Whilst there is no ‘quick fix’ that will cure all your trading problems and instantly get you on the path to riches, there are definitely some things totally within your control that you can start doing now to significantly improve your trading results.
In today’s lesson, I’m going to give you five tips which will work to significantly improve your trading results IF you follow them consistently…
1. Your biggest advantage in the market
One of the biggest ‘keys’ to trading success is understanding the fact that in trading, you can only control yourself and your actions, but you cannot control the market. This may seem like a relatively obvious point at first, but most traders do not trade as if they understand or accept it. They try in vain to force their will upon the market, doing everything they can to ‘force’ money out of it, seemingly unaware that this behavior is the exact reason they are not profiting.
You cannot control the market, but you can control yourself, and this is truly your biggest advantage in the market, yet hardly any traders seem to believe this, and even fewer make consistent use of it.
If you think about it, it’s really quite obvious; self-control as a trader means you consistently do the opposite of what losing traders do. It means you don’t risk more than you’re comfortable with losing on a trade, you don’t trade when there’s no obvious setup present, you don’t let your elation or anger influence you to jump back into the market right after a win or loss…you don’t do these things because you have self-control. Simply put, most traders have little to no self-control in the market, and this is why so many traders fail.
The ability you have to control the amount of money you risk per trade is insanely powerful. Unfortunately, many traders abuse this power or don’t fully understand it. Controlling your risk per trade properly is the foundation of successful trading. Any trader, no matter how skilled a chart technician, will act irrationally if they risk more than they are comfortable with losing on a trade. Successful traders know this, and the reason they are successful is because they make sure they do not risk too much on any given trade.
Next, the ability you have to control your trading frequency is equally as important and powerful as the ability to control your risk. By simply not trading if there’s not signal that meets your trading strategy criteria, you will be light years ahead of most other traders.
2. Let the market do the ‘work’ for you
In an article I wrote on ‘why you should be a lazy trader’, I discussed how traders often try to do too much and they would be better off taking a ‘lazier’ approach to their trading. The reason why this is true, is because the market is going to do what it wants to do, regardless of what you hope it does or want it to do. Therefore, instead of doing a bunch of ‘work’ like over-analyzing every variable you can and trying to force your will upon the market, it only makes logical sense that you wait patiently for the market to ‘show you its cards’ before you do anything.
What I mean by ‘show you its cards’, is that you should simply be waiting patiently for the market to form an obvious price action setup that meets your trading plan criteria. Then, you set the order up and let the market ‘do the work’, while you do something else, or just relax. This goes along with tip number 1 above, because traders often lack the ability to simply do nothing in the market; they lack the self-control to keep their hands in their pockets.
3. Focus on becoming a good trader; enjoy the process
This tip might just be the most important one you’ve ever read. Quite frankly, most traders are way too concerned about how much money they might make in the market. Ironically, it is this preoccupation with making money and becoming profitable that leads to a trader losing money and failing in the market.
When you are too distracted by making money and you have ‘dollar signs in your eyes’, you forget about the trading process and you forget that you need to become a good trader FIRST. That is to say, you need to learn to trade successfully before you can hope to make any serious money in the market. But, sadly, most traders ‘count their chickens before they are hatched’, and this causes them to take far too large and far too many risks in the market, inevitably causing them to lose money.
What you need to do is really get into trading. Get excited about the process, make it a competition with yourself or with ‘other traders’, whatever you have to do to make yourself motivated to get good at trading. You NEED to do this instead of thinking about the profits and what the money can do for you, if you want to have a chance at consistent long-term trading success
Don’t worry about the money in your trading account, just worry about the process of trading and about becoming a good trader. It does not matter if you have $300 or $30,000 in your trading account, if you can trade you can trade, and it won’t take long for a good trader to build a small account into a larger one. However, and I will emphasize this again, you will never build a small account into a big one if you do not first get excited about the trading process and about becoming a good trader. If you don’t feel you have the passion, interest and drive to get excited about becoming a skilled trader and all the things that requires, then it’s better you forget about trading and put your energy elsewhere.
4. What you do after a trade determines your success or failure
If I were to hang out with you for a week and observe you trading, I would be able to tell just from watching how you behave right after a trade whether or not you have what it takes to succeed in the market.
This is because, the best traders do not become overly-influenced by their previous trade. Whether it was a winner or a loser, they remain at a ‘baseline’ emotional level the entire time they are interacting with the market.
For the losing or struggling trader, this is not the case. You probably know what I’m talking about here. How many times have you experienced a very good stretch of trading that was immediately followed by a terrible string of losers?
There’s a very predictable cycle of events that most traders go through if they are not yet at the point where they are consciously monitoring themselves and disciplined enough to avoid the temptation inherent in the market. The cycle, goes something like this: You get on a hot streak, win a few big trades, then you start feeling good, this good feeling is extremely dangerous.
It’s called over-confidence, and it basically means the euphoria or happiness you’re feeling from your recent winners has artificially reduced the amount of risk you sense in the market. What inevitably results, is that you crank up your normal position size, risking far more than you were on your recent trades, and / or you start being drastically less picky in the setups you take (over-trading).
Similarly, after a losing trade, many traders jump right back in the market out of anger or frustration. They want to make back that money they just lost. However, this feeling typically ends in them losing even more money, which can further perpetuate the cycle, as you are probably aware.
Thus, we come back to tip number 1, self-control. How well you control yourself after a trade, winner or loser, is an excellent barometer for whether or not you will achieve long-term trading success. If you know you currently do a poor job of controlling yourself after a trade, it’s time to dig deep and muster up some serious self-control and discipline, or you will never make money as a trader. You need to remind yourself that being flat the market (not in any trades) is a perfectly healthy and normal position, and it’s also a very valuable one.
5. Controlling yourself during a trade is critically important
Finally, when you have a trade on, what do you do? Do you sit there and watch it until your eyes start to burn? Do you stay up all night and lose sleep because you are glued to every pip for and against your trade? Do you almost always interfere with your trades while they are live, moving stops and targets around or adding to positions? For most traders, the answers to these questions are unfortunately “yes”.
Controlling yourself during a trade is just as important, if not more, than controlling yourself before and after a trade. Often, the hardest thing for a trader to do during a trade is nothing, yet nothing is often the best thing they can do. As I described earlier, often it’s better to be a ‘lazy trader’ by simply letting the market do the ‘work’ for you after you enter. I’ve described this concept more in-depth in other articles like my set and forget and minimalist trading strategy articles. However, for the purposes of today’s lesson, I want you to see that self-control, before, during and after a trade, is truly the single most potent weapon you have in this battle we call trading.