DO YOU WANT TO BE A BETTER TRADER?
You may be reading this because you have been in a rut. You may be reading this because what you have been doing so far hasn’t been working. You might be wondering how you can help grow your account. This article is a guide that can help you become better as a trader and an investor. It will be different from what you’ve heard or seen so far. It will give you a different perspective than what you are used to.
The purpose of this guide is to help you become an independent thinker. To help you develop skills and the mindset that will aid your development as a more confident trader or investor. It is easy to get lost in the massive amount of information provided to you. All the tweets, blog posts, analysts, CNBC, Bloomberg. Who do you trust? Who is dependable? What is worth knowing?
The answer to the questions above is simple. You must learn to become independent and rely only on yourself. Just like how you learned to not rely on your parents to walk. Just like how you took off your training wheels. At some point in life we all have to learn to become independent. You have to learn to stand on your own two feet. Know this. What everyone says or knows, isn’t worth your time. What everyone is thinking or doing, isn’t worth your efforts.
You have to do certain things differently than everyone else in order to outperform everyone else. Right? Most of us fit into the middle of the distribution curve. Meaning the majority of us are doing what is average. Recognize that in order to do better than everyone else, you have to learn to do certain things differently.
For the rest of this guide, I will attempt to describe certain investing behaviours that will help you to become a better investor. You may know some of these and you very well could be practicing some of these steps already. However, take the time to read through. If anything, this guide will at least help you as a refresher of key investing and trading practices.
Stay consistently disciplined – 100% of the time.
The market loves to share profits with those who like to consistently stay disciplined. By sticking to your trading values, you will become a successful trader or investor. Keep to your system and values and do not venture far. It is then you will reap the rewards. A disciplined trader or an investor is a winning trader or an investor.
The important thing to remember is that you have to stay disciplined 100% of the time. You have to stick to your values on every trade. The reason is if once you make an uncharacteristic trade and it goes well, then you will question your fundamental trading values. If it goes poorly, you will continue to make poor decisions to try to make up for the original one.
You can’t quit smoking, only to sneak a few here and there when you’re drinking with your buddies. You’re still a smoker. Stick to your fundamentals and the market will reward you. It may not always be with profits, but it will help you exit bad trades sooner than later.
Decrease position sizing when you’re in a rut
All great traders follow this rule. Position sizing is a skill that takes years to master. Position sizing when you have been performing terribly is something that many traders do not master. It is imperative that you decrease your position sizes when trading poorly or when you’ve been in a losing streak.
When you make a bad trade – a losing trade – you may try to increase your position size for the next trade so that you can you earn some of that money back from the first bad trade. But, what almost always ends up happening is that your second, third, fourth, and fifth trade will also be losing trades as well.
This will then affect your confidence and cloud your judgement, resulting in you essentially blowing up your account. So, trade a smaller position until you hit your stride once again and are one with the market flow.
Take profits, take profits, learn to take profits!
I cannot stress this enough. If you have ever traded, you will have violated this rule at some point. If the market has rewarded you with moving your position into green, then you should be happy and take your profits before it takes it back, plus some.
How do you manage this greed? Well, by having a plan. Sticking to the plan, no matter what – see Rule 1. If you make 10% on a trade and it moves up 30%… who cares? You took what you could and moved on. There are hundreds of trading opportunities that will present themselves throughout your trading career. Just remember to not be greedy.
This may contradict the “Let your runners run” rule. Which is also true. At the end of the day it all depends on your due diligence (DD) and research and how much you trust your DD. Is this a long-term investment? or a swing-trade? Long-term investments would essentially fall into the “Let your runners run” category.
Keep a trading journal.
In order for you to be a successful trader you need to have a trading log. Keep track of trades. Then study your trades and trading habits so you are able to learn from your mistakes. You can become a better trader or an investor by learning about yourself. You will also be able to track your progress over time
A few trading journals you could potentially use:
I have found using google excel sheets to be just fine.
Develop a method. Stick with it.
This goes with the previous rule #1. In order to be a successful trader or an investor, you MUST have a set of trading rules and values and stick to them. If you have a bad trading session, do not revise your trading methodology. You only need to be right more than 50% of the time to be successful. Do not forget that.
By staying consistent and disciplined your probability of success increases with time. The reason for this is because you continue to generate experience which will ultimately improve your decision-making tree. This will then result is increased confidence in your trading. The increased confidence will ultimately result in you becoming a more profitable trader.
Remember: A house is not built by the bricklayer deciding to use different bricks every other day. He sticks to the same bricks to slowly build a house. Brick by brick, a castle is made.
Be you. Do you.
Develop a system that fits your personality and style. If you are a long-term investor you should not trade like a day-trader. If you have a low tolerance for risk, you should not trade high volatility stocks. You must find where your comfort zone is and stick to that zone. If you find yourself staying awake at night thinking about a specific trade or a position you’ve opened, either close the position or sell enough that you’re no longer losing sleep.
You cannot be a successful trader or investor if you are trading under stress and anxiety. One must be confident.
Live to trade another day.
A mentor of mine always said that it doesn’t matter how bad the day goes, as long as you can dust yourself off and have enough fire power to come back and trade another day. A lot of emphasis is placed on trying to put yourself in a position to succeed, but the same amount of emphasis needs to be placed on allowing yourself to fail without taking deadly hit to your accounts.
One of the worst feelings is wanting to trade and not having money in your account to do so. Or getting a margin call. Do not let yourself fall into that situation. If you find yourself having had a terrible day of trading, shut the computer down and take the rest of day off. Go for a walk and clear your head. Live to trade another day.
Learn to sell.
You’ve most likely have spent 99% of your time learning how to buy. This is important, however, as a trader or an investor, you must also know when you are going to sell, whether it be a stock or cryptocurrency, before you place that buy order. You probably think, well, I will sell when it goes up and I am happy with my return. This is too uncertain. What is that return? 5%, 10%, 50%? 100%? Stocks and especially cryptocurrency can drop as quickly as they advance. This is when the sell signal is now FEAR and that is when you press the sell button. You must remember that FEAR is not a sell indictor or a signal. Plan both your buys and sells.
Hope is not technical or fundamental analysis
If you find yourself wishing and hoping for a trade to go your way, I assure you, 99.9% of the time it won’t. The reason is if you went into a trade thinking that your prayers and hopeful wishing would make it go your way, that means you haven’t put in the work to fully research the investment. If you ever find yourself wishing for a trade to go your way, it’s time to move on. Sell and get out!
Cut out the noise.
Don’t be distracted by the noise around you. The News channels like CNBC, MSNBC and Bloomberg are great at providing market updates, entertainment and interview commentary. They do nothing more. You cannot use these large media platforms as a source for investment advice. Do not trade off of their reporting, once it is on TV it is then “old news”, therefore, it has already been dissected and acted upon.
Do your own research and take the time to learn how to create your own insight and opinion.
Master the art of losing.
You must understand that if you are trading, you will lose. All traders and Investors have loses or losing trades. You need to focus on getting out of your losers as soon as you can. Don’t stick to a trade that does not fit your thesis. You need to understand to know when to take your losses. You don’t want to have huge losers, because all it takes is a few big losers to wipe your account. Not only so, they also destroy your confidence and can have negative emotional and psychological impact. Not only will it take time to build your account back up, it could take more time for you to build your confidence back up as well.
Work on developing the psychological aspect of the trading along with the technical and fundamental analysis. Read our report titled “The Psychology of Red“, and what just seeing red does to your mind and trading psyche. Everything plays a role.
Focus on hitting singles instead of home runs.
If you are trading for a living, you should understand that you need to focus on making small profits daily. Don’t try to hit home runs. The old risk versus reward. You cannot afford to take big risks and blow up your account. Your small trades could become home runs, but first focus on making a little bit every day and protecting your account.
Buy into weakness, Sell into strength.
Always remember that you want to be buying when weak hands are selling, and you want to be selling when hype is at its high. This is NOT suggesting you average down on a poor trade. Never average down on a trade that you know has gone poorly. Sell your losers quickly and without hesitation.
While you sell into strength, or are scaling out of your winner, you will have a positive net average. When day trading, I personally liked to sell 50% at 5-7% and the rest anywhere after 10-15%, or just let it ride.
For those of you trading in the cryptocurrency markets, there are times when a trade will go 100% or more. If you are confident in your thesis, it would be wise to take out your initial capital and let the rest ride. That way you can use that capital to invest in other projects and are essentially just playing with house money for that specific trade.
Learn to trade with conviction.
You miss a 100% of shots you don’t take. You’ve heard that before, right? If you don’t trade with conviction, you will lose. You cannot wait for all the stars to align for you before you jump in. The market is an ever-flowing river of information and it will not wait for you. The train will leave the station and leave you standing there.
You must trade with conviction so you do not end up missing your entry point. If you fail to do so, you will end up chasing the trade. When you chase, you will buy at the top and sell at the bottom. You won’t get paid unless you play.
No one is special in the eyes of the Market.
All traders and invetors essentially starts at zero before the opening bell rings. Those who are disciplined and work hard will end the day profitable more often than not. The market does not care who or what you are, it goes where it wishes. It does not discriminate. You have to learn to respect the market, do not fear the market. Traders and investors must learn to work with the market and not against it. If you do not it will crush you in its path.
There is no room for feelings when it comes to trading.
Most investors or traders are driven totally by their feelings. They are tuning in to others and becoming tied up with the publicity and hype. On the way down, they keep on following the pack as they give into this public-driven fear. You should figure out how to separate from your trading completely from your feelings. As you begin to master your feelings, you begin to learn about yourself. You become a better person and you will see your decision making improve. Not very many financial specialists can do this. The financial specialists making billions are the ones who can still place winning orders amongst a financial crisis.