If you are one of the many traders who find themselves continuously whittling down their trading account to nothing after re-funding it over and over, today’s article is for you.
This might just be the most important trading article you ever read, because I’m going to show you how you can finally stop repeating the same trading mistakes over and over. Learning from our trading mistakes and actually making permanent changes from what we’ve learned, is the key to making consistent money in the markets. If you don’t learn from your mistakes, you are going to be like a hamster that is continuously running on a hamster wheel but never actually going anywhere.
You may have read other articles I’ve written about the proper trading mindset, but it’s importance cannot be emphasized enough. All trading success begins from obtaining and perhaps more importantly (and more difficult) MAINTAINING the proper trading mindset or trader psychology.
Everyone says that ‘emotions are the enemy’ of trading success and similar anecdotes. But, I feel that is too general, allow me to explain why I feel this way…
First off, emotions are not all bad in the trading realm, in fact they can be helpful and very enjoyable sometimes. For example, once you have developed a solid gut trading feel, you will eventually develop a sort of internal ‘early-warning’ system when a trade isn’t right, in other words, your fear kicks in, in a good and helpful way. However, fear can also hurt you if you become afraid to take a perfectly good trade setup, etc. So, as we can see, one cannot simply say that “emotions are all bad” when it comes to trading.
Whether or not you let emotions influence you in a negative way is what can make them dangerous, not the actual emotion itself; in important distinction to make. Being conscious and aware of your emotions as you trade will allow you to make adjustments and take control over you actions in the market, and this is probably the biggest thing you can do to help yourself stop making the same trading mistakes over and over. Most trading mistakes are born out of letting emotion influence us negatively, so if we are more self-aware of our emotions as we trade, we can work to make sure they are not influencing us to stray from our trading plan.
Learn proper money management.
If you are repeatedly risking too much per trade, your emotions and mindset are going to repeatedly be hurting, rather than helping, your trading performance. Indeed, money management is one of the biggest keys to remaining calm and collected and not letting emotion negatively influence us as we trade.
In my opinion, the control of one’s self in the market all begins with proper trading money management. As a result, I view money management as the foundation of a proper trading mindset, because if you aren’t always worried about how much you ‘might’ lose on a trade, you won’t let emotions affect you negatively.
You have to risk an amount per trade that will not cause you emotional ‘pain’ if the trade loses, this is the only way to survive a losing trade. If you risk too much per trade, you open yourself up to committing the same trading mistake again; because you will be feeling frustration and anger from losing too much money, you will feel an urge to jump back into the market and try and make that money back. This is a vicious cycle that will continue until you figure out what dollar amount per trade you can comfortably risk.
Change how you think about trading.
Once I began to change my definition and idea of ‘trading success’, it became a lot easier to achieve it. Most beginning traders believe that they are going to dramatically change their lives through trading, very quickly. Unfortunately, this is simply not reality, especially not if you don’t have much money to trade with, and it also causes you to stay on the ‘hamster wheel’ of trading mistakes.
You have to take a slowed-down and longer-term approach to trading and to what you view as ‘successful trading’. Let me ask you this, if you had just one or two winning trades per month and say one loser (3 trades total), rather than 30 trades where over half were losers and some of your winners were little, insignificant ones, which result would you consider to be ‘successful’? Probably the first one right? Well, that’s right, it would be the first one because if you took just three trades in a month, rather than 30, that tells me you were being patient, disciplined and strategic in your trading approach, rather than impulsive and random.
Where most traders get ‘stuck’, is that if they trade LESS they only see it as ‘making less money’, but THAT is the wrong way to think about trading.
You see, as I explained in an article I wrote on high frequency vs. low frequency trading, YOU DO NOT NEED TO TRADE A LOT to make money. Remember, MAKING MONEY is better than losing money, even if you can’t risk very much per trade because you have a small account. You have to trade as if you’re already a rich successful trader, because that is how you become one.
A rich, successful trader who can take a big position size on every trade he or she takes is naturally going to be much more interested in finding one or two very high-probability and obvious trade signals per month, rather than trading every day. Why? Well, because they know they are going to make a lot of money due to the big position sizes they can trade, they know that one or two good winners a month is all they need to make a lot of money, so they aren’t concerned with trading a lot, only with finding good trades. This is how you SHOULD think and what you should DO in the market, even if you have a small account.
You should do this because trading less frequently but more accurately is how the pros trade and it’s the only real way to avoid losing money by over-trading which results in whittling down your trading account to nothing. You need to keep in mind that proper trading is the goal…that IS successful trading, EVEN IF you’re not currently trading big enough size to make ‘a lot’ of money. I promise you, if you trade properly for long enough, you will gradually build your account over time and that means you gradually increase position size, and eventually you will be making ‘a lot’ of money trading and you won’t give it back because you built your trading approach on a solid foundation of proper trading habits.
Make a plan and stick to it.
Finally, learning from your trading mistakes is one thing, but you have to actually USE what you’ve learned, and by ‘use what you’ve learned’, I mean making a conscious effort to avoid those mistakes on your next trade. Take what you’ve learned and put it into your trading plan and read that plan everyday. Often, the only way we can get off the ‘hamster wheel’ of trading mistakes, is by constantly being aware and monitoring ourselves so we don’t make those mistakes again. Trading is a mentally tricky business, if you don’t have a trading strategy and a trading plan, you will probably let your emotions get the best of you.
“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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