
I said if you are trading on the 15-min timeframe, then the monthly timeframe is irrelevant
because it’s too “far away”.
That’s where a factor of 4 to 6 comes into play (a technique I’ve learned from Adam Grimes and
Alexander Elder).
Here’s an example…
Now you can also use a factor of 5 or 6 if that’s what you prefer. But whichever multiple you
choose, please be consistent with it.
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11 TRADING LESSONS I’VE LEARNED FROM 11 YEARS OF TRADING
Conclusion
So here’s what you’ve learned:
• If you want consistent trading results, then you must have a consistent set of actions
• Your trading strategy must have an edge in the markets, or nothing else matters
• Your edge can be defined as E = (average gain x winning rate) – (average loss x losing
rate)
• Not all markets are the same. Some markets trend better than others
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