When it comes to trading, everybody hates mistakes.
Because mistakes cost you money…
Now, if you want to be the best possible trader you can be then you must do two things.
- Focus on your best ideas and then leverage them
- Eliminate everything that’s not working and costing you money
When you’re relatively new to trading, then focusing on number 2 makes the most sense.
Today, I’m going to teach you some best practices to help you limit your trading mistakes—which should help you keep money in your trading account.
Once you learn how to stop the bleeding from making dumb mistakes, then you can focus on number 1—and that’s getting paid.
So let’s get started…
Overcoming Bad Trading Behaviour
Professional athletes train every day to perfect their talent.
Yet professional day traders I have met fail to even develop a routine and train for their day.
Day traders are just like professional athletes in that they need to maintain their composure in high-pressure situations and remain calm under duress.
But without a physical and mental routine in place, a trader is already behind the 8-Ball before they even buy or sell their first stock.
Want to know how to turn this around and put yourself into position to be a successful trader? The first step to your success begins at the bottom and learning to accept failure…
The average person feels the pain of financial loss twice as much as the pleasure from financial gains.
And traders and investors are no different!
The trick is not to avoid losses all together but instead learn to manage your emotions after taking a loss.
How would I go about doing this?
Well, you would want to start by utilizing tips from professional athletes daily routines so you can manage your stress and decrease your emotions from a loss.
It’s been said that some of the best traders are emotionless, acting as a computer algorithm would.
Here are some tricks to get your mind ready for the trading day:
- Prior to initiating any trade it’s good practice to understand how far you are willing to let a trade go against you prior to cutting losses.
- Remember to maintain a reward-to-risk ratio of 2:1 to 3:1, meaning you will earn 2-3 times the amount of money you are willing to risk.
- If possible, you should utilize special order types, such as bracket orders, to give you predetermined profit and exit orders to remove any issues with being “trigger-shy” when executing orders when you have profits or losses.
When a trade is going against you, you may be tempted to try and double or even triple down.
Or worse, feel revenge towards a losing stock.
This is known as revenge trading and it is one of the fastest ways to destroy your account.
One problem with revenge trading? You could be stuck holding a position for days, weeks, months and even years for a stock to recover… if it recovers at all.
Here’s what I mean…
Can you imagine the type of damage this would do to your trading account?
This is where you left holding a losing position and every day you are increasing the odds that an already bad trade will turn catastrophic.
So what do you do?
Tips to manage your trading:
- Only allow yourself to trade the same name twice in a single day
- Force yourself to exit positions at the end of the day
- Do not turn a trade into an investment
- Identify in advance how much risk you want to place on each trade
- Place catastrophic hardstops on all trades and do not override them
- Trade equal lot sizes per trade so no single trade blows out your account. ie) 1 to 3% per assets per trade
Blaming Others For Your Bad Decisions
This is the harsh truth…
Just own up to your own mistakes. Nobody else presses the trade button other than yourself.
So there is nobody to blame for a bad trade, other than yourself.
It’s human nature to want to blame the losses on an outside force instead of your own oversight.
Don’t do this as it only sets you up for further failures down the road.
Tiger Woods might have had a bad day on the course but he did not blame anyone else other than himself for his poor performance.
He would instead use that poor performance to his benefit and learn from it. That’s the mark of a true professional.
So – how do you fix this?
Do as the professionals do and replay the tapes and maintain a trading journal to record your errors.
If you go to any trader conference, turn on the financial news network, or national news channel – they overload you with negativity about the current market conditions. They are all “Doom and Gloom”.
The length of the current bull market has plenty of traders convinced there is an imminent collapse. As we continue higher, more and more traders go short and end up being stopped out.
The lesson? Don’t be negative and accept that the markets are healthy and strong.
Do your own research, and if a long term trend still has legs, wait for a pullback to enter and let your winners run.
But what if the markets turn against you at the top? That’s why you have risk management strategies and stop losses in place to protect your downside risk and trade another day!
These behaviors affect traders and investors alike.
Find that it’s difficult to change or get a routine that fits your work schedule?
You can get help from a professional trader who can do the hard work and research every day for you!
Four Tips For Trading Smart:
- Limit your losses
- Let winners run
- Accept losses
- Stay positive!
That’s why I outline my trading plan early in the morning, well before the market even opens. I identify the pattern, then decide on the strategy. Each trade has a buy zone, profit target, and stop loss area.
By following this process it allows me to stay disciplined.
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