Exploring your trading edges-Part 2

Is your most traded product losing you money?

 

In a previous blog we identified the importance of trading less products to increase success as a trader.  We take this one step further here, to look specifically at your most traded product.

As traders we often assume that our best product is the one we  trade most often.  This is typically not the case, and in fact the reality is more complicated than that. 

Untitled design-5.png

We analysed over 20,000 retail FX traders to determine if their trading results for their most traded product showed a difference in returns from their remaining trades.

 

The results were fascinating.

 
Screenshot 2019-10-08 at 14.19.22.png
blogpart2losingtraders.png
 

A full one third of traders showed a significant difference in their performance of their most traded product, when compared to the remainder of their trades.

 

This was almost exactly split equally between those that outperformed and those that underperformed.

 

However there was marked difference in behaviour of winning traders, with over 2/3 of the winning traders having a strong positive edge, whilst 2/3 of the losing traders had a strong negative bias.

When we analysed how much better our winning traders were, it is clear that winners are much better at playing to their strengths. Comparing how performance is distributed, we can see that when traders have a positive edge, they are getting, on average, 3 times better returns.  Winning traders average 42% returns on their most traded product, compared to 14% for losing traders.

blogpart23.png

Conversely, when traders have a negative bias, losing traders are performing twice as badly.  The losing traders are returning an average of -26% compared to -11% for winning traders.  Which cohort do you belong to? Check now here. Check your most traded product. 

 
Screenshot 2019-10-08 at 13.36.07.png
 

In this case, this losing trader’s most frequently traded product, NZD/USD, is their worst product, and is losing them a lot of money. Compare this to their second most frequented product, which is a positive habit and making them money.

If you are underperforming compared to other products there can be a number of reasons, but you need to identify which one rings true to you. 

 

This could be your “go-to” product, when you have the urge to be in the markets but are not getting a good signal from your strategy, or if you are bored and want to make an opportunistic trade. Many traders default to a favourite product if they lose patience waiting for a good signal. 

 

The overconfidence bias can come into play here too. You may consider yourself somewhat of an expert in your most traded product, considering how much you experience you have with it. That can lead you to becoming overconfident, and thinking you know more about it than you do. This can result in  becoming sloppy with your trading in that product because you don’t analyse your actions enough, or taking massive risks that don’t pay off. 

 
 

 If your most traded product is your best product, this indicates that you are on the right track. You are trading most at what you are best at. Don’t sit in complacency though- push yourself to understand how you can adapt other product strategies to improve your results further- our next blog will look at which products are more likely to contain your best and worst trades. 

 

Marise Gaughan