With the new year upon us, it’s a great time to take a step back and reflect on 2017. What was your profit or loss for the year? Why was it that? In other words, what did you do or what didn’t you do to produce that outcome?
It’s also the perfect time to modify your trading plan if necessary. Think of 2018 as a clean slate. A time for you to begin thinking like a professional Forex trader.
In this lesson we’re going to cover how to assess your performance in 2017 as well as how to prepare for 2018. We’re also going to review five of the most common pitfalls among Forex traders.
Let’s dig in!
Review Last Year's PerformanceFirst things first, in order to know where you want to go, you have to know where you’ve been. Reviewing the previous year’s performance should be number one on your list of priorities to start the new year.
This is where your trading journal comes in handy. A look at your trades in 2017 will give you clues about what needs to change.
Don’t have a journal yet? Put that on your list of things to get before taking your first trade in the new year. It’s a must have for any Forex trader.
Here’s a list of questions you should ask yourself as part of your 2017 review. This is by no means a complete list, but it should get you started.
Were you overtrading?
Was your average R-multiple low?
Were you trading the lower time frames?
How many “revenge trades” did you take?
How many currency pairs did you trade?
Let’s take a look at the five questions above in greater detail.
Were you overtrading?
This is perhaps the number one killer of trading accounts. Of course the number of trades will depend on the time frames you were trading last year. If you were trading the 4 hour and daily time frames, you should have averaged somewhere between 4 to 10 setups per month. My guess is you traded quite a bit more than that.
The best way to cure overtrading in the new year is to remember that quantity does not equal quality. In order to become consistently profitable in 2018, you must reduce your trading frequency so that you’re only taking the most obvious price action setups.
Was your R-multiple too low?
When it comes to a proper risk to reward ratio, a 2R is as low as you can go in order to maintain a favorable risk profile on any one setup. But that doesn’t mean that you should be content with constantly targeting 2R setups.
The real key to success as a Forex trader is a combination of reducing your trading frequency and increasing your average R-multiple. More trades does not equal more money. What really grows a trading account is being extremely selective about which trades you take. Part of that selection process should include trying to achieve the highest R-multiple possible.
In the new year, try to increase your R-multiple requirement. If 2R was as low as you could go last year, make it 2.5R or even 3R in the new year. You won’t get as many setups but the ones you do get will be that much more profitable.
Were you trading the lower time frames?
If you were trading the daily and 4 hour time frames last year, you want to make an honest evaluation of the number of times you broke the rules. In other words, how many times did you trade the five, fifteen or thirty minute charts?
From experience, I know that making the switch to the higher time frames is one of the most difficult changes a Forex trader can make. But it’s also one of the most advantageous.
So be sure to keep yourself on track in the new year by becoming self-aware. When you get the urge to trade the lower time frames, just remind yourself why you made the switch in the first place.
How many “revenge trades” did you take?
A revenge trade is one that’s made out of spite. It’s a trade which has no real technical validity because the decision came from your ego rather than the logical side of your brain.
So how can you spot a revenge trade from a normal trade?
It’s quite easy. A revenge trade is always put on immediately following a loss. This is when your ego is out to prove the market wrong. It’s also the time when you are most vulnerable to suffering a series of losses, if not blowing your entire account.
A great way to avoid this in the new year is to give yourself a time out rule. Set a rule in your trading plan which doesn’t allow for any trading for a specified period of time following a loss. This is typically a period of time between 24 to 48 hours.
Whatever you decide, just make sure you completely close your trading platform during this time. Find something else to occupy your time until the time out rule has passed.
How many markets did you trade?
This may seem inconsequential. After all, why would it matter how many different markets you traded?
As minor as this may seem, it can tell you a great deal about your trading habits. It can also reveal where you may be going wrong.
For example, let’s say you only traded eight currency pairs last year. But upon further examination you notice that you traded two of them 90% of the time. That could be problematic.
Having a large pool of markets to choose from is essential if you want to trade only the most obvious setups, which should be the goal of every trader. It allows you to be more selective about the setups you trade, which in turn increases your bottom line.
Try taking this exercise a step further and examine your win/loss ratio for those eight markets you traded last year. If you find that you’re losing 80% of the time in 1 or 2 markets, you may want to stay away from those in the new year. The opposite holds true for a market that you traded well last year.
Plan for 2018Now that you have reviewed last year’s performance, it’s time to address what and how you’re going to change in the new year.
But before we begin, let me stress once more that it’s absolutely essential that you answered the questions above honestly. Without being brutally honest with yourself, you’re going to be in for another year of losing money and no shortage of frustrations. It’s time to put that behind you and start moving down the path to consistent profits.
Now that you have honest answers to work with, you need to take action. This is where a lot of traders fall off the wagon. They do the review, write down their answers and then simply tell themselves they’re going to change in the new year.
It isn’t enough to simply say, “I’m going to become a better trader”. Or, “2018 will be the year I become consistently profitable”. Those are both great sentiments to have, but they aren’t going to get you to the finish line.
You need to take your answers from the questions above and turn them into action.
Do things like modify your trading plan where necessary. Don’t have a trading plan? Visit this article to learn how to write a trading plan.
Create short and long term goals. Where do you want to be at the end of 2018? How about in the next three to five years? Be sure to make your goals measurable by using specific dates and figures.
I want to double my account by the end of 2018 isn’t a well-written goal. I want to make $5,000 by December 31, 2018 is a well-written goal.
Lastly, take this time to remind yourself why you started trading Forex. Becoming a successful trader is a journey that will test you on every level. In order to persevere, you must have a “why” that is bigger than you.
It isn’t enough to do it for the money. That can be one reason, but it shouldn’t be your only reason. Do it to free up time, so you have more time to spend with your family. Do it for the ability to eventually give back to others. Just be sure to make your “why” bigger than you.
ConclusionTaking an honest inventory of your performance at the end of the year is essential to becoming a successful Forex trader. It allows you to gain perspective on what you did well and what can be improved.
The key to conducting an effective review is honesty. You have to remove your ego from the equation and take a long hard look at where you are compared to where you want to be. If you discover that you aren’t on the right path, you need to figure out why and how you can fix it and then implement those changes for the new year.
A new year is upon us, so be sure to make it your best year yet. Set new goals that will keep you excited and motivated. Above all else, stay positive – knowing that you can become a consistently profitable Forex trader in 2018.
