Do you know the best way to avoid over-trading?
In this episode of Truth About FX, Walter digs into one of the most common problems even seasoned traders bump into: over-trading and over-leveraging. He points out two main points that will help you solve this. He also shares an interesting video about moving average crossover and the idea behind it.
Download (Duration: 04:59 / 5.78 MB)
In This Episode:
00:48 – clever things
02:50 – crossover
04:12 – a game
Tweetables:
Know what percentage you’re taking [Click To Tweet].
Focus on execution [Click To Tweet].
Set-up a reward system for yourself [Click To Tweet].
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. This is a pretty much a common question but this trader is asking or this trader is saying that, “My biggest challenge is taking a trade right after a winning trade because I get too excited. So that leads to things like over-trading, over-leveraging, not cutting losers quickly. How do I solve that?”
Walter: That is a great question. There’s a couple of things you can do. One of the really clever things I’ve seen is that, one of my friends who is managing money, he’s team didn’t really know what percentage they were taking.
So, he had this platform programmed in China and essentially what they did was they hid from the traders what they were trading, how much they were trading, like how much risk is on the position.
They would just see the pips, trading it like a game, trying to make more pips. What was interesting was they found they would run a 10 moving average and a 20 moving average of essentially their trading results.
I’ll post a video in the shownotes so you guys can see how this works because this is a really a cool idea. So, what you do is… What they would do is they would stop trading a lot of money that wouldn’t give them much to trade once their 10 moving average cross to 20 so they were kind of like running like a moving crossover system on the trader.
You can do this yourself, it gets so cool. I’ll show you guys how they do it like with the spreadsheet in the video in the shownotes. But what’s cool about it is, it’s almost like you’re trying to anticipate a drawdown or an overconfidence period.
I think that’s kind of an interesting idea that you might also like to look at like building some breaks or you could use the moving average cursor. So, when you see your performance crossover you basically go to demo or reduce your position size greatly so that’s one way to do it.
The other thing you can do is you can focus on execution which is really the name of the game. I think that’s why you can teach people to trade when they don’t really have a concept of money like as in kids or they see it as a game.
If you can see trading as a game, what happens is you focus more on following the rules of the game which is basically your system rather than freaking out because you’ve got this profit in your account. You want to cash it in so you’re not really looking at it in terms of what happened on the last trade. Did I make money? Did I lose money? You’re looking at it in terms of, “Am I following the rules to my system?”
You can set up reward system based on and that’s a really, really good tip. If anyone listening thinking that, that’s remotely interesting. It’s a really good path to go down. A lot of traders have used and leverage off of this idea to find consistencies.
It’s another thing that I would look at but those are basically three ideas there. One is to build in breaks so you might say after you had a really good run, you automatically aren’t going to be trading or at least trading demo or something.
Two is you could use the moving average crossover thing and three, you could turn it into a game where you’re rewarding yourself for trading your system correctly and not, whether or not you’re in a drawdown or in great win streak or any just kind of paying out on execution, basically which is really a great way to trade.
Those are the three things I can come up with. I don’t know if, do you have any other ideas?
Hugh: Mine primarily is taking a breaks but I look forward to watching the video on the moving average crossover. That’s pretty cool.
Walter: Yeah, I’m happy to share that. Like I said, my friend who did it, he’s crazy. Like, he comes with these wild ideas. That is why I like him because he’s not like other traders. I think it’s a cool concept to look at.
Admittedly, I don’t use it myself but I could see where if you have a team, it would make a lot of sense in terms of trying to manage risk and stuff because that’s the big concern when you’re managing trade.
What do I do when I go bad and it’s kind of like with a system, how do I know if the system doesn’t work anymore. I don’t know if this trader is freaking out or whatever. It’s a cool idea but you can certainly use it for yourself. Great. Great question.
Hugh: Thanks, Walter.
Walter: Thank you.
SHOWNOTES
TraderMovingAverage from FxJake on Vimeo.
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