TRADING EXPERIENCE, Trading Article by Daryl Guppy

Every time I talk to people after a training class I tell them that even though I am teaching knowledge obtained through years of hard work, there's one valuable part of this knowledge nobody can give to a student. This is experience. Experience doesn't mean having 2 or 5 or 20 years trading the markets. Experience is not necessarily based on the amount of time you spend in the market. I know traders that have been attempting to trade for years and they have very poor results. Experience is not the amount of time you spend trading the market . Experience is the quality of the time you spend.

Most traders wander through the market. They experience many trades. Some trades are successful and some trades are not successful. These traders never learn anything from any of those events. Without a trading plan to follow , it is difficult to objectively determine what they have learned from their trades. Being able to distinguish between a 'good' trade and a 'poor' trade is critical in learning from your mistakes. 'Good' trades are not necessarily ones that make you money once you exit. 'Poor' trades are not necessarily ones that result in losses to your account. A good trade is a trade where the trading plan is followed correctly.

Traders have to go through many different periods in the markets and they will encounter many different situations. How traders deal with those situations shapes their future as traders.

Traders can expect to have losing trades and losing streaks where many trades are unsuccessful. This is all part of the trading profession. If traders intend to survive in the market and become consistent traders, they must find a way to learn from every winning and losing trade. The objective is to avoid repeating the same mistakes.

Ideally, you make a certain mistake once, and you don't make it again. This is very difficult to achieve. Part of developing experience is developing an awareness of the mistakes you are making. Sometimes you have to repeat a mistake several times before you recognise the error. You can quickly identify mistakes as soon as possible if you review all your trades. Then you can stop making that mistake.



Professional traders do not spend 100% of their time trading. A professional trader spends a third of their time preparing for the market, another third actually trading and the last third evaluating the trading results.

The rapid market fall in 2008 shows why it is necessary to have a good trading plan. This market fall is used to improve the quality of your trading experience. Experience doesn't mean having many years trading the markets. Experience is not the amount of time you spend trading the market. Experience is the quality of the time you spend.

After the recent market fall traders will take time to evaluate their success or failure. The answers help to develop quality experience. There are five features.

1) Creating quality experience starts with a Trading Plan. Start by specializing in one or two strategies. There are many different strategies in the market. Many of them are successful, but you must select the strategy that you feel most comfortable with. This strategy will suit your personality so it is easy to apply effectively.

2) Keep a Trading diary. This is a record of every trade. The notes include the reasons for the trade. It includes the trade plan. It includes the trade development and also the reason for the exit. These are brief notes. They help you to find the common features of success and the common features of failure. It is a record of how your experience is developing.

3) At the end of each trading day print the chart of every trade. Make notes about the trade. This improves your learning experience because it teaches you to recognize price and market patterns. It reminds you of what happens when the patterns are successful , or when the patterns fail.

4) At the end of every three months evaluate the information you have collected. This will help you recognize your strong and weak points. Are you more successful with momentum trades or trend trades? Is your entry point effective? Is the stop loss method effective? Do you wait too long to exit a losing trade? The answers will help you develop the quality experience necessary to become a better trader.

5) If you find common and repeated mistakes, then you may need to make changes to your trading plan. First check to make sure all your trades follow your trading plan. If you have many trades which do not exactly follow your plan then go back to step one and develop the discipline to trade your exact trading plan.. If you consistently and exactly follow the correct trading plan then you will develop the quality experience necessary for successful trading.

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Daryl Guppy, well-known international financial technical analysis expert. Appears regularly on CNBCAsia and is known as "The Chart Man". He is an equity and derivatives trader and author of books including Share Trading, Trend Trading and The 36 Strategies of The Chinese For Financial Traders. He has developed several leading technical indicators used by investors in many markets. His weekly analysis newsletters get favorable comment in Asia and Australia.