x Abu Dhabi, UAETuesday 23 January 2018

Time to go with the trading flow

The Life: Renee Tauro continues chronicling her quest to become a successful trader.

Many traders make money by riding momentum in the market, not anticipating changes of direction. Ramin Talaie via Newscom
Many traders make money by riding momentum in the market, not anticipating changes of direction. Ramin Talaie via Newscom

They say that the market is driven by two things: greed and fear. Keep those emotions in check and you are halfway up the road to being a winner. Now try putting that philosophy into practice - it is easier said than done.

At the moment, I'm anything but a winner. I shamefully have to admit that my greed got the better of me this week. I seem to be down by €1,000 (Dh5,290) every other day. Fortunately, I'm still making simulated trades at this point and not risking real money.

The plus side is that at the end of this painful exercise I seem to finally have a trading plan that will work for me. I can safely say that my "trading mojo" is back.

The trend for German government bonds, or bunds, has been generally upward because of disturbing news on Greece, other European countries and unsatisfactory economic data from the US. However, intraday trades have seen bund prices oscillate violently and I have been caught in the noise.

By the fourth day of negative trades I decided I was thoroughly fed up with being a confused trader and vowed to sit by my simulated screen until I got my trading plan right. In the process I realised I was subconsciously trying to play the role of an analyst but without the grounded skills and qualifications.

I was trying to form an opinion or guess where the market would go and then base my trades on that analysis. I found I was also trying to rely on my beliefs of where I wanted the market to go instead of trusting my technical analysis - another term for reading charts to look for trends in the markets.

Of course, four consecutive days of negative trades proved that my assumptions plainly were not working. I realised then that trading, regardless of whether you are trading equities, forex or bonds, is to a large extent a psychological game. I needed to get to the crux of who I was.

Question: Who am I?

Answer: I am average Joe trying to make a solid euro. I am not a tarot reader, I cannot predict the future, I am not an oracle from Omaha like Warren Buffett nor am I a professional market analyst.

The words of a successful American trader came to my mind. This woman, a nurse turned independent trader, had told me that one of the first questions people tended to ask her was where she thought the market would be headed.

She always told them the same thing: "I don't know where the market is going and I don't care.".

She makes money by riding momentum in the market, not anticipating changes of direction.

I learnt that day, staring at the red box indicating the size of my losses, to accept my limitations.

I can't outguess the market. I am a trader. My job is not to try and project where the market will go. My job was to simply catch a trend and execute trades regardless of whether the market was going up or down.

As long as I obeyed my rules I would win on trades. The second I disobeyed my rules and formed an opinion or traded on hope, I lost.

My plan and strategy is now to keep it simple and un-opinionated. I'm down for now but most certainly not out.

Renee Tauro is chronicling her quest to become a successful trader