Wouldn’t it be great if there were a miracle cure that would make you a better trader within a few days? This cure actually exists and the only thing you have to do, is make some small changes in the the way you think about trading and investing.
The main reason why traders fail or fail to improve is that they are in a vicious circle. By this I mean that they locked onto their charts and just keep looking at their screen to see how price is moving up and down.
They cash in their profits too quickly and desperately hold on to losing trades in the hope that things will turn around.
In addition, their position sizes are often way too big. This creates a certain excitement and an adrenaline rush that you can literally become addicted to. They lie awake because of their trades, constantly look at their phone or can’t torn away from their screen.
This seems harmless, but I have seen it breaking people. Till the point of burnouts and nervous breakdowns. And if you continue to trade in that mental state, your losses accumulate quickly. This happens more often than you think and it might sound familiar to you…
Why do so many traders end up in this circle?
These are the three main reasons why so many traders are so concerned about their trades and investments and can’t seem let go:
1. Secretly they’re gamblers instead of traders
This may sound harsh, but many people who call themselves traders just have too little knowledge to make an educated guess or create an edge for themselves. In addition, people forget to apply proper risk management, which turns the stock market into a casino.
2. Position sizes are way too big
Opening big trades creates the risk of losing more than you can afford. This risk causes stress and worries that things could go wrong.
3. Addicted to trading
This happens even with traders who have a lot of experience and have the technicals under control. A trader’s life can be boring and by trading a lot, a little adrenaline is released every time. Making you feel good. This causes over trading, which again results in stress and over exposure to the market.
Enter trades, place orders and step away from them
I always say that a trader must place his orders and move on to the next trade. It must be set and forget. If you get stopped out you lose. If your take profit order is hit you win. That’s it.
- You have a trading strategy and plan
- There is a signal that fits within that plan
- You place your trade with entry, take profit and stop loss
- You walk away or go to the next trade
Trick 1: Choose a trade size that fits your skills and knowledge
Many starting traders open big trades because they want to earn big money right away. This is really one of the stupidest things you can do and practically guarantees you will blow up your account.
Take baby steps. First try some small trades and build it up slowly. Make sure you get confidence in your system, the platform, etc.
Trick 2: Choose a position size that suits your financial situation
In other words; only open trades that will not cause you sleepless nights or any other type of anxiety. You are going to lose trades. That’s a fact. As long as you win more on your winners than you lose on your losers, you should be fine in the long run
So make sure the losers don’t hurt. The best way to do that is to only open trades you can afford to lose.
You have to start somewhere and if you can’t make money from a small trade, how can you make money from a big trade?
Trick 3: Build up your confidence
Losing trades can hurt your confidence. Especially when it’s multiple trades in a row. How do you solve this and how can you train your brain so that you can walk away from your trade without worrying about whether it will be a winner or a loser?
Simple, by practicing!
Commit yourself to do 12 small size trades and a fixed risk vs reward of 1:2. Make sure that you set a stop loss and a take profit for every trade. And then walk away from it. Only after 12 trades you’re allowed look at your profit or loss.
Trading should be boring. As soon as your heart rate goes up when you open a trade, you’re doing it wrong! Your position size is probably too big or you have no confidence in your strategy. Or both.
Of course you can be happy with a winning trade or pissed off by a loser, but that is AFTER the trade. Trading itself should never control your life.
What do you do to stay calm while trading?