2009-09-14: Consistency in trading
2009 has so far been a rough ride in the energy markets for many a trader. A scenario of high volatility and big intra-day movements; a market where placing trades has been a challenging activity. We now sense the outlines of a new trend, a period of lower volatility and a more clear market direction.

If you have experienced a series of losing trades, which is inevitably from time to time, you may become frustrated and abandon your carefully tested trading strategy to try to regain your losses quickly. Alternatively, after a series of winning trades, you may become overconfident and start taking trades that are riskier than dictated by your system, since you now have a feeling of invincibility. The key to success is commitment to your decision. This means that you have to be both financially and emotionally prepared for trading through periods of drawdown to reach your profit goals.

Very few, if any trading plan, consist solely of winning periods. There are periods of drawdown. The size and the length of drawdown periods vary from market to market, and are also dependent on what kind of strategies you are trading. Trading a trend strategy will most probably show the highest profit over time, but will also include the longest drawdown periods. A trading plan will increase your possibilities of being consistently profitable over time. Trading a number of strategies in different energy markets with variable correlation, will enhance your profit potential further.

Trading systematically has the advantage of eliminating emotions from trading, helping the trader avoid many of the common errors as; overtrading, premature liquidation of good positions because of rumours, jumping the gun on market entry to get a better price, holding on to a losing position – these are but a few of the negative manifestations of emotion in trading. Furthermore the removal of the implied need for constant decision making substantially reduces trading-related stress and anxiety.

Another benefit of a trading system is that it ensures a consistency of approach – that is, the trader follows all signals indicated by a common set of conditions. This is important, since even profitable trading strategies can lose money. Some will pick and choose trades, invariably missing some of the largest-profit trades. Others will stop following the recommendations in periods of drawdown, and as a result miss a string of profitable trades. The point is that a good trading strategy is not sufficient; success also depends upon consistency.

Methods employed by traders are diverse. Some are pure fundamentalists, others employ only technical analysis, and others combine the two methodologies. Some traders consider two days to be long term, while others consider two months to be short term.
The market provides a big puzzle, and you need to find the right tools to trade. If parts of you are pulling in opposite directions, the game is lost before you start.

Developing an effective trading system is by no means an easy task. It requires a solid understanding of the many parameters available, the ability to make realistic assumptions and the time and dedication to develop the system. However, if developed and deployed properly, a trading system can yield many advantages. It can increase efficiency, free up time and, most importantly, increase your profits.

Having a good trading system or trading plan is only half the battle. Maintaining the discipline to follow your trading plan consistently is equally important. Because your emotions may work to destabilize your trading efforts, you should spend an equal amount of time addressing the psychological issues of trading.

Mixed feelings will generally be present in any trade you make. Regardless of how well your system is tested and how strong a particular signal may be, there will always be justifying circumstances that will make you second-guess yourself. As with most aspects of decision making, experience and commitment will lessen the impact of ambivalence.