If you are currently stuck in a trading ‘rut’ and aren’t sure how to pull yourself out, today’s lesson is meant for you.
As a beginning trader, you are bound to slip into a bad patch where you start developing some bad trading habits and find yourself stuck in an extended losing streak. It’s easy to feel lost or overwhelmed, like progress is so far away and going to take so long to appear.
I am here to help you see the trading ‘light’, and in today’s lesson I am going to share with you 10 pieces of insight that I have learned over my 15+ years as a trader that (if implemented properly) will help you quickly improve your trading.
10. If you’re lost and losing often, STOP trading (for a while)
Perhaps the hardest ‘pill to swallow’ as a trader is just owning up to your mistakes and ripping the Band-Aid off quickly, so to speak. When you are in a bad losing streak and you feel out-of-control, flustered and even angry, it’s really time to just stop trading for a while. This is especially true if you are trading with real money and losing money over and over. You have to plug the whole before your whole ‘ship’ sinks.
This is probably the fastest way to improve your trading because once you stop trading with real money you eliminate all emotion-fueled trading mistakes and you immediately start realizing the mistakes you were making. When you are in a losing streak and out-of-control, it is basically impossible to fix your trading problems if you don’t stop trading live for a while. You need to get an objective clear-head in order to see through the haze of trading errors that you were making.
9. Understand trading is about probabilities, not certainties
If you want to quickly improve your trading, you need to make a change in how you think about trading and what it means to be a successful trader. Many people come into trading and are confused as to what they are actually doing. A trader is someone who tries to take advantage of probabilities, not certainties. There is nothing ‘certain’ except that the market will move. It is impossible to know which direction it will move for sure before it happens.
Yet, many traders seem to trade as if they know for certain what the market will do next; a grave mistake. As traders, we are looking to trade a strategy that gives us an edge in the market. An edge means a higher probability of one thing happening over another. One of my trading hero’s, Mark Douglas, often talks about trading edges and this topic of trading in probabilities. The basic point you need to understand is that, there is a random distribution of winners and losers for any given trading strategy or edge over a series of trades.
Now, what this means is that you cannot know for sure WHICH trade in any series of trades will be a winner and which trade will be a loser. But, if you are trading a high-probability method like my price action strategies, over a large enough sample size or series of trades, you should come out profitable. It’s critical to keep this fact in your mind after each trade you take, because you cannot let one trade’s results influence your feelings or behavior in the market. You have to stick to your plan and keep trading with discipline and consistency.
8. Learn to read and trade price action
Now, this one should sort of go without saying. But, if you don’t know how to read a price chart and you’re trying to trade the markets, you’re going to have a pretty tough time, even if price action analysis isn’t your primary trading method.
So, learning to read and trade with price action is going to quickly improve your trading if you currently do not know understand price action. Not knowing how to read or trade the price action on the very charts you’re trying to trade is like trying to navigate around a new city you’ve never been to without a map or GPS; it’s making the process far more difficult than it needs to be and nearly impossible.
7. Turn off the news
Among other reasons why I feel news-watching is a gigantic waste of time, it vastly complicates the process of trading the markets. By simply turning off the news and ignoring all the ‘expert’ opinions out there, both online and on TV, about the markets, you will have a huge leg-up on the competition. You need to learn to trust your gut in trading, not other peoples’ guts.
6. Learn how to properly place stop losses
In a recent article, I discussed how to place stop losses like a pro trader. In that article, I discuss the importance of stop loss placement and how it can be the difference between a winning and losing trade, and I also show you how to place stops properly.
Learning how to properly place a stop loss can very quickly improve your trading because it can mean you stay in many trades that you otherwise may have gotten stopped out of. Many inexperienced traders place stop losses way too close to the entry price because they want to trade a bigger position size, this is a big mistake that is born of greed. It causes them to take unnecessary losses many times when they shouldn’t have to. If they would have placed the stop properly, based on price action and market structure, they would have stayed in many trades they otherwise lost.
5. Learn about position sizing
If you are sizing your trades wrong, it’s going to cause all kinds of problems, from procedural to emotional. Having a comprehensive understanding of how to properly size your trades is crucial to proper trading. As a result, understanding position sizing properly will quickly eliminate many unnecessary trading mistake you are making as a result of not having this understanding.
4. Dial-down your risk
Especially if you find you are losing a lot of trades and a lot of money, it’s time to dial-down the amount of money you are risking per trade. This will very quickly improve your trading because it will protect your trading account and your trading mindset from the damage dealt by unnecessary losses and losses that are bigger than what you can financially or psychologically handle.
3. Stop looking at intra-day charts all the time
If you have followed my blog or any length of time you know that I am a big proponent of the daily chart time frame and higher time frame trading in general. You want to quickly improve your trading? Stop trading the intraday charts and start focusing ONLY on the daily chart time frame until you have it figured out.
2. Stop over-trading
Ok, now, admittedly, this one is easier said than done for a number of reasons, but if you want to improve your trading very quickly, you need to stop over-trading. Over-trading, as I define it, is trading when you trading strategy or trading edge is not present. It’s extremely easy to over-trade, which is why it’s so hard to stop doing it. It’s even extremely easy to over-trade and not realize you’re over-trading.
The best way to stop over-trading is to create a trading plan and follow it with the discipline of an Olympic athlete.
1. Get a trading education
Finally, I find that many beginning traders spread themselves too thin, so to speak. What I mean by that is, they do not focus enough on one trading strategy, instead they spread out their time on many strategies or systems or education sources. This causes confusion and cognitive dissonance in their minds (meaning having inconsistent thoughts) which eventually leads to over-trading / gambling in the market.
It may sound cliché at this point if you’ve followed me for a while, but what you have to do is become a specialist in the market, you have to trade like a sniper or trade like a crocodile. Once you learn how to do that, trading will seem much less like gambling and much more like a highly-skilled profession that you need to learn properly through a proper trading education and work hard to excel at.