I’ve been trading long enough to know the most common mistakes that hold traders back from making money in the market and how to fix them. In today’s lesson, I’m going to give you 7 simple solutions that you can start using right away to slowly start start changing your trading results from bad to good, and then hopefully to ‘great’.
If you’ve been struggling to make money in the markets recently and you feel like you need a “reset” button to clear the frustration and emotion from your brain, today’s lesson is for you. If you’re a struggling trader, you might think you need to drastically change your trading approach or that you need to read some “secret” book about trading that will show you the path to riches. In reality, even if you’re struggling to make money in the market or you’re losing money, you’re probably not that far away from being on the path to success. A professional trader really just thinks differently about trading than you do, and if you combine the correct trading mindset with an effective trading strategy that you’ve mastered, you really have everything you need to start making money in the market. Here are 7 very simple things that will improve your trading IF you do them:
1) Take a week (or two or three) off from trading
Sometimes the best thing to do is to simply clear your mind and get a fresh start. Unfortunately, in trading, it’s REALLY easy to turn into a frustrated, emotional trader who is glued to the screen around the clock trying to make back lost money or trying to make a quick buck. No matter how disciplined you are or how well-prepared you are, that little red “devil” on your shoulder is always competing with the little white “angel”; the angel is telling you to stick to your plan and remain patient while the devil is always telling you to trade when you shouldn’t and jack up your risk.
Sometimes the best thing to do is to take a break from trading for one or two weeks. By that I mean, completely removing yourself from anything market-related for that one or two week period. When you come back to the market you will feel refreshed, focused and a lot more likely to stay disciplined and patient. Taking a break from trading will let the “dust” settle in your mind and will give you a fresh start and a chance to regroup and trade how you know you should rather than how the little “red devil” is telling you to.
2) Sit down, figure out your dollar risk per trade, and stick to it
Many traders are confused about how much they should be risking per trade. I know, because I get emails about this almost every day. There are really two very simple ways to determine how much you should risk per trade:
1. Risk an amount that you could lose 20 trades in a row on and still have enough money in your account to continue trading.
2. Risk an amount that TRULY allows you to “set and forget” your trades and sleep WELL at night.
The bigger the position you have relative to your account size, the less likely you will be to stay calm and let the trade play out. There’s a positive correlation between the size of your position and the amount of emotion you feel for a trade; meaning, the more money you have at risk per trade the more emotion you will feel during a trade. This is why, after a certain dollar risk amount relative to your account size, you will probably start losing money overall. You have to keep your dollar risk per trade at a level that allows you to think clearly and rationally and not become clouded by emotion and fear. This might take some “trial and error” to figure out in the beginning, but you will soon know how much money you are comfortable with potentially losing per trade. Once you figure that out, all you have to do is not deviate from that dollar risk amount. This is a much more realistic and effective way to determine your risk per trade than using a pip or percent measurement, and it’s why I wrote an article on why you should measure your risk in dollars, not pips or percentages.
3) Don’t increase your risk per trade until you’ve doubled your account
Many traders make the huge mistake of increasing risk per trade after a winning trade or even after every winning trade. This is a very dangerous thing to do. One or two trades doesn’t matter and doesn’t really reflect your ability or inability to trade, if you don’t understand why then read here; one fact about trading you need to know. However, doubling or tripling your trading account on the same dollar risk per trade says something about your ability to trade the market. The point is this; it’s illogical to think you’re going to exponentially increase your risk per trade forever and for no reason other than you “won the last trade”. If you maintain your risk per trade at a constant dollar amount until you’ve doubled your account or more, it will instill discipline and patience in you and you’ll avoid becoming emotional about trades because you won’t have over-leveraged. This is really one of the easiest things you can do to improve your trading.
Remember; a few trades doesn’t really mean anything, so you should not increase or decrease your risk amount based only on a small handful of trade outcomes. If you double or triple your account over time via following a proven trading method and remaining disciplined, that is a solid indication that you know what you’re doing and gives you a logic-based reason to increase your dollar risk per trade.
4) Stop reading economic news
One of the biggest things that causes many traders to struggle and lose money in the market is that they simply try to analyze too many variables. Reading economic news each day is something that many traders do, and it typically only causes them to second-guess themselves and (or) enter trades they otherwise wouldn’t.
The other big reason not to waste time reading economic news or focusing on fundamental analysis is that it’s all reflected in a market’s price action anyways. So, if you just learn to read the raw dynamics on a price chart you don’t need to read anything else. Yet, many traders make trading significantly more complicated than it needs to be by trying to analyze every economic report under the sun. Cutting these variables out from your daily trading routine is another very simple way to improve your trading by reducing the number of variables you’re trying to analyze and make use of.
5) Take everything off of your charts
Similar to the above point about analyzing too many economic or fundamental variables, many traders analyze too many technical variables. If your charts look like a piece of modern abstract art because you have 10 different multi-colored indicators on them, the simplest thing to do is to just remove all that junk.
Many of you are probably still using an RSI or a MACD or something, in combination with what you’re learning from my site. Honestly, the sooner you cut yourself off from those indicators the sooner you’ll see a positive change in your trading results. Almost every trader that I know, myself included, has gone through a process of looking for the “holy-grail” trading system to gradually using less and less indictors until they finally realize that the natural price action of the market provides them with all the analytical tools they need to develop a high-probability trading method. The faster you ditch unnecessary indicators the faster you’ll start to realize that simplicity is a big part of trading success and you’ll wonder why you ever tried trading with indicators before.
6) Get off the intra-day charts
Intra-day charts (any chart below the daily chart time frame) are often the killer of many trader’s accounts. Most traders tend to over-trade primarily because they are too fixated on intra-day charts. I’m sure you have probably caught yourself sitting there staring at the 30 minute or 1 hour chart like it was your key to instant-wealth, mesmerized by its every move; this is exactly what causes many traders to trade too much. As humans, we are really good at picking out meaningless patterns in things, and especially in the markets. The more you sit there looking at the intra-day charts tick by tick, the greater your chances become of talking yourself into a trade that doesn’t really agree with your trading plan or trading strategy. Ignoring the intra-day charts is a very simple solution to getting back on the right trading path, at least until a time when you are consistently profitable on the daily charts.
7) When in doubt, stay out
Finally, perhaps the simplest solution for most of your struggles in the market is to simply not enter a trade if you have even a tiny bit of doubt about it. Professional traders know when they should enter a trade and they know when they shouldn’t, that might be thee biggest difference between a pro and an amateur trader. The easiest way to make sure you don’t lose money in the market is to simply not enter a trade. The majority of people who keep losing money in the market do so because they don’t really have a trading strategy that is effective and that they’ve mastered. They continue to look at the market with no real plan and no real strategy, entering trades on a whim; they are over-trading. If you are not 100% confident in your trading strategy and your ability to trade it, yet you still enter trades, you are probably over-trading.
A professional trader doesn’t over-trade because they have mastered their trading strategy to the point where they no longer have any doubt. Also, if there are no trade setups that qualify according to their trading strategy, then they are fine with not trading; they have the discipline to not trade. Having the discipline to simply do nothing in the market is perhaps one of the toughest things that you will face. You have to remind yourself that not trading also means you will not lose any money, and you should never lose money due to trading just because you “felt like it”. You should make a deal with yourself that you will only put your hard-earned money at risk when your trading strategy is telling you to. I personally know when one of my price action trading setups is present in the market, and I know when and how to trade it…because I’ve mastered them. Thus, when I scan through my charts each day it is something that is devoid of doubt….I KNOW what I’m looking for, and if there’s no setup present then I simply don’t trade, and I’m happy to not trade if there’s no reason to. That’s the point you need to get to.
If you enjoyed this trading lesson, check out my Price Action Trading Course for further education.