Trade Like Harry

At the Just Shares offices some months ago we were approached by Harry and asked the following, “I have been trading shares for over a year now.  I bought a training package and some trading software from another trading educator for nearly $10,000 last year and I just can’t seem to make any money from my trading.  Can you give me some suggestions as to how I improve my trading results?”

Our answer follows.

Let’s begin with four principles that we told Harry that he must follow.

1. Trade with an edge.  This means use a technique or method that delivers a positive outcome over the long term.
2. Manage risk – all the time in every single trade without exception.
3. Be consistent – stick to your trading rules always.
4. Keep it simple.  Successful traders often use the simplest approaches to trading.

For Harry we started by looking at Principle 1.  When we examined his trading records we found that he had been taught three trading methods and that the best performing one was generating winning trades only 38% of the time.

We also discovered that his application of stop losses was mixed and that his setting of stop losses was discretionary.  Furthermore he did not use position sizing.

Generally speaking he was consistently sticking to his trading rules but some he didn’t understand properly and some were very complex requiring an analysis of as many as ten different technical indicators.

Harry was also very pre-occupied about being right in each of his trades and felt he should have a better handle on “knowing which direction prices would move in the future”.

Just Shares point of view is that successful trading is not about being right, it is about trading right.   Really successful traders do not care about being right; they care about making money.

Successful traders do not pretend to be able to predict the future.

What we did with Harry was:

1. We taught him two very simple trend trading techniques – one short term and one long term.
2. We got him to agree to use a 2% stop loss rule in every trade and to use position sizing for every trade.
3. We taught him to think in terms of probabilities of likely outcomes not prediction.
4. And finally we taught him to expect to have losing trades and not get concerned when he did – providing he was using his stop loss rule.

The result nearly a year later is in.

Harry has had a profitable twelve months of trading.  His profits for the year are nearly 40% of his starting trading capital and he is a happy trader.

“Wall Street never changes.  The pockets change, the suckers change, the stocks change, but Wall Street never changes, because human nature never changes.” Jesse Livermore.