In today’s lesson, I am going to outline 20 things that I personally do in my own trading and that you can start doing to improve yours. Please read today’s article closely because I spent a long time writing it for you and it’s full of solid tips and insight that can make a big difference in your trading. As always, please leave a comment after reading today’s lesson and let me know what you thought about it or if you learned anything new. Now, let’s get to it:
1) Have real goals and understand what you’re committing to
Having reasonable short-term goals that you can realistically achieve within a short period of time is how you achieve longer-term goals. Unfortunately, most traders become fixated on the long-term goal of “becoming a professional trader” as soon as they start trading with real money. The main problem with this is that just having a big long-term goal with no realistic plan to achieve it, is essentially worthless.
As a trader, a “reasonable short-term goal” might be that you stick to your trading plan for one month. Then, if you achieve that short-term goal you can give yourself a reward at month’s end, whatever you decide that might be. Just be sure you define short-term trading goals that you can realistically achieve, if you want to achieve your big long-term goal of becoming a very successful Forex trader. If you are seriously going to commit to become a full-time trader, you’re going to have devise a plan to get you to that point, just wanting to be a full-time trader is not a plan or strategy to make it happen.
2) Simplify your trading approach & your thoughts
One of the easiest ways to improve your trading that will also work to improve your overall mindset both when you’re trading and when you’re not is to simplify your trading approach. My key philosophy of trading is to ‘keep it simple stupid’. After years of trial and error in my early trading days, I finally realized that I was just making the entire process of analyzing and trading the markets FAR more complicated than it needed to be. When you use a simple trading method like price action, it eliminates most of the confusion, doubt, and frustration that traders experience as a result of being unsure of how to trade their system or strategy. Trading is not technically difficult, it’s emotionally and psychologically difficult; therefore it just doesn’t make sense to use a confusing or complicated trading strategy or system which will make both the technical and psychological aspects of trading more difficult than they need to be or are.
3) Develop your skills and plan before you trade
I am always amazed at how many emails I get from traders who basically tell me they are new to Forex trading and they want to open a live account. For some reason, people seem to think they need very little experience or preparation to make money in the markets. In reality, this couldn’t be further from the truth. Trading a real account is not something you just dive into with no plan or experience behind you.
I personally recommend that all traders have mastered an effective trading method like price action trading, developed a solid trading plan from that trading method, have a trading journal, and trade their plan on a demo account whilst recording their trades in their trading journal for at least 2 or 3 months before even thinking about trading a live account. The markets will chew up and spit out your hard-earned money faster than you can imagine (and you know that already if you’ve been trading for a while), so the more prepared and experienced you are before you start trading live, the better off you’ll be in the long-run.
4) Don’t fall off the wagon
It seems to be in our nature to get really excited and motivated about things only to see those positive feelings fizzle at the first signs of adversity or obstacle. How often have you or someone you know made a New Year’s resolution to get into shape and start eating better, only to find yourself back in the same old negative habits by the middle of February?
You’re not alone here; it’s human nature to be this way. However, we are equipped with very powerful brains that give us the power to overcome our human nature and evolution to the point where we can rise up above our peers and create positive habits rather than the negative ones that dominant many people’s lives. I can promise you that trading does not reward lazy people or people who cannot manifest the motivation to stay disciplined and follow a plan for a long period of time. It’s not difficult to get motivated about trading and create a good forex trading plan, what is difficult is digging deep within yourself and sticking to that plan and following your edge with ice cold discipline week in and week out.
Most traders fall of the wagon; they end up trading when there’s no trade, forgetting about their trading plan and gambling their money away in the markets. Don’t be one of the sheep; be the leader, be different, do the things you know you should do even when you don’t want to, persist and be disciplined even in the face of constant temptation, these are the things you must do to be a profitable trader.
5) Stop trading if you’re frustrated or confused
If you’re frustrated with your trading results or confused about your trading strategy, it’s best to simply take some time off from trading. This simple exercise can work wonders on your mindset and will restore passion and motivation into your trading routine. Clearing the markets from your mind for a while is sometimes the best thing you can do to improve your trading. Especially, if you just suffered through a series of emotion-fueled losing trades, you need to take some time off from real money trading to regroup and collect yourself.
Even if you are just feeling a little frazzled one day in the midst of a successful run in the markets, it’s still better to just stop for the day and come back the next day after a good night’s rest. It’s very easy to get caught up over-analyzing and falling victim to the temptations of the market, without even noticing. If you find you’ve been at your computer for an hour or two just analyzing the markets and trying to find a trade, you’re probably better off removing yourself from the markets for a while. Finding your trading edge in the market should be a relatively quick and easy task after you have mastered trading your edge. It should be readily apparent if your edge is present in the markets after just 15 or 20 minutes of browsing. So, when in doubt, walk away from the markets until the next day or however long you need to calm down.
6) Trade less than you are now, much less
I talk a lot about over-trading, and for good reason, but I won’t get into it too much in today’s lesson, except to say that most traders trade way too much. I get a lot of emails from traders asking me things like “How many trades can I expect per week”, etc; when in reality it really doesn’t matter. Traders should be far more focused on quality of trades rather than quantity of trades, as you can make a good return each month with only 1 or 2 big winners.
It’s OK if you don’t trade for a week, you need to understand that. Many traders feel like they need to be in a trade all the time or they are “missing out” on an opportunity. Well, the truth is that just because the market is sitting there and easy to access, it doesn’t mean it’s an opportunity to make money. In fact, you should think about the market as a way to both lose and make money, this will help you to avoid jumping in the markets when your edge isn’t present. There’s only an opportunity when your trading edge is present, if you trade when your edge is not present you are simply gambling. It’s a proven fact that high frequency trading is less profitable over the long-run than lower frequency trading. Traders who take a swing-trading approach where they are holding positions for 3 or 4 days or a week on average, tend to keep themselves in business as traders, whereas day traders keep the brokers in business with all the spreads and commissions they generate for them. Unfortunately, day traders and short-term scalpers often up putting themselves out of the trading business simply because they are gambling, not trading.
7) Stop thinking so much and so hard, it’s bad for you
Whereas thinking and brainstorming are generally good things in almost every other profession in the world, in trading they can actually be counter-productive. The reason being is that often it’s best to just not do anything in the markets. Whether that means not entering a trade you know isn’t quite meeting your trading plan guidelines, or not interfering with a live trade, traders do a lot of damage to their trading accounts by thinking too much about what they should do next.
Don’t get me wrong here, I’m not telling you that you don’t have to think at all to be a good trader. What I’m saying is that most traders think more than they need to, there’s a big difference. Obviously, you need to think to become a successful trader. But, once you determine exactly what your trading edge is and you know how best to trade it, there isn’t a whole lot more to think about. After you know how to trade your edge, it really just comes down to scanning the markets quickly each day to see if your edge is there and then either trading your edge or walking away. This type of approach is best implemented as an end of day trading strategy; however you can also use it on the intra-day charts.
Also, don’t over-think your trades once they are live. The “default” trade management strategy that I use is to “set and forget” my trades, then I will check in on them periodically and if there’s any obvious price action showing me that the market bias is changing against my position, I might manually close out my trade. But, I never manually close a trade simply out of emotion or because I thought about it for too long and convinced myself of something that the markets weren’t actually reflecting, this is what many traders do.
8) Accept that you don’t need indicators
I like to think of my website as one of the few true trading websites that focuses on price action and on real trading strategies, rather than the thousands of trading sites out there talking about indicators. If you’ve been following me for a while now you know that I focus primarily on trading off pure price action, with a couple of moving averages sprinkled in sometimes. However, if you want to know exactly why I think trading with indicators is a bad idea, checkout this article on forex indicators. Indicators are for those “lost sheep” traders still searching for some Holy-Grail trading system that simply doesn’t exist. The sooner you wake up to this reality the sooner you can get on the track to learning real Forex trading strategies.
9) Use your brain wisely
You’re not a caveman, it’s 2012, there is no excuse in today’s world not to read, not to be educated and not to make a real effort, LAZY won’t work. Too many traders want to buy a trading system or attend a trading seminar and magically start printing Benjamins from their computers. Unfortunately, this is not how it works. Trading takes time and effort to learn, and you have to use the large mushy area between your ears to become good at it. Many traders never invest in an effective trading education or take the time to learn and really develop their trading skills; instead they just jump in the markets with little to no formal trading and start throwing around their hard-earned money. There’s so much information at your fingertips these days, there’s no reason not to put in the time to learn how to trade effectively.
10) Ditch the fundamentals and news
I know that a lot of you guys spend hours reading economic news, reading forums over on forex factory, or whatever else. The truth is, you are wasting your time. You really are; you need to just accept the simple fact that all fundamentals and forex news variables are reflected via the pure price action on your charts. I’m not going to say too much about this topic in today’s lesson because I have discussed it in other lessons quite a bit, and there’s really no better way to sum it up except to say that every single piece of economic news and all things that affect a market are visible and reflected in that market’s price action. So, if you learn to read the price action you also learn to read the fundamentals.
11) Trust your gut, not another’s
When it comes to trading, trusting your gut is something you’re going to have to learn to do. Unfortunately, there’s no mechanical trading system out there that will stay effective over changing market conditions. Despite what you read on some trading websites, you need to use your brain, your eyes, and your gut instinct when trading the markets. Your intuition and gut trading feel are things that can be harnessed and improved upon if you develop them by learning a strategy like price action.
Turn off the TV, stop reading the business section in newspapers, and don’t listen to the opinions of others, instead learn to listen to yourself. A good gut trading feel will only come from experience and confidence, so you first need to really master a trading strategy like price action and then practice trading with it on demo. Once you do this for a while you will begin to develop your gut trading instinct and to get a feel for a price action strategy worth trading versus one that’s not, etc. Ultimately, you are the one pulling the trigger on your trades, so you need to trust yourself and not confusing yourself by listening to other people and taking in too many outside opinions. All you really need is a sound knowledge of price action trading, your brain, and the charts.
12) Keep your day job, and work hard at it
Don’t set out to be a professional trader from day 1, instead, your first goal should be to gain experience and knowledge and become a good trader, then once you’re making consistent money in the markets you could quit your job if you want to. Most traders go about this with the wrong mindset, they think they are going to quit their job after a month of trading and they might even start slacking off at work as a result. This is the wrong attitude to have and the wrong thing to do; you really need to already be financially sound and relatively happy with your life before you start trading with real money. Many traders look to the markets as a way to solve all their problems, when in reality the markets are not there for this. They are for mentally sound people to potentially profit from, so if you are trading the markets just because you hate your job or you “want to be a millionaire”, you probably have the wrong forex trading mindset already.
13) Be organized and clean (hygienically too)
I am a very organized and clean person, and I firmly believe this has contributed to my success at such a young age. Without trying to sound arrogant or cocky, many people simply don’t have the motivation to maintain an organized and clean lifestyle, and I think it’s very hard to be a consistently profitable trader if you live this way. Everything from having the files and content organized on your computer to having a clean and organized place to trade is important to your overall trading mindset. One of the reasons why many people fail at trading is because they aren’t organized and disciplined, trading seems easy on the surface, but if you aren’t exited about developing positive habits and about being patient and disciplined, you’re probably not going to make it as a trader.
14) Don’t be stupid
A lot of traders simply act like fools in the markets. They shuffle around their charts like lost souls desperately in need of a trading signal, panicking if they don’t find one and ultimately entering the market anyways. Biting off more risk than you can chew and generally behaving like gambler in the markets is not the way to make money, in fact it’s simply stupid, to put it frankly. You need to think like a businessman or woman and act accordingly, that means managing risk and having a plan.
15) Learn to love patience
For many people, patience brings up images of boredom and things they would rather not do. However, in trading, you need patience more so than in most other professions. You need to have patience to sit on your hands when your trading edge is not present, and you need to have patience to see your trading edge play out over a large series of trades, rather than getting emotional after hitting a few losers. Indeed, if there is one “key” ingredient to success as a trader, it would definitely be patience.
Trading seems to naturally tempt peoples’ ability to be patient, and the more you can maintain your patience by waiting for valid instances of your trading edge, the better you will do. As humans, we have not been wired by evolution to be patient in most situations; when we are hungry we need to eat now, etc. So, as traders, we need to override these “caveman” urges which cause us to over-trade and risk too much, by planning ahead and not becoming emotional as we trade.
16) Don’t expect to win every trade
I’m going to let you guys in on a little secret that all pro traders know; you don’t have to be right to make money trading. In fact, you can actually be wrong on THE MAJORITY OF YOUR TRADES and STILL make money. Yes, that’s right. If you want to see how, click the article I just linked to.
The point is this, you can’t freak out every time you lose a trade, EVEN IF you think it was a “perfect” trade setup. I get a lot of emails from traders sending me charts of setups they took that they said are “perfect” and that they just “don’t understand why the trade lost because it was so perfect”. Well, the cold hard truth is that it really doesn’t matter why the trade didn’t work! Also, why do you care so much? Have you risked too much on that one losing trade? Do you expect to win every trade? If you do expect to win every trade you are in for a lot of struggle and strife as a trader. The sooner you accept losing as part of being a trader and devise a realistic plan to deal with it, the sooner you can get on to making money in the markets.
17) Enjoy Losing – Each loss brings you closer to a large win
Similar to the point above, you have to actually learn to enjoy losing. I know that sounds strange, you’re probably thinking “How can anyone enjoy losing?” Well, if you are really passionate about being a trader, and you’ve already accepted that losing is part of being a trader, then at the very worst you should not make a big deal out of a losing trade. You have to learn to embrace your losers and think of them as just one trade closer to a winner. I always tell my students to “stop trying to avoid losses”, as losing is a big part of winning a trader, and the more you try to avoid losing trades, the more of them you are probably going to have. Think of losing trades as a coworker you really don’t like but that you have to work with everyday. If you take a bad attitude with this coworker and try to avoid them, it’s probably going to hurt your chances of a promotion and thus make you less money in the long run.
18) Be consistent
You just had 4 losing trades, what do you do, remain calm and collected, following your trading plan as usual? Or, do you freak out and jump back into the market to try and make back the money you just lost? If you lose your confidence and stop trading your proven trading strategy, you are probably going to miss out on the next trade that would have been a big winner. Trading is the ultimate test of being able to brush off and ignore obstacles that are in your way now for a longer-term reward. If you crumble at the first sign of adversity or hardship, you are probably going to become very emotional after a losing trade or two and start making stupid trading decisions.
19) Read, study, and improve…Always
Great investors, traders and business people, read, study and educate themselves on an ongoing basis. You need to invest in yourself because it’s the most important investment you will ever make, and it will lead to direct growth in your knowledge and skill as a trader or personal fund manager.
I am always amazed at how many traders think they don’t need to educate themselves about the markets or on a proven trading strategy. Many of them tend to think they can just dive in head-first to real money trading, with no formal trading or education, and that somehow they are on the right track. Well, that’s not the case, trading takes time, effort, and education, like anything else. The trick is to make sure you learn an effective trading strategy like price action and that you learn how to trade from a genuine and honest source.
20) Daily Trading Affirmations
A secret formula of many successful people has been to verbally reinforce the most important goals in their life. For a trader, having a wall poster or post it notes with important goals and phrases will help. We did a great lesson on this some time ago and it’s worth a read for any of you looking to take your trading to the next level…this stuff really does work and anybody can practice it…you can check out my trading affirmations lesson here.
It’s important to read through these affirmations everyday before you trade, I would even incorporate this into your trading plan. Doing so, will get your daily trading routine started off on a positive note.
Finally, I just want to say that I hope all of you have learned something from today’s lesson, and that if you really read through all 20 of the points above, and fully absorb them, you will gain some solid insight and knowledge that will help you improve your trading.