The only one thing that you need to get consistent results

very-important

Hey traders, how is your trading going? How is life?

Let me ask you one question:

What do you think is the most important aspect of trading to get consistent results?

I guess your answers will vary, based on your experience, trading style, etc.

Is it the entry system?

Some of you will say that the entry system is the most important aspect of trading. At the end, you need to trade at the right levels right?

And that’s a good point, having a good system is important, but I really think that there are other aspects of trading that are far more important than this one.

And let me tell you why I think that… If you are trading the wrong currency pair (i.e. a currency pair with no clear direction) it doesn’t matter what entry system you use, you will get stopped out.

When you follow what I think is the most important aspect of trading, it doesn’t even matter what entry system you use, if you follow the rules, most of the time the market will move on your favor.

Bear with me…

Is it the psychological aspect of trading?

Trading Psychology

Some other traders will say that the psychological aspect is the holy grail of trading.

And again, its also a very important aspect of trading.

How traders need to deal with emotions is what makes trading different than other aspects of life.

And let me give you two examples: Lets say you want to run a marathon or play a very difficult piece of music in the guitar.

To play that song, you know that you need to practice, and if you do your homework, sooner or later you’ll be able to play it. To run a marathon you need to train, but again, if you train and do what you are supposed to do, you’ll be able to run it.

When it comes to trading though, even when you do everything right, and you follow all your rules, the market could still move against you and stop you out.

That is very difficult to deal with (internally)…

But no, it’s not the psychological factor, its something bigger.

Is it risk, trade or capital management?

Risk in Forex

Wow…

This one is a difficult call, but no. I dont think any of these three aspects is the most important aspect of trading.

Risk management, how you manage your risk on each trade. This will certainly help you reduce your losses, but in no way will help you be more consistent.

Trade management, again, it helps you increase the profitability of your trade, but in no way helps you trade with consistent results.

And finally, capital management, which helps you increase your profitability (when things are going well) and limit your losses (when things dont go well).

But none of these techniques help you to be consistent.

Dont get me wrong here, risk, trade and capital management are important. You need all of them to increase your profitability, but most of the time these techniques help you get better results when you are already consistent.

Makes sense?

Ok… now, this is what I think is the most important aspect:

This is it: Understand what the market is doing

Understanding the market

That’s right… That’s what I think is the single most important aspect to get consistent results, and let me tell you why with an analogy…

What happens you get a brand new TV?

You are all excited, open up the box and the first thing that you do is try to figure out how the TV works… you have a bunch of questions, a few read the instruction manual and some others (like me) just push the buttons until they figure out how it works…

While trying to figure out how it works, you are stressed, because the thing is not doing what you are asking for, so its not a very pleasant experience.

And finally, you figure it out and now you understand how the TV works. Only then you feel relaxed now and there is where you start enjoying it.

Well… the same thing happens with the market.

If you dont know how it works, you are going to feel stressed, if you trade based on black boxes or magical formulas, you are going to feel stressed, you are not going to enjoy your trading, and believe me, that’s kind of a big deal.

And now, lets take a look at the other side of the coin.

When you understand what the market is doing, you dont need the perfect entry system, because you know what the market is likely to do. So even if you take your trades a little late, the market still has good possibilities to move in your favor.

Also, since you understand what the market is doing and what it is likely to do, your emotions will not kick in (at least, not in the way they do when you have no clue about what the market is likely to do), so there is no need to worry about psychological factors.

Do you see why it is very important?

And the 2nd most important: Understand risk

This one would be my second option…

I’ve wrote about Risk before and why it is important, so if you are interested you are going to have to review my previous articles :)

Your turn

What are your thoughts about this?

I’d love to see what think, please share your views.

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Raul Lopez

I've been trading the markets for more than 15 years. I believe the best way to trade is by adapting to the market conditions. You can learn it too, join our community .

  • Waqas Khan

    very nice

    mention that risk management article link.

    • Raul Lopez

      What are you talking about?

      • Waqas Khan

        do you have any artical on risk management?

        • Raul Lopez

          Yes I do Waqas, see the previous articles on my blog and you’ll find plenty of articles about risk management.

  • pduarte

    Hey Raul,

    I’m not saying that we go start buying all the Euro crosses but, just to try to understand what happened to the EUR.

    • Raul Lopez

      Yep, I know… for know I’m going to stay on the sidelines…

  • pduarte

    Hello Raul,

    Look how few, people react to this post.

    I think it’s because this isn’t THE million dollar question but it’s A million dollar question.

    Sorry if it look’s like I am pretentious, but it’s only a comment from someone that want to bring some spicy to the discussion, and also a commentary from someone like you..

    I think that in the case of the euro, that, what it’s happening is that the euro as reached important resistance levels, nemely in the EURCAD(W); EURJPY(W) and EURAUD(D/H4), and transposed some resistance levels to, namely EURUSD(D) and EURGBP(D). So, I think that we are seeing correction moves of the EUR.

    What do you think about this?

    Is this some kind of analysis that is unnecessary and fruitless, or it’s something important while we do our analysis of the market?

    Best Regards,

    Paulo

    • Raul Lopez

      I know Paulo… not a lot of reaction :S hehe

      You are right about the EURCAD weekly level, not so sure about the EURJPY 1W level, and agree with the EURAUD 1D level…

      And big retracements from both the EURUSD and EURGBP…

      But you know Paulo, I think this week I’m going to stay out from the markets… we’ve got two days left, and plenty of important fundamental announcements, so I think we have to be careful this week…

      Plus, I’m a little scared about those retracements… hehe

      Do you have anything open?

  • Chad Hogan

    Thats a good question. I gave up trying to figure out why the market does certain things at certain times. Trying to explain the unexplainable is pointless. I think as traders we need to be adaptable. We need to respond to the market as quickly as the market may move. We dont have to know why the market behaves like it does, we just need to respond to it. And I hate new TV’s that wont work immediately!

    • Raul Lopez

      I like the way you put it, trying to explain the unexplainable is pointless… The key here is just trying to see what the market is doing, see what it is likely to do, and act upon that information… That’s it…

      And yes, I hate it when I get a new gadget and have to spend time trying to figure out how it works… but sometimes we need to, in order to start enjoying it…

      Thanks for your comments Chad!

      Cheers,

  • Craig Hantke

    How to explain and understand the EURGBP drop today? would have needed stops to prevent major loss, no?

    • Raul Lopez

      Mmmm…. Sometimes market swings are unexplainable…