A recipe for trading that wins
There are many reasons why individuals trade
Profit motive: This is the first cause of loss on the financial markets. If you start trading for the sole purpose of making money quickly, you will always end up losing money. We must accept that earning money is only a long-term goal. In the short term, nobody ever does, so stop thinking you'll be the exception!
Sensation of freedom: Trading offers the possibility of being your own boss. The problem is that you have to be able to impose binding rules on yourself to be a winner in your trading.
The desire to learn: It is indispensable for success but it is important to set a learning to tradeplanor risk losing yourself in the infinite possibilities of trading. You must be able to say stop, at some point, in order to test your trading strategy.
Eliminate routine: Like any job (because yes trading is a job like any other), you can't escape routine. Trading that wins is boring and routine trading.
Stimulate the mind: Our mind is a powerful weapon for whoever tries to control it. If you can't control it, your emotions take over and it will be impossible for you to win in your trading.
Winning recipe for trading
If you're expecting a magical recipe, you should stop here. I am not here to sell you dreams (I let certain trainers do that for me). To succeed in trading, you must have a lot of time, not deny the task, be able to question yourself and accept loosing! If you are not ready to lose your money, then trading is not for you. That's a key notion!
The recipe for trading that win is, for me, made up of several elements:
Technical knowledge: You must be able to identify chart patterns to plot your support/resistance levels, to know how to interpret and understand the key technical indicators. In short, these are all the basic elements of technical analysis.
Novice traders often tend to want to find a miracle indicator, to think that the more complex their strategy, the more likely they are to win in their trading. That's totally wrong!
There are thousands of winning strategies; there are no better ones than the others. The important thing is to find a strategy that seems coherent, that you understand, that corresponds to you! I can only give you one piece of advice: Keep it simple! There is plenty to do with the basic elements of technical analysis and traditional technical indicators. Don't waste your time scratching around learning how to trade. It's often time lost but also money!
I also include the concept of risk management (money management). Risk management is what helps you get through the loss phases without too much damage. Managing losses well (besides not abusing leverage) means not being afraid to accept a loss. The sooner you are able to take your losses quickly (and recognize quickly when a trade goes wrong), the sooner you will win. The difference between a winning and losing strategy is often there.
Self-control: This is the most important element in trading. Novice traders are often unaware of this but trading requires a huge amount of work on themselves. You have to be able to fight your emotions and before you get there, take your time.
Often it is not the trading strategy that makes you lose money, but the mismanagement of emotions. You must be able to manage them in both the loss and gain phases.
You must also accept that you cannot win every time. Losing trades are part of trading. Similarly, your trading strategy will not always end the day or even the week in a positive light. You have to accept it. A trading strategy is judged over the long term, at the end of each month.
Trading is an activity that initially generates a lot of emotions (frustration, depression, euphoria, stress, etc.). Learning to control yourself is learning not to let your emotions dictate your actions.
Experience: You will acquire some little by little, depending on your trading disillusions. Because yes, at the beginning, trading is made of frustration, irritation, demotivation phases, a desire to throw in the towel, etc. Like any other activity, trading is learned by making mistakes. By dint of committing them, you will gradually be able to draw conclusions that will lead your trading to evolve. Ultimately, it is the accumulation of all these errors that will lead you to trading that wins.
This experience makes you progress in the technical field (evolution of your trading strategy, thoughts, etc.) and in the psychological field (learning to control yourself).
If you hope to make money right away, trading is not for you. You're going to go through a lot before you get there. For me, trading is like a high level sport. Very few people can do this because you need the skills (technical knowledge), mental strength (self-control) and above all a lot of work (experience).
Create routine in your trading
I've been talking about self-control. It's a vague notion for most of you. You probably ask yourself the question "How do you learn to control your emotions?”
This question is often answered by experience. It is true, by dint of being confronted with certain situations and feeling emotions, you will gradually get your mind used to this stimulation. Emotions will thus diminish over time by the force of habit.
But experience is not the only way to learn to control your emotions. You need to create routine in your trading. This routine must be carried out at different levels:
Trading strategy: Once you have found a trading strategy to test, focus only on that strategy. Ignore other strategies, do not seek to develop it. Far too many novice traders change strategies like they change shirts. One day it's one, the next day it's another. You can't be a winner in your trading by operating like this.
The elements of development, the avenues of reflection, it is during the research phase of your strategy that you test them but once you have fixed one for yourself, test it until the end (at least one month of trading, that is the minimum). If the test is inconclusive, you can then use all the elements you have collected to make it evolve.
Even if your strategy loses, during the test period, you at least forced yourself to follow a trading plan. This allows you to learn rigour and discipline. Without these two elements, even with a good trading strategy, you will end up losing (giving in to your emotions).
Of course, if you see that your strategy only loses, you have to change it. On the other hand, if you win 1 trade out of 2 but you lose at the end of the month, you are mismanaging your gains and losses. You cut your winning positions too early and cut the losing positions too late. It is not necessarily the strategy that needs to be changed in this case, but a different risk management approach.
State of mind: Many novice traders think that a position can be opened at any time. No! You should only open a position if it is during the time period in your day that you dedicate to trading.
Trading requires a high degree of concentration, a state of mind dedicated to this activity. This means not being tired, being in a trading environment (no noise around) and also fixed hours. Trading when you have the time is not the way to trade properly. It doesn't matter during your technical knowledge learning phase but if you are on a real account to test your trading strategy, it's different. Your body needs a landmark.
We also see this in top-level sport. Take a tennis player who is used to playing in the afternoon. If you make them play in the morning, they will have a bad game because their body has no landmark, it is not used to playing at that time. It is the same with trading, you can more easily be rigorous and disciplined in your trading if you impose certain rules on yourself.
Consider all possible scenarios: Each time you open a position, you must consider the gain and also the loss. What will you do if the price reaches this level? Will you cut, will you hold your position? Will you take your profits if your objective is reached? If a sudden reversal occurs, what will you do? When are you going to move your stop loss?
All these questions must be answered before opening a position, so that you are not subject to your emotions. We often think that in trading it is necessary to constantly adapt to changes in the price, that we can only undergo them. No! All these elements must be part of your trading strategy. Answering these questions beforehand means that you avoid being overly influenced by your emotions when making a decision. An experienced trader can adapt but a novice trader is not capable of doing so.
Don't leave anything to chance. The objective of trading is not to open a maximum position, but to do things right. Then, no matter the outcome, the market decides, you can do nothing about it.
You must have no regrets, no matter if the price moved to hit your stop loss or if you have made a huge loss on a move (which you see after the fact). After each trade, you should be able to say to yourself: "I have followed my trading plan" and if the same configuration occurs, you must treat it the same way. Beware, however, of excessive routine, boring trading can make a trader lose.
There is no magic formula in trading. Success is achieved through sound technical knowledge, self-control and financial market experience. Learning is done at the cost of a lot of mistakes which are essential to making you evolve towards trading that wins. Whether it's trading strategy, risk management or emotional control, it's all based on rigour and discipline. Trading that wins is mechanical, boring and emotionless.