1. Understand The Truth
Trading is a game of probabilities.
All any trading system gives you is an "edge". A favorable bias. Something that is more likely to happen than not.
.. pattern breakouts, trend-following, fibonacci, moving averages, channel following, oscillator signals, bollinger bands, swing trading, opening gaps...
you are relying on a positive bias. Essentially, the trading system is saying "when 'x' happens... 'y' usually follows".
Sometimes it doesn't. Most of the time it does.
But don't get caught up on the search for the perfect system...
Find a trading system that you like. One you feel comfortable with. One you understand.
Then stick with it. Be consistent. A cool, disciplined, trader will take an average system and make money with it. You MUST see the big picture. Realize that the current trade is only one of many.
Trading is all about managing risk
2. Plan Your Trades, Then Trade Your Plan
Your job as a trader is to follow a trading plan.
And who's going to write this trading plan? You are.
Notice the word "write". It needs to be written down, on your trading desk, in front of you.
A trading plan must have three parts: Setup, Entry and Exit.
The point is that a trading plan covers every eventuality. You know what to look for in the market, when to get into a trade, and when to get out.
Keep it simple. Then follow it. Religiously.
3. If You Don't Spend Much, You Can't Lose Much
One of the biggest mistakes you can make as a trader is have too much money riding on a trade.
The more money you use, the more emotional fuel you are pouring onto the fire.
Good day traders who survive will risk only a tiny amount of their trading capital on any one trade.
You'll be more relaxed, and more able to execute the trade properly.
4. Don't Think Money - Think Points
we come to your relationship with money.
Whether we like it or not, money is highly prized in our society. It's important. And we attach a lot of feeling to it.
How then will you feel when you see hundreds of dollars (perhaps thousands, depending on your account size) go up in smoke in front of you?
If you can't change your relationship with money, then just don't think about it. Focus instead on numbers.
Think "percentage of trading account". Think "average risk-to-reward ratio". Think "potential profit points versus maximum points risked".
5. What The Mind Can Conceive...
Is it possible you secretly want to lose?
Self-destructive behavior can easily manifest itself in the markets, particularly among day traders. When the price is dancing around in front of your eyes, it can take a grip of you. You can start to feel like it's playing with you.
This is why you have to be very, very careful to avoid emotional trading. If you're a boiling cauldron waiting to explode, then you're heading for a seriously bad experience in the market.
Don't get emotional about trading. Remember the current trade is only one of a long series. You're in this for the long term. Remember that and don't, ever, get too attached to any one trade.
WORK ON RELAXATION
Close your eyes. Start visualizing the market. See the real-time chart on your computer screen. Watch as the price gyrates up and down.
See yourself entering a trade. Notice you feel relaxed. You're alert but calm. Completely non- emotional. Observe how the price moves after you enter. How it comes close to your stop loss.
Mentally place a number of trades. Follow them through. You get a losing trade. Notice you see the big picture. You are unemotional. Completely calm. You put on another trade. Again, another small loss. You are unperturbed. Next a winning trade. Again, you are relaxed. It's all part of the job.
This takes practice. And you must do it regularly to get the maximum benefit. Try it every morning, and any time you even begin feel stressed or you lose your focus.
The advantage of this technique is it's free. And the payoff is excellent.
6. Be Your Own Boss
You're the one in charge of your trading. You alone are responsible for your success or failure as a trader.
Not the market... not the trading system... not the government or the Federal Reserve.
That's quite a responsibility. You handle it by being kind to yourself.
Become your own mentor. Watch how you're behaving during the trading session. Be especially careful to notice your feelings.
Focusing on your feelings gives you useful feedback about your performance. Remember that having a "winning day" or a "losing day" is not the issue here. All that's important is how you're performing in the job.
Are you being professional, remaining emotionally detached? Or are you starting to get irritable at the market... the market makers... the unfairness of life...?
Negative emotions are early-warning signals that you need to cool down and relax. Get back into your state.
Observe the tension in your body and release it. Just let it go. Perform the visualization exercise again. Remind yourself that it's all percentages. This is just another trade, just another day.
If you make a mistake during your trading - and who doesn't - don't beat yourself over the head with it. Learn from it. Make a mental note to build on it. Thank the market for the training lesson and move on.
Be nice to yourself! It's very important that you avoid spiraling down into an emotional cycle where you end up doing some serious damage to your account and to your own ego.
7. Mind Your Language
If words are so incredibly powerful, just think what you do to yourself when you call yourself an "idiot" or worse!
But words are more subtle than just name-calling. How about this one...
Boy, think what that one conjures up. Missed opportunity? A gaping hole in your life? A theft? A bereavement, even?
No wonder traders find it hard to take losses. Let's call it something else:
'An expense'. : Ah, now it's sounding better. Much more business like. Helps to put it into its true perspective.
Similarly, on the other side of the balance sheet, let's stop talking about:
.. which again is steeped in emotion... and change it to: 'Income'.
Income versus expenses. Isn't that what trading really is? A business.
Mind your language when trading. Use neutral words at all times, both about yourself and the market.
8. Less Is Definitely More
Many real-time traders also follow the "3 strikes and you're out" rule.
By limiting your trading to only three trades a day - MAX - you reduce your stress level enormously. You'll be sharper and less likely to make mistakes.
You also insure yourself against a "suicide day", when you take serial losses, each time trying to recover from the previous loss...
Tomorrow's another day. Take it easy. Don't trade a 40-hour week. Accumulate your profits over time.
9. Get A Life
Do you know why you trade?
Is it the fun and excitement, the sheer nerve-jangling, adrenaline rush that comes from trading the word's financial markets?
The fact is, trading has to be about one thing. Making a profit.
If you do it for any other reason, you are probably doomed to failure, because you'll operate from emotion instead of the cold, mechanical thinking that's the hallmark of a good trader.
Look at your own motivations for trading. See if you can discover a hidden agenda. If there's something missing in your life that trading is currently filling, then you need to address that.
Live a balanced life. Don't spend the whole day trading. Meet people. Get out! Start a new business. Find new interests.
Keep your trading desk free from emotional clutter.
10. The Essential Real-Time Trading Tool
Real-time traders live from moment to moment.
Such is the pull of a live data feed, it's often a challenge to see the big picture. But this you must do if you want to survive and prosper. .
Visualizing the current trade as one of a series helps to maintain your discipline and lower your emotional cholesterol.
But there's one trading tool that will really improve your performance more than anything else : A trader's diary.
Don't be scared off by the sentimental connotations of keeping a diary.
Your own trading diary can be computer-based - via a word-processing document or a simple text file saved to your desktop.
Or you may find a traditional pen and paper version more effective (There is something about writing on paper that makes it more personal. Probably the way the hand and eye coordinate with the brain. Plus you've probably got enough applications running when you're trading in real-time!) .
Whatever format you use... what will you actually write (or say)? : Anything.
Don't worry about grammar. Make one-word notes of what's happening. Sure, you can note down the facts and figures - stock code, time and date, position size, entry price, stop loss, exit price.
But also - and more importantly - record your thoughts.
If you were hesitant about getting in the trade, say so. If you're terrified now you're in (the dreaded "Trader's Remorse") then make a note of it.
When you exit, say why. Stopped out? Took profits? Why? How did you feel before the exit? How do you feel now, afterwards?
This only takes a few seconds to record this ongoing commentary of your own trading. But the information you get can be priceless.
At the end of each week, preferably at the weekend when the markets are closed, review the week's entries.
You can guarantee that you'll see a pattern in your behavior. There is probably something you are doing consistently that's causing negative results.
And once you've identified the problem, the solution usually becomes obvious. Do this exercise every week, and also every month to get a longer term perspective. Only you can do this for yourself. Nobody looks after your own affairs better than you do.
Look within. You may be amazed with the results.