Hard Truth – Your Trading Failure Is Your Fault

The desire to reach a level where you’re making money on a consistent basis in trading can be a frustrating and often disheartening business.

There’s a certain stage in a trader’s career where they know quite a bit about the markets, how markets move, and can see the intent in the price action.

The issue is that they are unable to transform that knowledge into making money consistently in trading.

So what do many traders do?

They search out another trading system, some special indicator, anything to fix the problem but there’s good chance that the trader will come across the same problem over and over again.


Because it’s not the system that doesn’t work but the trader.

Are You Truly Committed To Trading?

Once you’ve committed to your growth as a trader,  you’ll naturally start to “zoom out” from focusing solely on your strategy and realize that if you are going to do this properly, there’s no room for leaving things to chance.

Successful corporations have structures and procedures for everything they do because:

  • They want to know what the most efficient ways of doing things are
  • How to eliminate costly errors
  • How to maximize profit
  • How to get the most out of their employees and they want to. Successful corporations get the most productivity out of their employees by using a computer monitoring software, to know whether their employees are working efficiently.
  • Instill a corporate ethos so that employees will act in a certain way when they come across something new

Any of these can have a impact on profitability and the continuing success of the company

If it is important enough for Fortune 500 companies, it’s probably good enough for you as well.  So what steps can you take in order to make sure you trade as you would expect a business to operate?

Start off by doing the things which are in your power and capabilities to do.


If You Can Influence It, You Can Control It

There are only so many things in trading that you can control.

It makes sense to not leave to chance everything that you can actually control and by taking those steps, is actually the first step to becoming a trader.


Define your trading plan clearly and thoroughly

If you know exactly how, where and when you are going to trade, then you can start to make progress.

You’ll be able to see

  • How well your strategy is performing
  • How well you are executing it
  • When you are taking trades outside of your plan
  • Whether your approach to risk is beneficial.

Yes, you may eliminate opportunities which you may have taken in hindsight, but by making your approach consistent you have a baseline from which you can move forward from.


Prepare consistently

If you don’t prepare properly, you are leaving yourself open to making rookie errors that are no longer acceptable once you’ve traded for a while.

  • If you take a loss because you didn’t realize Bernanke was due to speak, there really is no excuse.
  • If you took a loss because you rushed through your prep for the day, you must take steps to ensure you have plenty of time to get ready in future.

Being ready for each and every trading day before you start to trade is the absolute minimum you must do in order to trade.

Preparing in a consistent manner not only ensures you don’t miss anything , but it also allows you to see what’s useful and what’s not.

It also makes the work easier as it becomes more and more natural over time – and ultimately it becomes almost a reflex that just happens as you begin your trading day.


Use a journal in your daily trading

I think the reason why most people don’t journal is for one of two reasons.

  1. They might actually know which things they’re doing wrong already and therefore not see the point.
  2. The other reason is not knowing what to write or track in a trading journal.

If a trader knows where the issue is, the next question must be to what extent is the problem affecting their trading?  Do they know what is causing this issue to repeat?

If you know there’s a problem but are unable to change for some reason, there’s a good chance that you don’t truly know what the problem is.  By writing it down, you are constantly forcing yourself to be aware of it – which can force a change.

What can you write in your journal?  Anything that has any impact on your trading”

  • You could make notes about your trade plan
  • You can write about how you are feeling emotionally during the trading session
  • Track your performance in various market conditions
  • You could even write down your thoughts on the different behaviors seen in the market

Just make sure you keep things orderly and easy to track back.


Track your trading errors

As part of a journal you could also track your trading errors. Many traders don’t realize to what extent their errors are costing them in their goal of trading for a living.

Simply put, a trading error is not following your trade plan:

  • Getting a worse entry than you should because you didn’t execute when you should have
  • Accidentally buying instead of selling
  • Panicking out of a winning trade because you were afraid of any adverse market action
  • Taking a trade where one didn’t exist
  • Not taking a trade when you should have done so according to your trading plan

Once you see the extent of any problem, you’ll be much more likely to make a effort to avoid it in the future.


Track and assess your trading results properly

Most trading platforms will have some sort of record of trades and you can use this as a starting point. Often traders tend to look at performance on a broad basis, but digging deeper into your stats can be beneficial.

If you’re only looking at profit/loss for example,  you might miss that your strategy seems to take an inordinate amount of adverse price actin (MAE) or you might fight that on a certain day of the week, your performance suffers.

You might see a big down day followed by a number of other smaller losing days and if you have a decent journal, it’s possible to then go back and identify the reasons for this.


Think about different approaches to your current trading plan

Following on from performance tracking, it’s important to look for ways to improve on your plan.   To be honest, I’m of the view that there’s such a thing as too much tinkering.

But if you keep getting stopped out because your stop is way too small or your entry is one swing too early, then come up with an alternative method.

Once you have a plan, back test it to see if there’s any merit in the alteration. Even if you have a really good strategy now, markets do change over time and perhaps your method of trading does not do well during lower volatility times during the year.


One Small Change Can Mean Everything

Implementing everything mentioned overnight might seem like an impossible task at first, but even changing one small part of your approach to trading can have a big impact over time.

By tracking your errors for example, you might see that you take a lot of impulsive trades and come up with an effective way to avoid them. By seeing the improvements you’ve made you’ll probably be inspired to put the same effort into other areas.

Now is the time for reflection.

If you are not getting the results you think you should be getting, perhaps it’s time to take a good look at your commitment level.

Running your trading business the same way a Fortune 500 approaches their business, is good enough for you as well.