Martin Nikolov is our guest trader this week
In a series of articles this week, Martin Nikolov will share his trading philosophy and then guide us how he sees markets unfolding with real-world examples. Martin is a long-term professional senior trader at Varchev Finance a firm in Bulgaria with a trading office in the City of London. He trades indexes, commodities and stocks on the basis of technical analysis, but does not ignore the fundamentals.
My trading philosophy
As each art, trading is also a craft that requires knowledge, skills and discipline. All of these three aspects of every craft form a philosophy that is individual for everyone. You actions, decisions, thinking and idea - birth process will revolve around that philosophy. As practise comes it forms principles and a routine. Being a professional trader, you will be required to form and exceptional routine and principles. That will get you to the long - term path of being profitable and successful.
I will share with you my eight trading principles that I believe in and why.
Let my profits grow
I don't use take profit. Simple as that. My trading technique as a short to long - term trader doesn't need from me to limit my profits. I am a trend follower as well so I open positions only in the direction of the trend. I am backed by the motto: "Trend is your friend". I let go of my profits to grow, building on the initial entries. I exit when I am psychologically satisfied with the results or when the trend starts to get exhausted. I don't use limits, because they are putting stress on me and who ever wants to limit their potential of profit?
Cut my losses fast
As letting go of my profits to grow, also I have learned to let go of the positions that are not doing well. Fast. Without hesitation and never putting the trade to stay on hopes and wishes. If for some reason - mostly unpredicted fundamentals are set in to place and the trade stalls, can't execute my technical analysis as well, and I am in to a loss I just close the position. This is healthy for your mental state and for your balance. The market will always present to you the next opportunity to recover and to grow. I also answered your question "Why?". Because I do not hope for a miracle.
If a trade doesn't go well, close without hesitation
A repetition to the upper paragraph, but this is very important. Forging a strong mental state requires for you to take fast decisions to protect your money. Like in life, saying "No", letting go of toxic people or sacrificing something that brought you comfort for years, so in trading you need to CUT AND LET GO of negativity, losses and always confronting your comfort and safe zones. This will fine your character, mental state you will feel more confident. Forging a "Warrior - fighter" attitude towards trading will reflect in your personal and professional life as well. So that's why I let go of emotions and bad trades.
Trade with the trend
"Trend is your friend" is a sentence that has turned as a cliche but for me it my axiom in trading. I don't go below 4H chats - I precise the entry there. I chart and stare the daily and weekly charts. Noise is limited and pretty much you don't care about news and fundamentals. The TREND is THE most powerful indicator. Finding it, charting it and discovering the support and resistance levels is enough. If the trend is just forming - that's the perfect entry. If there is a correction, enter on the end of the correction. Never enter in a trend that's too steep and the price is no where or at the consolidation phase, signaling that the trend potentially ends. Some trends continue with months or even years and building positions in the direction of the movement can lead to some very outstanding profits. Some may say "Yeah , too long for me to get my profits". Trust me, if you want to distinguish yourself from the gamblers, take it as a real business and to achieve something, you need patience. Don't rush it. Why? No one became rich in a night or couple of days - in the retail branch.
Follow a strict, company money and risk management
Even though I work as a professional trader and I follow strict company and risk rules, same applies to the retail traders and everyone else. Proper money and risk management go side - by - side with your discipline and trading routines. There are standard risk rules: Follow 1:2 at least risk - reward ratio, don't risk more than 1% and so on. Understand that trading in the markets exposes your capital to 100% risk if not managed correctly. You are managing your own money. MANAGING. Let that sink in. You on you own are a fund manager. So not following risk discipline is a true disrespect towards your money, the art and to the markets. It may be as much just to go tot he casino. You don't deserve your money and to have the opportunity to trade. You need to be grateful that first you've saved money to enter the markets and secondly - that you CAN actually have access to the markets. From there on you are obliged to respect that opportunity, the spirit of money and trading business. That's why you need to follow a strict risk and money management, even as a retail.
Buy low, sell high, look for a correction
The tricky part. As mentioned - look for a correction. Observing correction is the way for you to discover the cheapest price to buy and the highest one to sell. For corrections I apply Fibonacci levels on the main trend and on the retracements. In addition I chart the trend lines on the spikes and on the bodies on the candles and I chart the insider (fractal) diagonals as well. Doing that gives you a roadmap of the potential movement of the price.
Never trade news
Simple as that. Never. It's a complete gamble and I've heard a lot of people saying to place limits and stops for both of the direction to catch the move...
Never. Trade. News.
Why? Spread can go super wide, lack of liquidity, slippage, platform stall, extreme volatility. You can't use proper management. Anxiety will kick in, stress, 100% risk for your money and mistakes that can lead to a complete wipe out.
Never trade before earnings
This is mostly for the traders that trade stocks like me. As with the news, earnings can be a true gamble as well. Even though they can be more predictive because they rely on actual and real accounting and numbers, and real fundamental facts, for example a trade war, they can lead to surprises as well. The negative surprises can be a lot more volatile and crushing the price of a stock and the positive. Also earnings are publishes before the opening of the stock market or after the close. In these cases you can't react at all to your opened orders. If you have stop loss on a certain level and price before the opening or after the closes reaches it and passes trough, it will be executed on the next opening and on the first AVAILABLE PRICE! Which can a lot below your initial stop loss. Have that in mind.
Conclusion
Trading is not simple. But it can be easy and comfortable if you follow strict rules and be disciplined. Do not listen to others, do not follow other analysis and do not follow signals. I don't need to explain why...
Trading requires an individual approach, emanating from your character. Trading is a lone profession even working in the proper office or floor environment. Only YOU are responsible for your actions and do not blame other people, persons or events for your mistakes and losses.
Check back tomorrow where Martin will write about what he's trading right now. If you're interested in participating in our guest trader series, email me at adam(dot)button(at)forexlive(dot)com.
