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The video above outlines some rules and principles that can help traders stay consistent. Some of these may seem cliché, but cliches are there for a reason, because they contain proven truth. For example, a strong risk management strategy is critical to successful trading – no one would dispute that. Some of the concepts below overlap somewhat, but only because some details of the transaction need to be emphasized.
You can get away with breaking all the rules except those related to Risk Management
You can break almost every rule in the book and probably survive, but if you’re not careful with risk management, you’ll almost certainly find yourself out of the game over time. There are strict risk management parameters out there to make your trading edge profitable and you can fight another day; low risk per trade, general account management, sticking to stops, etc.
You may have the best trading strategy in the world, but without good risk management, things can eventually go wrong and can lead to disastrous results. Good risk management is a sure-fire way to significantly reduce the stress that a trade can create, so more objective decisions can be made. You can also find more information on this topic in this risk management webinar.
Better to trade too small than too big
This is of course an extension of the above, but its importance cannot be overemphasized. It’s better to find a happy medium where your trades are large enough to allow you to make ample profits and keep you involved in the trading process, but not too big as it starts to hinder your ability to remain objective and disciplined and of course disaster risk of sexual loss. Remember that everyone has a different risk tolerance – trade with the risk you are comfortable with.
Recommended by Paul Robinson
Build confidence in trading
No position is a position
Usually the best seats are on the sidelines. This gets lost in the competition because either the temptation to trade becomes too overwhelming or it feels like you’re not doing the trader’s job by trading. However, often a disproportionate amount of time should be spent doing nothing rather than doing something.
Good trades find you
Staying focused and researching is important, but at the end of the day, finding opportunities that fit your game plan shouldn’t be an effort. Good opportunities often arise. Too little is better than too much. Forcing questions can lead to unnecessary loss, frustration, and ultimately more mistakes.
Opportunities often come in clusters due to volatility cycles, so you can be busy and then suddenly not. Stick to your trading plan and it should take care of itself. If you don’t have a trading plan yet, start today.
When in doubt, stay out
This is an extension of “no position is a position” and “good trades can be found”, but it also applies to managing your emotional state. If you don’t feel it, stay away and come back later. If doubt makes you act with fear, find out why. Usually this is simply because there are no high-quality trading opportunities at the moment, but it could be something deeper. Maybe you are dominated by aversion to loss or other emotional state. You’ll want to dig into this by doing a little introspection. For example, if you’re “trigger-averse” and avoid losses, try making smaller trades on insignificant sizes until you feel more confident.
Losses are part of the game, get used to it
This is really hard for some people to accept. Generally speaking, we don’t like to lose. But a trader has to be very, very comfortable with losing because you’re going to be doing a lot of things. Remember that profitable trades aren’t always right, it’s about making more money when you’re right, not what you lose when you’re wrong. Just know that even the best people suffer a lot in their careers and take pride in being able to take the loss and move on.
Shrink your watchlist
The less experience you have, the more important this is. Watching and participating in too many markets can be overwhelming. Not all markets trade the same way, so understanding the different nuances of a group can help spot opportunities. It’s a good idea to keep your world as small as possible without limiting yourself. Everyone has their own middle ground. I tend to focus on the larger macro markets, but you may want to trade stocks or narrow your focus to a single asset class like a stock index or foreign exchange. Find something that works for you and don’t feel like you have to watch and act just because it’s available.
Routinely take a step back
Don’t go 100%, 100% of the time. Otherwise there is a risk of burnout. Take a few days off and don’t give up on vacation for fear that the market will change without you. You will be there when you come back. Take a break to refresh and review your trading activity regularly. This can go a long way to help you stay on track and make improvements. If trading feels difficult, walk away and come back another day.
Trading is mostly stressful because we make it so
Trading is difficult, no doubt, but has a lot to do with fighting ourselves (i.e. maintaining discipline and managing our emotional state). Some things that usually trigger avoidable stress: not having a trading plan, setting low-quality settings (compulsive trading is a killer), taking too much risk when we know we are taking too much, playing with position fear ( Usually due to size).
It goes without saying, but be careful and avoid things that make the transaction more complicated than it needs to be. Chances are you already know what I’m talking about. Try to systematize your trading and variables, it’s subjective, but some rules can be added to reduce some of the “ambiguity”. A simple example is if you are a trend trader, use a simple trend filter to stop you from trading in a non-trending market or against the trend.
Have a trading plan
Everyone has to have some kind of plan. If you shoot from the hip, you won’t get very far. You don’t have to create a 50-page business plan, but you should at least have a framework that you can move around in and that has the level of detail to answer all the important questions. Of course, risk management is the most important part. Start there. Even beginners who know little about trading can start with a concrete risk management plan.
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