In This Episode
- Should you try to get more trades?
- Learn how to increase your returns, without taking more trades
- What new traders should stay away from
Is More Trades Really the Answer?
Many traders strive to get more trades because they think they will make more money. But there are several different ways to improve your returns, without taking more trades.
However, taking more trades can certainly boost your performance. So we talk about when you should consider taking more trades or increasing the return on your existing trades.
Learn specific strategies for doing this and what we've done in the past.
Read the Transcript:
Walter: Hi, Hugh. How is it going?
Hugh: Pretty good.
Walter: So I had a question from a trader. He was working on his back testing, and he was like, “How many trades should I get in a certain amount of time?” Because he was doing daily trades. A lot of people, when I post videos on YouTube and stuff, people will say things like, “Oh, but you only had one trade in the last six months.”
It was like one pair, do you know what I mean? That is something that I feel like is misunderstood. The relationship between how frequently you trade and the trading system. It really depends on how many markets you are following but more than that, you have to actually have the data for those.
So I will give you an example. I used to trade a lot of reversals back, you know before I wrote the Naked Forex book. I was mostly doing reversals and I was trading a lot of daily charts before I moved to eight-hour and twelve-hour and stuff.
One of the things I realized was that I thought in my mind that these are simple strategies. They work across the board and to some degree, that is true but actually things like daily kangaroo tails, reversal kangaroo tails on the Yen did not work.
My friend Colin, you know he texted me or emailed me or whatever years ago and he was like, “Dude I have been trading the Canadian Dollar and the big shadows have been wiping me out this year”. Do you know what I mean? I think that was just kind of like a yearly aberration like you know over the years.
I just want to talk a little bit about the relationship between the number of trades. How the frequency of trading a system and your back testing. Because, sometimes people will go, “Well, I back tested these kangaroo tails on the Euro daily. So I am going to trade it on the Euro/Pound, the Pound/Yen, you know the New Zealand/Cad” so you really need to get the data from the other markets, don’t you?
You really do need that data and you also need to realize that you can easily bump up the number of trades you take simply by adding more markets. Provided that it works on those markets. Is there anything that you can add to that or your experience in terms of back testing versus number of trades per week, per month or whatever?
Hugh: You know a lot more than I do but just from personal experience, it is like I just back test until I feel that I am confident that the strategy works. It does not necessarily have to hit a certain number because if you do like a daily chart or a weekly chart, it is going to be way less trades than like a one-hour chart.
For me that is just what it is but maybe I mean, you obviously know more about this. So what do you say about the minimum number of trades?
Walter: See the underlying question really is, it is a veiled question. What they are saying is, “I am not getting enough trades”. What they are really saying is, “I need to grow my account faster” do you know what I mean? Do you know what I am saying? That is how I read that when people say like, that is not enough trades.
When these people come in and they say things like, “Hey, you know that is really great that you have these kangaroo tails but, dude you only have a certain number per week or per month or whatever you know that is not going to work for me”. You need to trade the one-hour charts or whatever.
What they are really saying is I need to increase my returns. That is what they are saying. They want action and I understand that. I was the same way when I first started trading. I used to sit down and think about where the market is going. Instead of sitting down to look at and asking the question, “Is the market offering a trade?”
Now, when I look at the charts I just think, is there a trade or not? Usually the answer is no but what I used to think was, “Well, I am a trader. I have to sit down and know. I have to know where the market is going”. So I think there is a mind shift there as you get more experience but I also think that you might want to look at other ways of increasing your returns.
If that is what you are really asking which I think is mostly the case. Not always but a lot of times that is what traders are saying. They are saying, “I need to grow my account faster. This is going to take too long. What is going on here? I do not like this sort of thing”.
So you know money management is a way to do that. Changing your exits is a way to do that. So looking at risk and exits, and how those interact with your equity curve is probably a much more fruitful area than trying to multiply the number of trades you take by trading the five-minute charts.
Hugh: That really works.
Walter: Exactly. There's a lot of things working against you. We've talked about that in other podcasts. Those are kind of my thoughts, you know.
Hugh: Totally. Some people could also think about pyramiding. I used to trade this one thing where if it got close to the target then I would have like three orders and then I'd have the alert on my phone.
I will wake up in the middle of the night which was not good but you know it did multiply the account. It's just that I could not handle the swings but if you did that in a more measured way then that is another way that you could make more money out of each trade, right?
Walter: Yeah. I used to do that too and I wrote articles about that because it is the opposite of what most people do. Most people take more trades when the market goes against them because they think, “Oh, it's an even better deal now”. Stock traders are famous for that. Averaging down or dollar cost averaging I think is what they call it. But, we just keep buying no matter what assuming it is going to go up.
It is kind of similar to the idea of you know you are buying the Euro. You think it is going to go up three hundred pips and it falls a hundred so you buy some more. But, most traders do not do the opposite where you keep stacking orders as it gets closer to your target. That is a great way to do that. You can automate that too.
I used to do the same thing. Get up in the middle of the night and have to manage it because it is scary. When you have, let's say you have three lots on and then you know once it gets halfway to your target then you've added two more.
It gets a little bit more. You got two more and two more you know and then before you know it, you’ve got nine lots on a trade where it was three lots and then it's like, “Ah!” So you know it can get a bit scary like that but it can work too you know. You can automate it and there are lots of tools out there for that sort of thing.
Hugh: Hey there! I hope you find this episode useful. I just want to let you know that Walter and I give away something valuable every month that helps traders improve their skills. You can enter to win by simply leaving an iTunes review and leaving a comment on our YouTube videos.
At the end of each month, we'll look at the comments and reviews from the month and we'll pick a winner at random. Each comment and each review counts for one entry during the month that it's pitted.
So, if you're interested in that, be sure to enter after this podcast is over. Alright, back to the episode.
Walter: Overall, I think this idea of, I do not have enough trades could be related to where you are at as a trader you know in your development. It could be really a veiled question of how do I increase my account size faster. Again, there are other ways to do that other than taking more trades.
If I were a new trader I would definitely want to stay away from trading the lower time frames. To me, that is the tricky thing to do. To try and add you know more trades by trading the lower like the fifteen-minute charts or whatever.
To me, there's a lot working against you there. So I would definitely steer clear from that.
Hugh: There's so many things like the rollover and you know just the spread can vary so much, all that kind of stuff.
Walter: Exactly. Commissions and all that stuff, exactly.
Hugh: Alright. Thanks, Walter.
Walter: See you.
Hugh: All the information in this podcast is for educational and informational purposes only and is not trading or investment advice.
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