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3 important lessons for traders of all levels



The following article was written by Giles Coghlan, Chief Currency Analyst at HYCM.


Be a contrarian… even with yourself

It’s almost a cliché nowadays, that some of the most successful traders made their biggest and best trades by going in the opposite direction to the crowd. Cultivating a contrarian attitude that can look the other way and find reasons for why the majority of market participants may have gotten it wrong is certainly an enticing prospect. It speaks to the lone wolf attitude that we discussed above. But this doesn’t mean you should be a contrarian just for the sake of it; that’s another type of conformity. The idea is that you should always be questioning the wisdom of crowds and testing possibilities that they don’t seem to have accounted for.

Most importantly though, and perhaps the most difficult, is learning how to take the opposite side of your own trading thesis. You should be able to interrogate your own ideas in a way that reveals all the holes that you may have glossed over or not accounted for when developing a trading plan. There are a couple of important reasons for this.

First, if you can’t even see the logic of the opposing argument, then you don’t really have any choice but to trade in that one direction. In some cases, this means that you may just be emotionally or ideologically attached to the asset in question, which is irrational and a recipe for disaster. You see this often with cryptocurrency traders who can never see any argument for bitcoin going down, or Tesla bulls, who dismiss any evidence that runs counter to the bull case.

Second, it means that when the market turns (and they always do), you will be unable to take the opposite position. Functionally this means you won’t be able to take profit when it’s wise to, which means leaving a lot of money on the table. It also hinders you from being able to trade in the opposite direction if that is indeed warranted. As an example, crypto ideologues found themselves holding and praying during the 2018 bear market, unable to trade, while those able to take the opposite side did well in a pretty harsh bear market.

Cultivate emotional resilience

Emotional resilience is one of, if not the most important aspects of trading psychology to get a grip on. This is because it touches on so many aspects of the craft and affects traders regardless of their strategies, time frames, or even whether the trade in question is currently in the money or not.

Put simply, emotional resilience is the ability to stay calm and not be a slave to your emotions. An emotionally resilient trader doesn’t dwell on past positions and, more importantly, doesn’t allow them to influence future positions. It’s hard enough to know where you are in markets that are never static and are constantly shifting. If you add an unstable frame of mind to that picture, you’re making it incredibly difficult to gain a clear understanding of what is going on.

lessons for traders

Emotional instability can manifest itself in both negative and positive emotion. For instance, if you make a mistake and lose money, the negative emotion attached to that loss can influence you to make all sorts of irrational decisions further on down the line. It can sap your confidence so that you become unable to pull the trigger on a subsequent trade that may have a lot going for it. Alternatively, it can cause you to chase bad trades in the hope of quickly recovering the initial losses you made. It sounds intuitive, but so many traders are led by their emotions in this way without even realising it.

In the case of positive emotion, an emotionally unstable trader is quick to be swept up in the euphoria of bull markets and bubbles. They are also much more likely to attribute a previous successful trade to their own expertise rather than to luck or fortunate timing. This leads them to approach future trades with a kind of dangerous arrogance that markets will quickly punish. Wall Street veterans often speak about traders who come of age during bull markets as being afflicted with this bias. They started trading when the market as a whole was moving up and so develop an unconscious bias that their success is down to their own skill rather than to a rising tide that lifts all boats.

This is not to say that you should erase all memory of prior losses and move forward as if they never occurred. Doing so can leave you vulnerable to repeating the same exact mistakes. However, good traders have the ability to put their trading history into context and learn from their previous trades without placing too much emphasis on them. It sounds good in theory, but can be incredibly difficult to do in practice. Remember, that regardless of whether your last trade was a win or a loss, its outcome shouldn’t influence your next one. And your next trade is not the be-all, end-all; it’s just the first of many.

Don’t be a lone wolf

It’s quite ironic that even though we have the entire world at our fingertips, so many of us still choose to go it alone. Retail traders who trade in isolation, experience some notable disadvantages relative to institutional traders that not many people discuss.

When older institutional traders review their education in the business, they often refer to the various mentors they had when starting out on a trading desk. These relationships allowed them to benefit from the wisdom and experience of older participants who had seen more and had experienced a wide variety of market cycles. In this way, they learned lessons that could be painful and costly if learned in isolation.

And it’s not just about mentors. Working alongside other budding traders creates an environment where people can learn from each other’s mistakes and successes. Having others around you that are aware of your trading and how it’s going for you also makes you accountable in a manner that’s almost impossible to recreate on your own. As with any competitive activity, being in contact with people who challenge you and inspire you to work harder is the key to improvement.

The internet affords you the luxury of connecting with other traders from all across the globe and forming relationships that can be mutually beneficial. Of course, it takes time and commitment to find the right people and to not just create echo chambers that feed you back what you already believe. However, when done right, interacting with other traders and taking part in communities can be very beneficial to both your knowledge and state of mind. Developing trusting relationships with others that allow you to discuss your ideas, strategies and outcomes in an honest way gives you a sense of perspective that is absent when you’re alone.

And even if you are completely antisocial and would rather keep to yourself, there is so much incredible content out there from veteran traders that can fill the role of mentor for you, even if you never actually speak to them. The general idea is that you should be humble enough to take some time out of your trading day and find other traders who you can look up to and learn something from.

If you have been struggling to find your tribe of traders, I invite you to join HYCM's weekly webinars and workshops, where I demonstrate how to analyse recent movements and discuss market events of the coming week, and guide attendees in practical exercises designed to hone the technical side of trading, respectively.

Register for the webinars and workshops on the HYCM website


High Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure.

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3 important lessons for traders of all levels

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