Leaving 2012 behind and looking ahead into the New Year, many people make resolutions to set new goals, make life changes or reform habits. Common resolutions include diets, to quit smoking, join a gym or lose weight. For some, they succeed in their goals. For others, they need a little motivation. If your trading on the Australian Stock Exchange (ASX) in 2012 didn’t achieve the results you had hoped for, then maybe you need to set some new goals for 2013.
Forget the normal New Year resolutions of joining a gym or losing weight. Most people who set these goals won’t keep them past February, let alone for the remainder of the year. The main reason why is because they are trying to break key habits all at once. So if you have set yourself the resolution of “Making more money” or “Trading better”, you’re going to follow the same path as the person wanting to quit smoking and most likely fail.
What you need to do is break down the larger objective into smaller achievable resolutions. If your trading results in 2012 failed to meet your expectations, then there are a few resolutions we can easily establish to ensure we have a better opportunity of achieving results for 2013.
Here are a few of the key New Years resolutions we suggest you should make for trading on the ASX in 2013.
• Don’t repeat the same mistakes
If 2012 wasn’t successful for you in your trading on the ASX, then why would 2013 be any different? But realizing you weren’t successful and understanding why are two very differing facts.
Evaluate your trading results. If you haven’t already, create a spreadsheet, enter in the details of the trades you made including when you bought, at what price, when you sold, at what price, and the results. Then evaluate the historical chart of each trade and make some notes: where was your entry and exit in relation to the overall price movement of that stock/commodity for the year.
Look for common situations, such as: buying at the top of trends, selling at the bottom of trends. And compare your trade with the ASX200 index by identifying at what time of year you had conducted your trade.
At the same time, identify your good trades and what made them a good trade. Was it simply that you got the markets right, or you entered at the bottom of a trend and exited at the top?
When you start to identify common problems, you can start to avoid these for future trading.
• Write a Trading/Investment Plan or Evaluate my existing plan
Although this is the most common fault of all unsuccessful traders, it still remains the one point that needs work.
If you don’t have a trading plan, this should be your Number 1 resolution before anything else. If you do have a trading plan you were unsuccessful with your trading in 2012, then you need to evaluate your trading plan looking for areas of improvement.
Be aware, it’s not always your entry criteria that can be the problem. A lot of the time I find traders have good entries, but it is how they manage the exit of their trade or adopt their money management that causes greater losses than expected.
If you fail to plan … then you plan to fail!
• Learn more about what makes a trader successful
A traders mindset is their biggest enemy. Fear and Greed drive the markets and are most commonly the causes of losing profits and capital. Experienced traders are those that have their emotions under control, sometimes spending years honing their skills.
Sometimes, your personality just isn’t suited for the style of trading that you are attempting to achieve. That doesn’t mean you shouldn’t participate in the markets and miss the opportunity of creating wealth. It means you need to find the strategy/s or methodologies that best suit your risk profile, objectives, and available capital.
There are plenty of books and courses available on understanding the trader Mindset. If you have been beating your head against the wall and cannot find a solution as to why you haven’t been successful, maybe it wasn’t the market conditions, maybe it wasn’t your trading plan. Maybe it is you?
• Establish realistic goals that can be achieved with my plan
Quite often I find clients wanting to make it rich, but starting with very small amounts of capital. Honestly, if it were that easy we would all be doing it! That’s not to say making money from the markets isn’t easy. You just need to be realistic.
If I started with $1,000, would it be realistic to think I had $100,000 at the end of the year? Possible? Yes. Probable? No. However, if I started with $100,000 would it be realistic to think I could make $20,000 by the end of the year? Most certainly yes.
Our expectations must also be achievable with the strategy that you are adopting. Trading short-term foreign exchange strategies have an unlimited potential for achievement. You can start with a small amount of capital, but you must also realize that with small amounts of capital will come smaller returns.
Compare this with the Covered Call strategy which is a lower Risk strategy compared to short-term FX trading (as above). It requires more capital (we recommend an absolute minimum of $20,000), has a smaller return potential, but more consistency (statistically). So making smaller amounts of money each month but consistently might not suit everyone.
• Have fun with your trading
Last but not least, you want to have fun with your trading. I don’t mean feeding your ego when you go to barbeques and gloat that you are a trader. Fun for me is my monthly evaluation of my trading results. My goals are to achieve consistent returns with the strategies I manage because I know that over time I will achieve success.
When I have a month where I don’t meet the target, then I evaluate why. But that is the challenge of trading in the markets, and that is the challenge that makes it fun for me.
Notice I didn’t say “making money is fun”? This is another problem that most traders have, is that they focus in the money and not on the actual trading.
Another way of having fun is paying yourself or rewarding yourself. When you set your goals, make sure you reward yourself with some of the profits. That might be taking some of the profits and using it for a holiday, or buying something you’ve always wanted, or treating someone special in your life.
The change into the New Year is a chance for wiping the slate clean, resetting our objectives and looking into 2013 with eagerness and anticipation. Our New Years Resolutions are the small goals we want to achieve along the way, and if you want to be successful trading on the Australian Stock Exchange, then you will need to have a plan. It doesn’t just happen.
For me, my New Years Resolution for 2013 is to keep going at the same hectic pace I did in 2012. It was a very successful year for us, despite the “interesting” global market environment.
We will fine tune what we are doing as economics continue to change, but sometimes it’s best not to tinker with what ain’t broke!
We wish you all the best for 2013, and a Happy New Year
Matt Brown
US Analyst
Halifax Investment Services
