I wanted to start with a topic that I think will define peoples trading. We will, in later articles discuss trade size, psychology, trading, approaches and many other topics. I feel this topic should be discussed first as it will keep you trading, and I think we would all agree this is an extremely important aspect of your trading career.
I personally feel everything in trading is connected and intertwined from your strategy, trade craft and psychology through to your discipline and rules. It is difficult to separate each part to work on, however it is my hope that my articles and thoughts will provide you with some ideas that you can implement in order for you to become the trader you really want to be.
For me it starts with a good base, I will not go into Trading 101, but what I will say is that you need to trade what reflects your personality. Pick a time of day that suits your life style and you have time to concentrate on with genuine focus. Getting this right with dedication and concentration at a time of day that suit you will help you build success.
It may sound simple, but you are never going to be successful if you are not able to trade tomorrow. So why do many traders let themselves be drawn down the path of blowing their account? We have all done it, however I think it is a fallacy to say that this is part of learning to trade. I personally could have learnt to trade without losing money or having to come back from losses, I honestly believe this does not necessarily make me a better or successful trader.
So why do we go back into the market and throw our good risk management plan out of the window after losses or mistakes? Outside of our trading bubble, if your boss in your day job or previous job said, “here are your wages, but I’d like to offer you the chance to risk that amount in order to get a larger wage.” Not many people would say yes as they have the mortgage, bills and food to pay for. They see their wage as a defined reward for their hard work and would be reluctant to jeopardise all the hard work they have put in for an outside of the box gamble. So why does this happen in trading? It might not be your living wage at the moment, but you hope it either will be or will provide financial freedom, so why risk the hard work you have put in.
Take on board this fact. A professional trader in the city, has strict rules set out by their risk manager to protect themselves and the company from losses. They will get a tap on the shoulder to tell them they are done for the day, if they have broken rules or hit their stops for the day. They have that constant fear of this happening, so it will force them to focus on rules and risk management. And that is what we need, we need to know that we will tap ourselves on the shoulder when certain circumstances arise, either when daily stops are hit or the market is not moving in the direction we think. It could be other specific rules or principles we want to have in place. So, the big question is how do we achieve this?
It all starts with confidence, you must be confident in what you are doing. You would not be trading the system live, if you are not confident you can make money, and if this is the case stop! Re-evaluate! And move forward. If you are happy with your trade set ups then trust in them and when they do not work, you know that is a learning experience to refine your strategy or to analyse why that did not work that time. But you plug those results into your learning so you know it will work next time. You do not need to break into something outside of your comfort zone to get that money back as it will come back with your normal trading plan.
You need to train your brain not to fall into the trap of making bad trades outside your trading plan and compound any losses you may already have made. Learn to walk away, take a breather and then come back to look at the failed trade and make some judgements, write them on a mistakes sheet if needed. Afterwards look for the next set up in your plan. The amount of time away is a personal choice a few minutes to make a cup of tea or perhaps you even stop for the rest of the day, it is down to you. Whatever is right for you make sure you take the time, as it will give you perspective and time to rationalise your thought. You can then go back and be confident and positive about your next ‘within the rules’ trade.
You have to go into this process with a Mindset of expecting some losses and plan them into your trading plan, if you do this they are not as frustrating and if you have contemplated the loss it will not trip you up.
Have a points-based system that if you make a loss and immediately look to chase it with an unplanned trade, have a forfeit, trade related or not. For example, stop trading for the day, you can’t have that chocolate bar you wanted, or run an extra Kilometre at the gym. You have to have consequences to your trading to make the screen money and actions real to you.
And finally, enjoy your results of trading and not the actions of trading. Taking a trade for the sake of it, will ultimately lead to loss of confidence and loss of money. If you are looking for excitement, look for it elsewhere. Make sure your trading is about the end result not about the thrill of the market moving.
Set out a strong base to keep trading. Sure, there will be small falls along the way, but your account will always be there and it will mean you will live to trade another day. That is another day of growing into the successful trader you have always wanted the one that fulfils all their ambitions.