1. Follow Your Trading System
I am a visual person; I prefer technical analysis with candlesticks and specific, visual entry- and exit-points based upon crossing of moving averages and confirmation in strong candlestick patterns.
I use an extremely easy-to-use, visual trading system, a system so easy that even a child could follow it! But, even with an easy-to-follow system may not work…if you don’t follow it. And I didn’t follow my system.
As soon as I put real money on the table, my reasoning mind stopped working. I couldn’t think straight, and I wasn’t able to follow even the easiest, most visual trading system. What happened?
I was losing money even on my profitable trades.
2. Set a stop-loss BEFORE you enter a trade
I also used stop-losses… most of the time. The problem was that I often set my initial stop losses too tight and got thrown out with a loss soon after entering a trade, and the stock would start to rally (Bummer!) Having experienced that several times, it put me into the bad habit of tweaking my initial stop-losses, not to get thrown out immediately. This would often spin me into big-losing trades where the loss got almost unbearable to take.
So, I would stay in the losing trade, suffer through it minute by minute, day by day, hoping and praying for it to turn, bleeding my hard-earned money, drop-by-drop. In the end, the suffering would get too painful, and at that point, I would have no choice but to close my eyes and hit the sell button, finally ending the suffering by exiting my losing trade with a loss that would be very difficult to make up.
3. Journal About Your Trading Daily
I liked journaling about my winning trades. I hated journaling about my losing trades. Why? Partly because it was like re-opening a wound that had already been painful enough the first time I suffered through.
4. Follow Sound Money Management
In my first years of trading, I learned the importance of good Money Management… the hard way. I found it hard to follow the 2% rule, so I invested too much in each trade. You can understand the 2% rule in 2 different ways;
- Use max 2% of your account value on any trade*
- Only risk 2% of your account value on any trade*
Since my trading account was small, I decided to go with the 2nd option; Only risk 2% of your account on any trade. That meant that my stop had to be hard stops; When the stock moved more than 2% of my account value in the wrong direction, I got stopped out. I saw this as a good thing because it helped me stay in the market long enough to get enough experience to become the profitable trader I am today.
*Always remember to count for commissions for buying and selling the stock AND the spread when calculating your 2% risk.
5. Never Get Trapped in “Hope & Pray.”
I was usually quite confident and decisive when entering a trade. But that never lasted very long. As soon as I entered a trade, I entered the “Hope & Pray” approach. It seemed like the whole world knew that I was in the market, and it did everything possible to crush me. So, there I was, glued to the screen, hoping and praying for a turn-around, paralyzed, suffering in silence, bleeding from my every pore. Of course, that didn’t help me in my trading.
When I was in “Hope & Pray,” my mind was completely paralyzed, and I couldn’t think or act following my trading system. That made me extremely vulnerable to mistakes and the inevitable loss of money.
6. Never Pretend You Know What Will Happen Next
Click Here to Read More About How I Got Desperate in My Trading…
7. Feeling Stuck? You Need a Break!
My trading wasn’t all bad. I’ve had some great trading streaks too, where everything worked perfectly, and I made good money on my trades. Trades where everything went right; I made the right choices, and the market responded exactly as I had anticipated. I did everything right. Everything just fell in place by itself. I loved these periods. But they never lasted long. As soon as I hit the $30’000 mark, everything crumbled.
I started making mistakes; like sabotaging my entries, and not being consistent with my stops. So, I started losing money in my trades. Soon I had lost half of my whole trading account. I felt it as an endless battle.
This happened again and again. After going through this process several times, I finally realized that $30’000 was my personal inner ceiling, and where it got triggered. Everything was working just well, which made me go into a backlash because that is how a backlash works.
