So you’re not making money trading. Maybe it’s worse than that. Maybe you’re losing money for all your effort. It’s like the market’s rubbing salt in the wound, adding insult to injury. What should you do? I’ve got some advice for you.
First off, I feel your pain. I’ve been there. In fact there have been times my trading was so bad I thought about doing the opposite of what I planned to do! But after years of trading and one-on-one coaching with dozens of traders I have a pretty good idea of what derails traders and what you can do to fix it.
Trading is a job. And like any job it deserves respect. You need to take it seriously if you’re going to succeed. This means you’ve got to have a plan to trade. You can’t just “shoot from the hip” on your trades. You need to have a legitimate reason for buying/selling and you need to stick to it.
Your trading plan should be simple. The simpler the better. Your trading plan also need to have a clear set of guidelines for entering a trade, exiting a trade and what your profit objectives will be. You also need to know what you’re going to do if the trade is not working out as planned. And you need to know all this before you take the trade!
Once you have a trading plan stick with it. No deviations. Zero. Got it? Now record how your trading plan is working. This is best done in Sim mode. Are you making money? If not figure out why? Are you entering too early/too late? Are you rolling stops too early/late? Are you trading the wrong market(s)?
Keep a handwritten trading journal and record the specifics of the trade as well as WHY you took the trade in the first place. Keeping a trading journal is the #1 thing you can do to improve as a trader. In fact, if you’re not keeping a trading journal you might as well stop trading because you will NEVER figure out what you’re doing wrong.
No. I’m not kidding. This is how important it is, and yet so few traders actually take the time to jot down a couple of notes about their trade. Is it any wonder that most traders lose money?
I guarantee that within two weeks of keeping a trading journal you will see patterns develop. You will see things that are working and things that are not. Keep doing the things that work and avoid the things that don’t. It’s really that simple but you’ll only discover these “secrets” if you keep a journal.
Once you have a trading plan that works you can add to it if you like. You might consider another signal, an indicator you’ve been thinking about, maybe another market, but as you add things remember to keep track of what’s working and what isn’t. If you don’t your trading will soon be another jumbled mess and you’ll be back where you started.
Next you need to avoid all countertrend trades. Markets rarely turn on a dime so a full reversal takes time to develop. This makes most countertrend trades sucker bets. In fact, almost all my losing trades have been attempts to trade against the dominate market trend. Which brings me to the next point….
Your job as a trader is to determine the dominant market trend and then trade with it – no matter what! You can gauge the dominant trend by looking at a longer term chart or simply taking a broader view of the chart that’s in front of you. Ask yourself “is the market trending or trading sideways?” Those are really your only two options. The market can only be doing one or the other. Figure out which, and then trade accordingly.
Limit the number of trades you take. Overtrading is far and away the biggest problem among losing traders. If you’re trading because you’re bored stop it. There are a lot of hobbies less expensive and less frustrating than trading! And if you’re treating trading like a casino it’s only a matter of time before you lose it all. It all goes back to treating trading seriously. Just like a real business.
If you’re daytrading you shouldn’t take more than three trades per day. If you’re trading end-of-day you shouldn’t take more than four trades per month. The markets need time to setup properly and if you rush the process you’ll inevitably find yourself on the wrong side of the market. Don’t let the Fear of Missing Out drive your decision making. Better to miss a market’s move than get stuck for a loss, don’t you think?
Lastly exercise patience. I say exercise because patience is like a muscle and it will get stronger with use. Many traders who come to me for coaching are very impatient with the markets. They want to make their million yesterday! The markets have been here for a long time and they’ll continue to be here in the future. The question you should be asking is “will you still be able to trade them?” Not without patience you won’t.
Treat trading as a serious business. Have a plan. Exercise patience. Record your reasons for taking a trade. If you do these things you’ll be well on your way to finding the trading success you so greatly desire.