5 Trend Following Trading Tips for New Traders
To become a profitable trader you must adopt a systems thinking mindset and get to know yourself better. You can have the best trend following system in the world and still lose money if you can’t control your emotions. Here are 5 tips to succeed.
- Matthias Hagemann
1. Adopt a Systems Thinking Mindset
I started trend following in 2007. I claim to know a thing or two about personality traits that make or break a successful trader.
Lack of systems thinking is the primary reason why traders never make a dime in trend following. Systems thinking is a holistic approach that focuses on the interrelation of a system’s components to gradually improve an outcome. Example: You place a trade and end up with a gain or a loss. Then you analyze the outcome and find what you can improve — a classic feedback loop of a learning process. That’s systems thinking.
Successful traders have the ability to learn from mistakes. You have to put a strategy to work by testing your assumptions. Have no fear. Keep trying with small risks. New strategy ideas still come to me all the time — I never stop learning. It’s alright not to be successful instantly.
Lack of discipline at any point in time can quickly cause drawdowns. Discipline means to trust your rules and to follow them systematically. Sometimes your emotions are in the way of making correct decisions.
2. Start Humble and Stay Alert
Forcing your views on the market is doomed to fail. Aspiring traders overestimate their chance of success. They read success stories on Reddit or of their friends and start off overly confident. Instead of developing strategies systematically, they trade out of gut feel. Then they completely freak out when they’re $100 in the red.
The same market that brings you to the promised land will bring you to your knees first. Think of the last time you tried to improve. When was the last time you actually enjoyed learning and fixing something? Awaken this energy in you. You’re constantly fixing mistakes to optimize your trend following system. Traders who make it stay focused, keep an open mind and consistently work on themselves.
Trend following strategies are often overblown because traders forget to keep them as simple as possible. You can overcomplicate everything and before you know it, you’re looking at 20 screens and 80 different colors.
3. Avoid Shortcuts or Quick Profit Schemes
Trend followers take the slow path. There’s no need to rush. Newbies take many shortcuts in the beginning and cause a rift in the understanding of market movements. They take the easy way out and look for day-trading ‘gurus’ or a trading software with ‘proprietary indicators’ that promise instant gratifications. Such quick profit schemes don’t work.
You have to build a solid foundation first. Automated trading software is aimed at making you think that knowledge about the market isn’t needed.
There is no substitute for screen time spent reading price action. Reading price action in real-time builds a mental latticework. You need to build a repository of experiences to draw from later on.
So load your charting platform and start watching prices move in real-time.
4. Take Responsibility For Your Actions
If you didn’t quite follow your trading plan, study what you did wrong or what feeling caused it. Note down what went through your mind before and during the trade. It will be useful to have a checklist that you run through next time to ensure that you will follow your rules consistently.
If you have rules and the rules need adjusting, that’s helpful feedback which will accelerate progress. If there weren’t any rules in the first place, nothing can be learned or improved. You wasted money.
I once printed out a spreadsheet of my trades to make annotations. I noticed repetitive behavioral patterns that ruined my performance. When the market turned against me, I often went into panic mode by closing a good trade and placing a series of bad trades hastily.
If you do not spend the time learning from your mistakes, you will repeat them. Once I became aware of my behavioral patterns, I could entirely eliminate my mistakes. I’ve not panicked again since. Any time the market makes a weird move, I know that I don’t need to give my emotions any attention because they’ve been proven wrong again and again.
I can’t tell you which mistakes you’re going to make. That’s something you need to find out for yourself by monitoring yourself. You can ask me for advice, though. I could observe your trading and tell you where you could improve.
5. Simplicity Is the Path to Trading Success
A significant leap forward to me was the elimination of practically all indicators. I realized that they were useless. They rather contradicted each other. I missed great opportunities although they were obvious in price action but not taken due to mixed signals from indicators.
I was once pointing out an incredibly obvious trading opportunity to my student. The market started to sell off and I said that this was the time to go short. Do you know what he did? He hesitated because he was waiting for the RSI to confirm an entry. I told him to just do it. By the time an indicator confirms anything, the market will be trading much lower. Why wait? Of course, he didn’t take the trade and of course, he regretted it later.
The ability to read price action is clearly underrated. Don’t wait for indicators to confirm what’s already obvious. Price is the primary thing you should pay attention to. It’s the price that we are trading after all, not indicators.
No software, indicator, or trading guru can take that away from you. The old adage is true, “Give a man a fish and feed him for one night; teach a man to fish and feed him for a lifetime”. You may want to invest in mentoring to learn from a successful trader.
Indicators are always lagging because they are calculating market movements with a delay. Focus on price action and learn how to read the market. Reach out if you want to learn.
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About Matthias Hagemann
I share my 15+ years of trend following experience. Aspiring traders come to me because they want to make consistent profits without stress and without day-trading.