Today’s lesson is going to help you get your trading “Mojo” back and is inspired by none other than the world famous Austin Powers…”Yeah Baby!”
In all seriousness, today’s lesson WILL help you get your trading back on track and is really inspired from communication I’ve had with someone who’s been a member of Learn To Trade The Market since 2011. He joined us with an intermediate level of Forex and price action trading knowledge, and over the last two years, after taking our course and using the members’ daily trade setups commentary as a guide, I’ve seen him genuinely improve his trading abilities. For the sake of privacy and to protect his anonymity, we will refer to him as “Tom” in this lesson.
“Tom” initially blew out his first account but took his second account up several hundred percent before blowing it out once again, a scenario that you might be all to familiar with. I want to talk to you about his trading journey and how he got off track and how I helped him get back on track with some simple solutions. Most of you will relate to today’s lesson and will hopefully use it to improve your own trading, because “Tom’s” trading story is probably very similar to yours, and that’s why I wanted to share it today. It goes something like this…
Tom’s trading journey…
“Tom” is a real member of my price action traders’ community and has taken my courses and thoroughly studied all my members’ content numerous times. He blew out his first trading account rather quickly, as many traders do, but then after learning from his mistakes he turned his next $1,000 account into about $3,000 over a period of about 8 months, this is a great start for any trader.
However, Tom came back to us on email a couple of months later and said that he had just about blown up his trading account yet again, shortly after it peaked at just above $3,000. After dissecting his situation over a period of a few weeks over our email exchanges, I soon uncovered how he had blown out his trading account so fast. Tom’s problems were typical, and I’ve seen these same problems many times before with other traders, the “cycle of trading doom” as I will call it, and it went something like this for Tom (and possibly for you):
Tom got over-confident and even “cocky” after he more than doubled his account. This over-confidence led to him to trade in a reckless manner which resulted in him almost totally changing everything he was doing that allowed him to build up his account successfully before. Some of the things he started doing were, trading much bigger lot sizes than before (upping his dollar risk per trade substantially), experimenting with different trading strategies and systems, trading much more frequently than he was before. I had to help pull Tom back into line and back to how he was trading when he was doing so well and making consistent trading profits.
Here’s how I helped him…
As Tom did, you’re probably making these two big trading mistakes:
Like Tom, you probably have the talent, you have the ability, you can pull the trigger, but you’re still doing two big things wrong:
1) Mismanaging profits. Essentially, you are “abusing” your trading profits and behaving recklessly with them, almost as if you don’t care about them.
2) Breaking discipline and deviating from the trading plan or trading path that you used to achieve your previous success in the market, typically this means you’re over-trading.
The downfall of most traders usually happens something like this: After a decent period of winning, you get a little bit of a confidence increase, you’re definitely improving your trading skills and abilities, and it shows by the increase in your trading account value. However, at this point, most people find themselves beginning to trade more than they normally would; more than they were before. You start looking for opportunities where are there are none, purely and simply because you now have a surplus in capital.
Traders often obtain “artificial confidence” after getting off to a good start and hitting some solid winners early on in their career. Whilst it is clearly good to win trades, many traders cannot properly handle the profits they receive from winning trades, and as a result, they abuse these profits and the profits actually become the catalyst for the destruction of their entire trading account. In essence, many beginning and intermediate traders get “messy” with their trading profits and they develop a decreased sense of market risk from them. If you want to avoid the “boom and bust” cycle that Tom and other traders went through, you have to keep calm and remain disciplined if you start hitting on some good winners in the market shortly after beginning to trade live. Understand why you made that money and what you did to make it, don’t deviate from what was working before.
Stop viewing your trading profits as “house money”…it’s YOUR money!
In some of my previous articles, I talk about trading without any emotional “attachment” to your trading account money, whilst this is true to a certain degree, like anything else in life, there is a balance you need to find between too much and too little attachment to your trades. Example: a black jack player just made 50 bucks at the casino, and now because he has almost no attachment to that 50 bucks that he made “for free”, he will probably continue to gamble it, and most likely lose it. Casinos, understand this very common tendency of human behavior…and they making TONS OF MONEY by taking advantage of it.
When traders experience success shortly after beginning to trade live accounts, they tend to view profits as “risk-free” money and as if it doesn’t really belong to them, or at least they treat it like it doesn’t. Many don’t view a surplus of trading capital as “their” money, for a number of different psychological reasons, and this can cause them to act carelessly with that money, which as you probably already know, results in losing those profits and usually worse. Once you get into this mindset of “profits are free money” and trading with virtually no attachment to the money you have just made in the market, you are highly likely to begin taking bigger (and stupider) risks in the market and are just a few big losses away from doing serious damage to your trading account.
The fact of the matter, is that until you start thinking of your trading profits the same way you thought about your initial trading account deposit, you will struggle to trade like you did when you were making money before. The profits you make on a trade are YOURS, so treat that money as money that you made from your day job, because it’s just as rightfully yours and you should feel the same attachment to it. Note, I am not saying you should be emotional and “scared” of losing your money or be over-attached to it, I’m saying you should be responsible with your trading profits and stop feeling like you don’t “deserve” them or like it’s the “house’s” money, because it’s not, it is YOUR money and it’s your job to preserve your trading capital properly or else you will lose it frivolously. Tom learned this lesson the hard way by giving back the several hundred percent that he made on his second trading account, don’t let it happen to you!
Getting discipline back after losing it
Just like Tom, you may have realized that you lost your “way”; you deviated from what you were previously doing when you were trading successfully. Also like Tom, this probably happened because you began to lose sight of the potential risk in the market because you were “blinded” by the euphoric feelings you got after building your trading account up a decent amount.
Many traders simply don’t know when to walk away from the market after hitting some nice winners early on in their trading career. The market can turn into an “addiction” for many traders; they get addicted to the idea of making fast money and they keep coming back looking for trade setups whenever they have any opportunity to do so. You have to know when to “walk away” from the market, and this involves getting some training on how to read the charts and understand price dynamics as well as combining the knowledge you get from that training with discipline and common sense. Example: you just hit a large 3 to 1 winner on a huge move in the EURUSD, now the odds that the market will consolidate for a while are much greater than seeing the move you just profited from continue in the same direction. Thus, at this time it’s best to walk away from the market for a while, let yourself cool down, the market is probably going to consolidate for a while after a big move anyways.
Many traders will jump back into the market after making a nice profit, only to see the market retrace or consolidate, chewing up the profit they just made. Markets ebb and flow, and if a market just made a big move that you profited from, get out and sit on your hands for a while until another price action trade setup forms. If, after you exit a trade, the market does keep moving in the same direction that you just traded, don’t worry about it, you can never pick the exact end or beginning of a move…that’s just part of trading.
Another thing that Tom did wrong was that he started trading currency pairs he didn’t normally trade, as well as lower time frames. He started trading some of the more exotic currency pairs that have lower liquidity and worse spreads, mainly because he was feeling “invincible” after his recent success, and this caused him to start seeking out opportunities in markets and time frames he was unfamiliar with. Trading exotic pairs and less-liquid markets as well as time frames under the 1 hour charts is something traders have a tendency to do if they can’t find any trades on the major currency pairs and other major markets. It’s because they become addicted to the market after their recent success and they no longer have the patience to wait for a good setup to form and sit on their bankroll as they should.
You need to realize that you got to the point of doubling or tripling your account by doing things differently than you are now, just like Tom. Tom revealed to me on email that he WAS indeed using a trading journal and he was only trading the major markets and focusing on the 4 hour and daily charts…while he was building his account consistently. Once Tom’s trading account hit a certain dollar surplus level, his emotions started dominating his trading decisions, causing him to take too big of risks with his money and trade too frequently. This is natural, it’s not the right way to trade, but it’s a natural part of being a human being in the markets.
What you have to do to stop this from happening to you is first realize when it’s happening, and then have the discipline to stick to what was working for you in the past. You will need to think of your profits as YOUR money, as we discussed above. Don’t abuse them, because they can and will be very fleeting if you don’t treat them properly.
What to take away from Tom’s story
If you find that your situation is very similar to Tom’s, I want you to start thinking about the positive period when you were making money in the market, do this right now. What things were you doing that were working at that time? I’m willing to bet that your risk per trade was much more consistent, you were more consistently following your trading strategy, and you were more cognizant of the potential to lose money on any trade, and as a result you were probably more responsible with your trading capital.
Don’t fret over “spilled milk”, just learn from it and move on; life is too short to be frustrated, sad or angry about however much money you may have lost up to this point in the market. EVERY successful forex trader started out building up accounts, blowing them out and then feeling befuddled as to how it happened. Eventually, they learned what they were doing wrong, and for most it was a story very similar to Tom’s and probably very similar to yours too.
Getting your trading ‘mojo’ back is not necessarily an “easy” task. However, if you are willing to take a step back, admit that you broke your money management plan and strayed from what was working before (swallow your ego), you can fix your trading faults. Every trader is different and has a slightly different story to tell, but most traders do face the same types of headwinds on their journey to consistent profits in the market, and with the proper forex trading training and an open mind, you can break the cycle of “boom and bust” that is probably affecting you as it did Tom and many other traders.