If you’re one of the many traders who keep putting money into their trading account only to see it go down and down until it’s empty, today’s article is for you.
This could be the most important article about trading you have ever read because I’m going to show you how to stop making the same mistakes repeatedly. The key to consistently making money in the markets is to learn from our trading mistakes and use what we’ve learned to make lasting changes. If you don’t learn from your mistakes, you’ll be like a hamster that keeps running in a circle on a wheel but never gets anywhere.
Read on to find out how I stopped making the same trading mistakes that are probably hurting you right now.
Get the right mindset for trading.
You may have read some of the other articles I’ve written about the right way to trade, but I can’t stress how important it is. All trading success starts with getting the proper trading mindset, or trader psychology, and maybe even more important (and more challenging), keeping it.
Everyone tells similar stories about how “emotions are the enemy” of trading success. But I think that’s too broad. Let me explain why I think that…
First of all, emotions are not always destructive in trading. Sometimes, they can be beneficial and fun. For example, once you have a good gut feeling about trading, you will eventually develop an internal “early-warning” system that tells you when a trade isn’t right. In other words, your fear will kick in, but in a good way. But fear can also hurt you if you’re too scared to take a good trade opportunity, etc. So, as we’ve seen, it’s not true that “all emotions are bad” when it comes to trading.
The thing that makes emotions dangerous is whether or not you let them affect you in a bad way. This is an important distinction to make. Being aware of and in control of your emotions while trading will allow you to make changes and take charge of your actions on the market. This is probably the most important thing you can do to stop making the same trading mistakes over and over again. Most trading mistakes happen when we let our emotions get in the way. If we are more aware of our emotions while trading, we can work to make sure they don’t cause us to go off our trading plan.
Learn how to handle your money well.
If you keep putting too much on the line with each trade, your emotions and way of thinking will keep hurting your trading rather than helping it. In fact, money management is one of the most important ways to stay calm and not let our emotions get in the way when we trade.
I think that trading money management is the first step to being in charge on the market. So, I think that money management is the most important part of a good trading mindset. If you aren’t always worried about how much you “might” lose on a trade, your emotions won’t get in the way.
You can only survive a losing trade if you risk an amount per trade that won’t make you feel “pain” if the trade goes wrong. If you risk too much on each trade, you risk making the same trading mistake again. If you lose too much money, you will feel frustrated and angry, which will make you want to get back into the market and try to make that money back. This is a cycle that will keep going as long as you don’t figure out how much money you can risk per trade.
How you think about trading needs to change.
Once I changed what I thought “trading success” meant and how I thought about it, it became a lot easier for me to achieve it. Most new traders think that trading will quickly and dramatically change their lives in big ways. This is not true, especially if you don’t have a lot of money to trade with, and it also keeps you making the same trading mistakes over and over again.
You have to trade slowly and think about what you consider “successful trading” over a longer period of time. Let me ask you this: if you only won one or two trades a month and lost one, would you consider that a “successful” month? Or would you rather have 30 trades where more than half were losers and some of your winners were small and insignificant? Most likely the first, right? Well, you’re right, it would be the first one, because the fact that you only made three trades in a month instead of 30 tells me that you were patient, disciplined, and strategic in your trading, not impulsive and random.
Most traders get “stuck” because they only see “making less money” when they trade less. This is the wrong way to think about trading.
You see, as I explained in an article I wrote about high frequency vs. low frequency trading, you don’t have to trade a lot to make money. Remember that MAKING MONEY is better than LOSING MONEY, even if you have a small account and can’t risk much on each trade. You have to trade as if you’re already a rich, successful trader, because that’s how you become one.
A rich, successful trader who can take big positions on every trade will naturally be much more interested in finding one or two very high-probability and obvious trade signals per month than in trading every day. Why? Well, they know they will make a lot of money because they can trade big position sizes. They also know that one or two good trades a month are all they need to make a lot of money, so they don’t worry about trading a lot; they only care about finding good trades. Even if you only have a small account, this is how you should think and what you should do in the market.
You should do this because this is how the pros trade. They trade less often but more accurately, and it’s the only way to avoid losing money by trading too much, which can drain your trading account to nothing. You need to remember that the goal of trading is to do it right. That is successful trading, even if you aren’t trading big enough to make “a lot” of money right now. I promise that if you trade correctly for a long enough time, you will slowly build up your account, which means you will gradually increase your position size. Eventually, you will be making “a lot” of money trading, and you won’t lose it because your trading strategy is based on good habits.
Plan and stick to your plan.
Lastly, it’s one thing to learn from your trading mistakes, but it’s another thing to actually use what you’ve learned. By “use what you’ve learned,” I mean to try to avoid those mistakes on your next trade. Put what you’ve learned into your trading plan, and read that plan every day. Often, the only way to get off the “hamster wheel” of making the same trading mistakes over and over again is to keep an eye on ourselves and make sure we don’t make the same mistakes again. Trading is hard on the mind, and if you don’t have a trading strategy and a trading plan, you’ll probably let your feelings take over.
“If you don't find a way to make money while you sleep, you will work until you die.”
- Warren Buffett
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