The most dangerous part of trading is when you refuse to see that you have any problems. All traders go through this “denial stage” with their trading problems at some point, and how fast they get through it or if they get through it at all is what determines when, if ever, they start making money trading.
Everyone knows that the first step in the 12-step Alcoholics Anonymous (AA) program is just admitting that you have a problem with alcohol or drug abuse. If you can’t face up to your problems, whether they are with drinking or with trading, you will never be able to solve them and move on. Unfortunately, if you don’t admit that you have problems with trading, it can be just as bad for your trading account as it is for an alcoholic’s health. If you refuse to admit that you have problems with trading, you will keep making the same mistakes over and over until you either lose so much money that you have to stop trading or you finally wake up and “smell the roses.”
In today’s lesson, I’m going to give you a “Trader’s 6-Step Program” that will help you solve your trading problems and hopefully get you out of the trading rut you might be in right now…
Step 1: Admitting that you have a problem with trading
It’s time to get over yourself. Don’t bring your ego into the room. You need to realize right now that the longer you keep trading while ignoring your problems, the more trouble you will have and the more money you will lose. I know you don’t want to struggle and lose money on the market, so you need to do this…
You’ll need a piece of paper and a pen to do this. Don’t do it on the computer or “in your head.”
if you don’t write this down, the exercise won’t work right:
You will write, “I, ‘John Doe,’ admit that I make the following trading mistakes over and over again on purpose…”
- Mistake 1 – I don’t follow rules well. I don’t always stick to my trading plan. I make trades that don’t make sense with the way I do things. I know I trade too much, and I’m finally admitting it.
- Mistake 2 – I have no trading plan. I know that I should make one, but I never do. I’m finally going to say it.
- Mistake 3 – You get the idea. Here, you will write down as many of your own trading mistakes as you can think of. If you aren’t honest with yourself and put your pride aside, this won’t work. Write down everything and keep the paper so you can use it as part of your trading plan (more on this later).
Step 2: Stop trading for a while to calm down.
After you’ve finally come clean about your trading problems and gotten them all out in the open, you need to step away from the markets for a while to think and get your mind back in balance.
You need some time away from trading, especially if you just had a big loss because you overtraded and made stupid trading mistakes that you wouldn’t have admitted to before. This time will give you a chance to think about the trade mistakes you’ve made and really “own” them. During this time, you should think about and plan ways to stop these same trading mistakes from destroying your trading account again.
Step 3: Make a plan of what you will do
So you’ve admitted that you have trading problems and have been thinking about them. Now it’s time to make a plan so that you can actually make a change and don’t make the same mistakes or go back to your old ways.
For each trading mistake, you wrote down in Step 1, I want you to get out a second sheet of paper and write down a way to stop making that mistake.
For example, if one of your trading mistakes was not having a plan, you would write down that you need to make a plan and commit to doing it.
Once you’ve written down all the ways you’ll fix your trading problems, you need to start working on them. You can’t just say or write that you’ll fix your trading problems; you have to try to do so. If you don’t, nothing will change.
Step 4: Stick to your plan and be disciplined over and over.
Persistence means that you keep doing something even when it’s hard or when bad things happen. In trading, you need to be persistent to do well. If you don’t have the self-control to stick to your trading plan and trading strategy, you won’t make any money.
After making a list of your trading mistakes and how to fix them, as we talked about in the last step, you need to make a promise to follow through with the solutions.
Remember that sticking to your plan even when you don’t want to is what it means to follow through.
Traders who do well are the ones who put money into a trade and don’t get out of it at the first sign of “danger.” “Unforced trading errors” do not ruin their trading accounts. Instead, they work on controlling themselves because they know that is the only thing they can really control in the market. While amateur traders who lose are trying to control everything but themselves, which is the only thing they can really control. This leads to a lot of stress, anger, and frustration, as well as lost money and time.
So, you won’t even be able to start fixing your trading problems or getting on the path to making money on the market if you don’t have the discipline you need to be successful.
Step 5: Quit trying to be in charge of everything.
It’s important to realize that trading is always a bit random. That is to say, no matter how sure you are about a trade, you never know “for sure” what the market will do.
Traders often get into trouble because they make too many trades because they are “sure” they know what the market will do next. Overconfidence and pride have no place in the strategy of a successful trader. I would even say that if you are naturally cockier and overconfident than the average person, you will probably have a harder time making money as a trader than most people.
You need to be humble and realize that you are the only person you can fully control. As a retail trader, you can choose how often you trade and how much you risk per trade. These are two huge advantages, so don’t take advantage of them.
Step 6: Decide to learn a simple trading method that works well.
Many traders try to trade without really having a plan. They just “trade by the seat of their pants” and enter and leave the market at random. If this sounds like you, and you know it does, you need to commit to a trading method before you can start trading.
“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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