The No.1 Trading Tactic You Need to Know

Trading Strategy and Tactics

 

There’s a certain excitement associated with starting to trade. You are acting to make a desire come true.

You get an account and put on your first few trades. Some win, some lose. You accept the losses. After all you are just starting. The most important thing is that you are making it happen.

But, after a little while the excitement has gone and the fact that you are losing is what really matters. You need to learn more about how to do it right.

You start to ask questions and look for answers. You learn a bit and that lets you formulate your questions better.

You may know the type of questions:

  • Are 30 minute Binary Options better than 10 minute?
  • Is technical analysis better that fundamental analysis?
  • Should I use MACD or Stochastics?
  • Should I use a 14 day moving average or a 22 day moving average?

I often find that the subjects of these questions are issues that traders with a small amount of experience get stuck on as they strive to improve their early trading performance.

 

The Process of Learning to Trade

This seems to be fairly typical of the progression experienced by traders in almost all markets.

Once the basics have been mastered and the initial, often happy, experience of getting started has passed, attention turns to the only real reason you decided to trade: to make money.

At this stage, traders are often assaulted by numerous offers of assistance, for an appropriate cost. Usually there offerings stress that there is some system that, if implemented, will provide the trader with what they are seeking.

The situation seems to be particularly intense in the Binary Options area with vendors only too willing to offer perfect, easy to implement solutions.

Some people will fall for this and hand over money for products that seldom follow through on the promises.

But even if you don’t, there is a further issue here that goes deeper that must be addressed.

I’m regularly asked questions such as the above. Traders are simply looking for my opinion on specific points related to trading.

However, I’ve a real problem about trying to answer questions like these. That is because the only answer that actually contains any useful truth is ‘It depends’.

If I give this answer then there’s a further problem. It either annoys the questioner, because it looks like a brush-off, or it leads to the dreaded follow-up: ‘Depends on what?’

Just about everything would be one honest answer to this.

 

The Search for Perfection

The problem is that these types of questions are the wrong questions for most people. But they are the types of questions that so many traders seem to get hung up on, particularly at an early stage of their careers.

This will lead to problems for two reasons.

First, traders will start looking for answers to these questions. This is the start of the search for the Holy Grail. You can read more on the futility of this in this post here.

If you do this then you will be derailed from what actually matters and your chances of success will be low.

This is the second problem. When people start looking to answer questions such as these they lose sight of what matters. And they fail to do what actually needs to be done.

 

Don’t Ask these Types of Questions

These are the wrong questions because they are about tactics. Details if you like.

But details only matter if there is a framework in place. The problem is that the framework will be difficult to visualize, slow to develop and will require a lot of work to be put in place.

However, it is framework that will provide trading success in the long run.

The framework is your strategy. I often refer to this as your trading plan, sometimes as your system if I am referring to specific parts of it.

The benefit of calling it a trading plan is that is emphasizes the need to have it written down.  You can learn more about this in the Free Trading eBook.

I know from experience that the best way to ensure that you really understand something is to try to teach it to someone. Particularly someone who is, or is close to being, your peer.

The next best way to ensure you understand something is to write is down and leave it for a while. Perhaps a week or two. A lot of what you have written and what was in your mind when you wrote it will have gone out of your mind by then.

You will be reading the plan in somewhat of a vacuum. Then you will see if what you have written makes sense and if there are gaps.

Once written down, your strategy has to be tested to see if it can be made profitable. When you have done this you can start to think about tactics.

 

The Temptation of Tactics

But, it’s so much simpler to think about tactics at the start. That’s why you see so many forums with ‘trading systems’ laid out for you to follow.

I’m not saying these will not work. The best are certainly better than random trading. But they will only be successful if you use these as tactics within an overall strategy.

Look at the table below and you will soon see why people tend to be attracted to tactics.

Tactics are about doing something, not about conceptualizing. This suggests getting on with it. It also catches an idea that seems to have increasing credence which is that successful people get on with things, rather than thinking about it and planning first.

Strategy is about planning. It’s also about having a full overview. This is not easy. It’s all too easy to get sucked into details, perhaps if you know a bit more about one area of trading or if you have read a post on some detailed aspect.

No. 1 Trading Tactic You Need to Know

Strategy also deals with the purpose, or long term objective, rather than tactics which are more concerned with taking actions that have short term outcomes.

Again this seems to be much more in keeping with modern work practices that are often assessed against measurable outcomes within foreseeable time periods.

One result is that strategy can be difficult to do with uncertain outcomes. Not so with tactics.

 

Trading Strategy and Tactics

The final two lines on this table are important. Strategy is the basis on which competitive strength is based.

This is the ability to take losses and ensure that you are still around for the longer term wins. I have emphasized the importance of this many times.

With tactics you are looking to adapt to the immediate circumstances to ensure that you have the best chance of winning the next trade. There’s a big difference.

Finally, as any good manager will know, the possession of a competitive strength based on a sound strategy is defensible against competition. In contrast, being able to win on a given day is not an indication of a secure position.

I’m not saying that tactics are not relevant to performance. But if you are not trading successfully then changing some details without ensuring that you have a comprehensive plan in place is not the answer.

Worse, you can get caught into a cycle of ‘doing something’, simply making changes, because it is easy to do so, while failing to address the difficult questions.

 

The No. 1 Trading Tactic You Need to Know

So you see, the No. 1 trading tactic you must know is that you must plan and implement your strategy before you turn your attention to tactics.

Tactics are for the successful and experienced. In other words, for those who have a proven profitable trading strategy in place.

When you have this you can make changes such as changing the preferred time period for trades or the parameters of a moving average and assess its impact on your performance.

But no amount of this will work if you don’t have the overall plan in place. And no amount of searching to optimize details will improve your performance.

Always remember that the perfect system does not exist. Aim for one that works.

Then work on improving the details.


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