After 15 years trading what are some of the best pieces of advice I could give to new and struggling traders.
I’ve realized that over time when you find success in trading no matter how long it took you to get things right. All the hours upon hours of studying/learning trading start to become bigger distant memories. You get into your routine of what you do.
I wanted to create a post that is straight forward in it’s thinking and most of all helpful.
So how can I sum up truly what makes the biggest difference in trading. I’m going to break it down into two categories. Psychological and Technical.
You will hear it all day every day. If you can’t get your head right you simply won’t find success. Humans are great at self-sabatoge. Trading brings out all the ego qualities that want to sabatoge long term success. Why if we want something so bad do we self sabatoge? The answer to me is simple. We can’t see the forest for the trees. In other words we constantly lose sight of the bigger picture and our reactions end up being for short term satisfactions. That could be our greed, our fear, our inability to be patient, and the list can go on and on. I’ve always worked very hard at my ego in relationship to my trading. I’ve done simple things over the years to counter act with what my impulses are screaming. What you will find is over time those impulses will not go away but you will be able to recognize and then rationally react to them. You will never be able to get rid of the ego, but you know when it is rearing its ugly head and then how to prevent it from taking you down.
Here are a few simple ways I have found to deal with this.
1. Admit what your issues are. Oh yea sounds so simple and obvious. You can’t fix a problem till you admit your problem! But seriously identifying some key problems are pretty easy if you are honest with yourself. Are you over trading? Are you risking too much? Are you fearful? Are you greedy? Again this can be a long list. As you gain more experience usually it will boil down to a few of these instead of a laundry list. Stop hiding from the issue and expecting it to be solved on its own. That won’t ever happen.
2. CHALLENGE THE EGO. Figure out a plan to tackle this issue. Again go with the obvious. I won’t list every problem and a solution here but if you can’t figure out a logical solution. Post a comment i’ll help you out. For example is your problem over trading? Are you taking 50 trades a month? A week? A day? If you can’t be profitable taking a handful of great trades a month you sure won’t find long term success taking 50. Attack your problem with rules that challenge your ego. Instead of 50 trades a month , give yourself 3-5. Yes that’s right 3-5. You can build an account just fine with a couple great trades. But the real reason to do this is challenging the ego. Your ego creeps up and tells you for whatever reason you need to be over trading. By putting constraints on it you will have to really battle this psychological issue. You may in the long run go back to taking 50 trades a month but in the short term you are going to have a fierce match with your mind. Say you take all 5 trades the first day of the month. Well guess what no matter what trade you see, no matter how much you want to be in the market you now have to challenge yourself to sit and wait 30 more days for another trade. Think that’s easy? Think you can do that? If you are an over trader this will be one of the hardest things you do. But guess what if you are able to do this for a period of time you will have conquered many of your issues and taught yourself discipline, and how to silence those voices that will destroy your trading.
This is just one example, I recommend you come up with your own list have issues and ways to deal with those issues.
I know what a lot of people are thinking. If I only knew how to read a chart I’d be fine. If I only knew how to manage my trades i’d be fine. That’s just not true! Trading is not about one single concept or ability. It’s about bringing together a plethora of skills, stringing them together in a logical manner time and time again. Being consistent with that approach through the ups and downs. Understanding and trusting your edge. But like the psychological side explained above their is a lot that you can do to build and hone your skills from a technical aspect. Below is a small list of examples you can start working on today.
1. Get great at one thing. Too many people try to do too much. You don’t have to know how to trade every situation, every moment like a pro. You are much better of becoming great at just a handful of things and then working to expand your toolbox. Trying to learn breakout trades? Make that your focus. Learn how to pick the best patterns, the best triggers, the best ways to manage them. Make breakouts your one and only focus until you are confident in your abilities in them. Want to learn just pinbars? Then do that. Learn all the nuances of trading them. What makes a good one, what makes a bad one. Again sounds so simple but yet you will see very few break down their trading and learn to get great at just a few things. In trading being ‘OK’ at many things won’t fly. Become a master at one thing at a time.
2. Practice your capital preservation on every trade. All too often you will hear the cliche cut your losses and let your winners run. Now like most things in trading that can be done many ways, and different strokes for different folks. But one of the biggest changes to my trading and that have helped hundreds of struggling traders is being diligent and proactive in managing your trades. Understand a few key concepts here.
– Always think about your stop loss as being the point in which the LOGIC of the trade no longer makes sense. Too many traders don’t think about the impact of a stop loss. They simply use one because they are told too. That’s a good first step but when you start thinking about the logic that makes up your trade you can use your stop loss with more power. Think about where the market should NOT go if your trade idea is to remain valid. This is the point at which your stop loss should be. For me this often changes as a trade evolves and the goal is to begin to cut my losses by using stop losses in this logical manner.
– Your entry is not independent of your exit. All too often people think of ‘exits’ as existing on their own. That you learn an exit strategy and you are done. Entries are the “easy” part. Not true in my book. A good trade flows all together. Where you enter your trade ties DIRECTLY into how you manage your trade and end up being able to cut your losses and let your winners run. The key here is to enter at the most significant area on that trade. You want to be nearest the area where the trade should work. Because if that area doesn’t hold you are able to cut out of the trade. Too many folks enter without thinking about this and by not entering in an optimal place exposes you to take larger drawdowns in order to let the trade potentially work. A practical example would be as follows. You see a bearish outside bar that engulfs a previous consolidation and closes under the previous support area. Instead of entering on the close or a break down of that bar place your entry nearest to that previous support. That is the pivotal area in the market. If it doesn’t hold you can get out with a smaller loss and move on. By doing this you will increase your overall R:R on most trades which in the long run is going to pay off big.
These are just a few examples from the technical and psychological areas of trading that I have found to be tremendously helpful. Like all things in trading it takes time and practice. That’s just part of this business.
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