There are two ways to get a trade wrong. Actually, there are lots, but let’s concentrate on two of the most important to help transform you from a good to a great trader.

Firstly, a trade can go against you for reasons you could never have foreseen. Think profits warning or a big currency move after macro-economic data or some unhelpful central bank commentary. This is far from an exhaustive list but you get the idea of the likely culprits. Things that are unlikely to influence a trade but always have potential to scupper things.

The second is simple laziness in terms of trade preparation. It’s all too easy to focus on what looks like an attractive 2% bounce from 3-month lows, presuming the shares will just keep rising, looking only at the potential profits, never considering the potential losses (click here for more on risk vs. reward), and forgetting to use stop losses. Blatantly disregarding strongly negative technical signals is dangerous too, along with ignoring major events like influential macro-economic data or results from either the company itself or a sector peer.

When a trade goes right it’s easy to get carried away, moving swiftly on to the next one, possibly risking even more. There is an adage in technical analysis that says “the trend is your friend”, but that doesn’t mean throwing caution to the wind. It’s important to verify what went right with each trade. Some will say “who cares? I made a profit,” but that’s silly. If you often get trades right for the same reason (e.g. three day bounce + breakout + RSI back from oversold) this is akin to a trading strategy which it’d be careless to overlook.

In the same vein, there’s no point shouting and swearing at the PC when you take a loss, before going and doing exactly the same thing five minutes later. It’s just as important to analyse what went wrong to avoid doing the same thing again, and again. Makes sense, no? If the trade was placed for all the right reasons, but a random event spoiled the party, then you did nothing wrong and shouldn’t be put off from trying again. “Fall off a bike, get back on.” You may lose money to a random event, but that doesn’t mean you did anything wrong.

If, however you raced into a trade because the share price had bounced 2%, presuming they would ‘just keep rising’, even though they remained in a clear downtrend, with results scheduled for the next day and analyst previews having been rather scathing, then you only have yourself to blame. For both a poor technical set-up, and ignoring calendar risk. Echoing the above bike analogy, “Fall off a ladder, don’t work from the top rung again”.

Did your broker not provide you with a preview of what analysts were expecting? They should have, Accendo does. Did your broker not even alert you to the fact the company was reporting the next day, giving you the option to protect your position? Oh dear, they really should have. Weren’t you aware that a major central bank update had potential to move markets and your position? Owch.

Accendo alerts all its clients to this info, each and every day, via its team of traders, sales and analysts. It’s how we help our clients protect their capital, and keep them as clients for longer. A decade in some cases. To experience real help, get access to our research now  and join the many successful customers we deal with daily.

Fail to prepare, prepare to fail. There’s only one way to get a trade right.

As always, enjoy your weekend.

Mike van Dulken, Head of Research, 27 Oct 2017