Skillsfirst Level 3 Certificate in Introduction to Financial Trading (RQF) - UNIT 1: Principles of financial trading
Skillsfirst Level 3 Certificate in Introduction to Financial Trading (RQF) - UNIT 2: Principles of Financial Planning and Cash Flow in Financial Trading
Skillsfirst Level 3 Certificate in Introduction to Financial Trading (RQF) - UNIT 3: Understanding financial trading techniques


Whilst different traders will have different targets there is a general methodology within the industry that is used to measure performance for this type of trader. Financial targets for self-employed traders tend to be quite fluid mainly due to the fact self-employed traders use lower levels of funding than institutions. In addition to this, the fact that the majority of self-employed traders use their own money to generate profits, which obviously have its own psychological challenges.

Most self-employed traders and the firms they have accounts with, there will be daily monitoring what is known as profit and loss (P&L) and this is generally used on a trade by trade basis. Whilst it is a simple concept, P&L is surprisingly underestimated by many traders, yet it will be one of the keys to your ultimate success if used properly. Remember, P&L is your lively-hood when you are in the market.

One of the biggest trading sins is to make money, and go home at the end of the day down money, traders give numerous reasons for it but there are NO excuses. Trading should be approached with discipline and if you lose control you might as well go to the casino and gamble on red and black! So if you are faced with this situation it would be worth considering the following; sit out of the market after a couple of bad trades and do some evaluation, before entering into anymore trades. Sit back think about your trades and answer some simple questions.

  • Was I unlucky to lose on that trade?
  • Is my concentration on the trading?
  • Did I stick to my plan, or did I trade just for the sake of it?

If you can honestly say that you had a loser because you were unlucky then re-focus yourself on the market and trade again, if you find that you faced another loser then walk away from the screen and re-evaluate the events that caused your loses. It would be a good point in your day to consider cutting your trading size down, by doing this you are not exposing yourself as much in the market, and furthermore your trading costs are not mounting up either.


Sometimes the market does not go your way, which is going to happen from time to time. Unfortunately that is trading but it is important to always try your best, if that is not good enough then obviously you are not seeing the markets clearly, so why expose yourself to un-necessary P&L fluctuations, and trading costs? Locking in profits is something that is part and parcel to trading sensibly, no matter how small profits are they act as a buffer in your account, and serve to protect you for days when you just can’t make money. More importantly though it will give you confidence. The key to becoming a successful trader (definition: someone who makes and keeps money) is consistency – which is achieved by rigorously using loss management strategies.

There are a lot of traders who can make money on one day and believe they are doing well (the human mind is very good at selective thinking and forgetting the bad days!) but give it all back, and some, the next day and yet still believe they are doing well – but the account says otherwise.

Make 2,000 today and lose 2,500 tomorrow, make 500 the next day – What have you achieved? Simple math will tell you that you have spent three days trading without any profit! The idea is simply to relate your downside loss control to your historic profits and losses i.e. the realistic probability of making back what you have lost. It is all too easy for traders to create high downside risk – but with much smaller corresponding upside potential to get it back! Clearly, this means you are digging a very big hole that you will struggle (and invest a tremendous amount of time and energy) to get out of another day.

The amount of losses that any trader should sustain on any day (and at any point in the day) must be related to their ability to make it back – which is based not on hope and guesswork but on their historic profit levels. Sounds simple? Very few people do it.

So, the rule should be…

“Worst down day” should be a function of limiting downside risk in relation to:

  • monthly P/L
  • average day profits (or loss) this month
  • worst day
  • best day

Making a hard and fast rule is difficult but if you thoroughly understand the principle at work and constantly think about it during your trading, it is a highly valuable strategy that should help you to increase your profits. Our experiences show that if we are down by our average daily win level, the best result likely is to struggle all day for a break even but, unfortunately, the opposite often happens! As our anger and emotions take hold and we go into ‘catch up’ or revenge trading – and it is then that the losses really get out of control.

Managing winning days…

In our experience, it is nearly always the right thing to do to put a trailing stop underneath our profits – perhaps about 1/3. This means that if we are up +1,500 (ticks plus RTs) and we fall to +1,000, it is best to stop.


It comes down to having the DISICIPLINE to actually do what you know you ought to do. To understand it will not help unless we implement it consistently daily.

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