Eight steps to trading performance perfection

Eight steps to trading performance perfection

We’ve spent the last couple of weeks talking about trading performance, ways to improve it and ultimately, how to increase your profitability.

I’ve thoroughly enjoy writing the pieces as they’ve given me an opportunity to make sure that I practice what I preach!

Wrapping the series up, I just want to make a few sport points you can quickly adopt in your trading that will certainly improve your performance over time.

Trading with indicators

Many traders, especially beginners, tend to erroneously believe that they need to use indicators to fully understand price movement, or that indicators will help them in some way become more profitable.

This leads many traders to concentrate solely on reading and trading from indicators, instead of the actual market action that these indicators are derived from.

In my opinion ,indicators provide no real advantage over simply learning to read a chart. Price action tells you what is most likely to happen next in the market, you just have to know how to interpret it.

The importance of risk/reward

If there is one thing that all professional traders have in common, it is that they fully understand the power of risk/reward and how to implement it on every single trade they take.

Beginner traders obviously know the importance of making sure their winners are larger than their losing trades, but they often misunderstand how this translates into real world trading and what it really means.

Every single trade you consider taking should be viewed in terms of risk to reward. You have to not only consider if your trading edge is present, but if the realistic potential of the risk/reward on the trade makes it worth taking. I wrote a piece on how to correctly think about risk/reward a few pieces back.

Position sizing

This is also related to risk/reward. You see, many traders do not understand that just because you put a wider stop loss on a trade, that does not mean you have to risk more money, and vice versa.

A very common mistake that traders often make is that they adjust their stop loss to meet the number of lots they want to trade, instead of adjusting their position size to meet the most logical and realistic stop loss distance. Factor your per trade risk into your actual required size stop. Simple as that.

Not having a trading plan

I have spoken about this in depth so many times before yet I still here of traders refusing to trade a plan.

Trading needs to be treated as a business, and just like having a business plan is necessary for the success, a trading plan is necessary for the growth of a trader.

A trading plan that you read every single day can help to keep you focused and on track, preventing you from falling off the wagon and beginning to trade like a moron.

Gambling instead of trading

A question that every trader needs to stop and ask their self is; “Am I gambling or am I trading responsibly?” At some point in their trading career, almost every trader falls into some sort of cycle where they are simply gambling instead of trading. The quicker you can recognise this and pull yourself out of this deadly cycle the quicker you will become consistent and profitable.

Trading should really be viewed as ‘risk managing‘. Those who manage their risk the best are the ones who make the most money. As the age-old adage goes, “take care of your risk and the market will take care of the rest“.

Giving into emotions

There are many factors that can contribute to and induce emotional trading, and emotional trading is the reason why so many traders lose money in the markets. Emotional trading is the end of result of not doing other things right, like anything or everything else listed in this article. Any one of the trading mistakes listed here can induce emotional trading, and once you begin trading emotionally, it is extremely difficult to pull yourself out of its psychological grip.

The solution is often for traders to stop trading for a period and take a step back to think logically about what they are doing.

Not practicing patience

Patience is scarce amongst many traders. The reason? Because most approach the market from the completely wrong perspective. When you approach your trading from a feeling of needing it to work because you have no other options, you are almost certainly odds on to fail as a trader.

You have to be completely fine with whatever happens to your trades, and this means not trading with money you can’t afford to lose. Once you start approaching the market from a perspective of not feeling like it has to work out for you to be happy in life, you will begin to exercise more patience to you strategies. This will drastically improve your overall winning percentage and will actually make you more profitable faster.

Over-trading

The quickest way to becoming a world-class emotional trader right behind over-leveraging, is over-trading.

I’ve seen so many traders that are often guilty of over-trading and don’t even realise it. Most traders that I’ve spoken to do not spend long enough demo trading perfecting their strategies; this means they jump into live-market trading too soon, and as a result they begin over-trading.

Traders need to be especially aware of their state of mind immediately after exiting a trade, because this is when emotions like revenge and euphoria hit their peak, making it very likely the trader will dive back into the market with no real sound reasoning behind their action.