Today, I want to give you a really important stock market trading tip: Don’t replace a bad decision with another bad decision. Generally speaking it is said that most people travel in social circles with others that have an annual income that is within approximately $5,000.00 of their annual income. This of course means that if you are successful financially you most likely will spend time with other people that are financially successful but if you struggle financially your friends are probably struggling too. I notice that the same holds true with traders in the respect that good and successful traders will likely talk to other good and successful traders while inexperienced or unsuccessful traders will spend their time with other unsuccessful traders. This leads to an obvious problem when an unsuccessful trader looks to change trading methods getting new ideas from other traders they know, those traders are very likely just as unsuccessful so they are basically swapping bad ideas back and forth.
Rather than regularly changing trading styles or methods and incorporating bad ideas from others into their trading traders may consider working their current ideas to the fullest extent, massaging them and adjusting them as necessary until they get them to work or until they know for a fact that they will not work and only at that point change. Just because an idea doesn’t work perfectly all the time doesn’t mean that it can’t or won’t work better with a few adjustments. Play with adding and subtracting indicators, adjust currently used indicators and trade the method consistently in a practice account until you know for sure that it won’t work and then overhaul your approach.
Treat your trading business as a business, just like any business your trading business needs a business plan or in this case a trading plan. Many traders seem to want to skip the part about running a business that includes creating a business plan; they seem to want to go right to the part where they count their profits which in many cases will never come. Very methodically plot out your trading style, plan or method one step at a time from the very first thing that should be done each time you are looking for a good entry point onto the market to thing that will make you exit the trade. This may start by determining what kind of trading day or market environment it is that you are seeing; is it a nicely rolling market up and down, is it a long nicely trending market or is it a choppy sideways market that really isn’t going anywhere. The reason for doing this is to determine if the trading method you are using will succeed under the current market conditions. You may have developed different methods for different types of markets and if that is the case you must determine which one to use.
Keep track of the type of market your methods work best in and only trade specific methods in the type of market that they are likely to succeed in. What does the recent price action need to be doing, how are the technical indicators lining up and specifically what do they need to be doing. If you use a moving average or averages do they need to cross or turn or be at particular levels and are the other indicators in the position or at the level that they need to be at.
Once you have achieved a good clear trading method that will work a good percentage of the time when it is applied then you will be faced one of the most difficult things a trader must do and one of the few things that we may actually be able to control; we have to discipline and control ourselves. We must dogmatically and unemotionally apply our trading method with no regard or real picture on the outcome. The outcome only matters if we make it matter and if we make it matter we have become emotional about it which means that it is very likely that we will fail at some point. If you know that your trading method will work about 70% of the time you also know that it will not work about 30% of the time, so what’s the problem, make your trades with no attachment to the outcome while monitoring your progress making sure that the 70% – 30% percentages continue to apply and make some money. If you win 70% of the time you should be profitable. Each trade in our trading business is just a business decision. Some business decisions work out and some don’t, appreciate the ones that work, learn from the ones that don’t and leave the emotions out of trading, my observation is that emotional traders rarely succeed.