Analysis Vs. Trading… They Are Not The Same Thing
Growing up as a Forex baby you may have thought to yourself that your analysis is a big part of whether you make money trading Forex but that is not entirely true, unfortunately for some, your actual trading is responsible for a green P&L at the end of the month. Some of you have already heard this and still can’t come to grasp the idea and that’s totally okay, since many people who are experts in their field talk in parables, so let’s break this idea down.
20% Analysis, 80% Trading. Funny enough, one doesn’t work without the other but trading is the bulk of where your trading success will come from. What is analysis? A lot of individuals don’t like to use the word “predict” in the financial world but in trading that’s exactly what you’re TRYING to do, because you won’t always be right but you must try to increase your probabilities.
You look at Multiple Time Frames, you check price action, look at whatever indicators you use, trendlines, support & resistance, whatever, whatever it is you use to ANALYZE the market and then try to PREDICT the direction of the market.
You use your Analysis to form a trading BIAS, are you bullish or bearish? After all the number crunching and deducing you still have to pick a side. That’s what your analysis is for and if you can’t pick a side, don’t trade… stop it. Stop taking unnecessary risks. You break down whatever chart in front of you with the steps you’ve decided already in your trading plan and you pick a side bud.
That’s why Analysis is only 20% since all you have to do is pick a side, are you a bull? Or are you a bear? People spend years trying to get this part down pact and they lose sight of what actually brings the cake home… your trading! Once you decide what team you’re on, what are you gonna do about it?
Rehearsal is over now, it’s time for the big boy stuff. This is where Uncle Sam earns his money. Once you’ve decided what team you’re on (Bull or Bear) now we look for opportunity in that direction and control RISK in a way that makes the most profit. Sounds like things just got real right? Compared to Analysis where you really only have 2 choices, Bull or Bear, Up or Down, my friend if trading was that easy I promise you it would not pay the way it does.
Bull or Bear? To be honest that decision doesn’t even matter really. If your trading is robust and you are in sync with the markets, you could lick this thing both ways (but that’s way down the line). In a Nutshell, it is your trading i.e. your RISK MANAGEMENT, your PSYCHOLOGY which can’t be separated because you need strong psychology to manage risk in the first place!
I hope you can hear me yelling on the other side of the screen because it took me FOREVER to get this. Trading is not just Technical Analysis and Psychology, Risk Management comes before both of those to complete the holy trinity. That’s where you need to focus your attention bro! sis! How do I manage my risk better than the next person?
That right there will make a world of difference. Just having that perspective is rare. Your analysis isn’t even half the job. You analyze, pick a side and TRADE. Try not to jump to assuming you’re not making money because your analysis is wrong, I just told you that’s 20%, you could have a killer strategy and without good trading and execution, it still will not work.
If you have an average strategy and the most robust trading approach that manages risk like nobody’s business, you could still make a killing in the Forex market. Scratch that, any market. That logic goes to show you what you should be focusing on. Deciding whether you’re heads or tails is not the hard part I promise you, don’t let that stagnate your journey in this.
You need to wake up, eat, breathe, sleep, and dream about having better risk management. Make that something you can brag about, that you have killer risk management. Not your analysis. Most of you will be wrong more than 50% of the time and it won’t matter if your risk management is on point.
Your trading strategy isn’t a strategy if you don’t include how you are going to manage your risk.. Lousy Risk management equals lousy trading results. No Leaks! We don’t brag analysis here. Anybody can do that! We are risk managers. Kings and Queens of Cutting L’s and keeping W’s. Taking the least risk for the most reward. Got it? Good.
- Pick a side. Are you a Bull or a Bear? Using any tool you choose to, that is the purpose of analysis.
- Analysis is 20% of the equation.
- Analysis shouldn’t be your biggest concern but it is important. Managing risk becomes a lot easier if you trade in the trend direction.
- Trading is taking trading opportunities while minimizing risk and maximizing reward.
- This is where your money is made or lost.
- Trading Plan needs to consist of a risk management strategy
- Trading determines 80% of your results. It does not matter how good your analysis is if you cannot execute the trades properly.
If you take anything away from reading this, take this: Your ability and potential as a trader will be limited only by your ability to manage risk. You will thank me later, you might not but I’m sure you’ll want to. Focus on your trading and everything will follow. Share this with somebody who you think needs to hear it. It is not new information and you could be the one the changes someone’s life out there.
Don’t bet the farm.
Don’t lose your shirt.
Cut the L.
Keep the W.