Last updated on February 20th, 2020
In the trading world, it’s usually not the actual activity of placing a trade that is the problem. That’s the easy part.
The hard part is when you are on the path to placing trades that have an actual edge…and you can do it consistently keeping in mind risk parameters and in line with your ultimate trading goal.
Every day, someone new to this business opens up a trading account and begins the long and slow path to profits. Perhaps they’ve had coaching, bought a trading system or had some other type of exposure to this business.
They envision the success their “mentor”, trading forum participants, Instagram user, and anybody else that places a trade has had and they seek to emulate.
Reaching Your Trading Goal Is Easy
…or so you have been told.
It seems easy. Many people have told them that trading is “easy” and may have shown them the results of their trading success. If you were to scan Twitter or Instagram, there is no shortage of those claiming thousands of dollars per day in winnings.
There’s no shortage of those posting trips, cars, dinners, and anything else that shows the world the success they have had.
Armed with that vision, new traders trot down the path and every turn offers them a different challenge such as:
- Stopped out right after trade entry/revenge trades
- Risked too much on the loser
- Risked too little on the winner
This is not the results they have pictured vividly in their minds. The actual reality of the goal looks nothing like what drove them to attempt the challenge in the first place.
I recently read a great blog post by James Clear that had prompted me to write this blog post in relation to trading. It’s not a new topic for me but it never gets old!
James says to “set your compass and start walking” towards your treasure. Commit to the goal and then “release the desire to achieve a particular outcome and focus instead on the slow march forward”.
Actual Commitment Is Rare
Let’s be honest with ourselves…most people never actually commit to much in their lives.
In terms of trading, what does that mean?
It means seeing your “treasure” as a consistently profitable trader and then to tackle each problem/celebrate each success that you find on the path.
Let’s assume you have purchased a trading system and after studying the material, you put it into practice. Your path may include back testing, forward testing, and learning to execute without hesitation.
During your travels on the road to consistently profitable, you encounter:
1. Revenge trading. After taking a loss in the random series of wins/losses, you toss the rules out the window and jump into a big green candle. Your “treasure” remains the same however you seek out ways you may eliminate this type of rule breaking.
Perhaps after a series of day-trading losses, you get away from your trading desk and head outside. You do anything to interrupt your current state…the one that prompts you to revenge trade.
2. Twist on your trading method. You’ve been reading trading forums (never a good idea) and have seen the “power” of using X moving average for confirmation of a move. The moment you use this average, you are no longer trading the system you have tested and proven to yourself actually has an edge.
You remind yourself that there is no secret in trading and that you have done some in depth work on your trading system and the numbers show it’s a good system. You commit to staying away from forums and remove yourself from the mailing lists of the obvious marketers.
3. You ignored risk parameters. During a string of wins, you decided to increase your risk % but the next trade was a loser. You erased some healthy profits from previous winners because you forgot there is no guarantee that the next trade will be a winner.
Realizing risk controls are paramount to ensure you stay solvent enough to reach your goal, you recommit to a steady risk % regardless of your thoughts, win streak, losing streak, or simply greed.
It’s The Trading Journey
Think of “consistently profitable” as the goal and then figure out the exact steps you need to get you there.
Do you just need a trading system or is more in-depth trade coaching and education the better route for you?
There is no one size fits all standard but everyone can benefit from a complete understanding of:
- Method: Whatever your trading method is, you have to know it inside and out and be able to execute “on demand”. You have to test it until you have proven it has an edge and that you have enough faith in the system that you don’t second guess.
- Psychology: There are some issues that we all have faced and some can still be challenging. There are some important biases that you should be aware of (especially when system testing) so it does help to have the ear of experienced traders that can help you adjust to these realities.
- Risk: Without an understanding of risk and implementation of risk management, trading success will remain out of reach. Risk does not just mean percent risked on a trade as there are risk such as execution and gap risk you should be familiar with.
In the end, it’s about choosing the outcome you desire and then setting yourself on the path that can lead to that outcome. Driving a car to a destination is never a straight line but when you commit to the destination, you trust the route you have laid out regardless of the turns you must make.
You travel the route, adjust, travel, adjust in a continual cycle and then, without realizing it, you have arrived.