The biggest mistake the new learning trader makes. My 'Aha' moment.
Okay, I feel that I really need to get this blog out asap as I find it imminent to address this issue before I see anymore account blow ups or bad losses. I've seen too many and I personally have blown up quite a few accounts my self. No one should be losing this much money if they apply this very basic principle I'm about to talk about. How to set proper goals, and defining the moment when we are a consistent winning trader.
If any of you have read my past blog entry, I have shown pretty clear that it is absolutely impossible to know what the market will do let alone control it. The only thing that we, as traders have absolute 100% control over is how much money we lose, or willing to risk. That is the key differentiation between trading and gambling.
With that said, I see some traders set daily goals for themselves. Many of them set monetary goals like, 'I'm want to make $100-$150/day. I want to make 'X' percentage of my account daily/weekly/monthly.' etc. These goals are not realistic at all. We cannot control the outcome of the market once we make the entry to a trade. In fact, these kind of goals actually will hurt you as a trader because if you don't reach them, you will psychologically feel a need to trade. As the closing bell of the market day nears and you are no where near your daily goal, you start feeling pressured and start taking sub-par grade B/C setups. Every tick on the chart you begin to rationalize to yourself that it's some sort of pattern. And you see how this goes downhill from there.
Traders with small accounts struggle especially with this when they set monetary unrealistic goals. Trading with less capital is difficult, very difficult. With a small account, your wins are often close to meaningless, which then creates the need to trade more and introduce more risk in your trading. When we start out and trade a small account. Our goal is to learn to develop consistency. Experiment with different strategies to find our edge. Just understanding the very purpose of a small account and not setting uncontrollable goals will already put you a big step ahead of 90% of the new traders out there.
Instead, I advocate setting proper goals, goals that aim at things that we could actually have control over. What I call Process Goals.
As we control our losses consistently, minimizing them on a daily basis, sticking to that edge that we have found, that 3:1 risk to reward minimum ratio will pay for it self. The successful traders I study from have many small controlled losses. But when they win, they win big to cover the losses all up and than some.
Instead of looking at our PNL(profit and loss) for the day, look back of when we first started, and how far we have came along now compared to when we first started. How much we have learnt and applied. That in turn will keep our mind positive.
Once we are able to consistently able follow our process goals, we will find ourselves in the green naturally. The name of the game is not about making money at all, it's about how to control our losses and mitigate our risk. Something we have 100% control of. Hence as a trader, we should aim daily to set perfect stop losses for our trading plan. The stop loss in our plan is the ultimate weapon that determines whether we are a winning trader, or a part of the majority losing ones.
Understanding this very simple fact, I started working on my stop loss strategy when I plan my trade as a primary focus. As I get good at this and keep adhering to my own set of trading rules, refining them daily to help correct my mistakes. That was my 'Aha' moment.
I'd also like to give an example to how one would categorize their trades at the end of each day as well. To simply put, there are only 4 kinds of trades:
"You don't try to build a wall. You don't set out to build a wall. You don't say 'I'm going to build the biggest, baddest, greatest wall that's ever been built.' You don't start there. You say 'I'm gonna lay this brick as perfectly as a brick can be laid.' and you do that every single day, and soon you have a wall." ~ Will Smith
If you like this FREE content that I offer and you find it useful. Please consider keeping me motivated and caffeinated by buying me a coffee. =) Ultimately I think the market offers equal opportunity to everyone to gain financial freedom. No one should have to pay an arm or a leg of their hard earned money to gain that freedom we all deserve. This is why I write my blog for FREE and keep it ad free. Thank you for your consideration and your time.
If any of you have read my past blog entry, I have shown pretty clear that it is absolutely impossible to know what the market will do let alone control it. The only thing that we, as traders have absolute 100% control over is how much money we lose, or willing to risk. That is the key differentiation between trading and gambling.
With that said, I see some traders set daily goals for themselves. Many of them set monetary goals like, 'I'm want to make $100-$150/day. I want to make 'X' percentage of my account daily/weekly/monthly.' etc. These goals are not realistic at all. We cannot control the outcome of the market once we make the entry to a trade. In fact, these kind of goals actually will hurt you as a trader because if you don't reach them, you will psychologically feel a need to trade. As the closing bell of the market day nears and you are no where near your daily goal, you start feeling pressured and start taking sub-par grade B/C setups. Every tick on the chart you begin to rationalize to yourself that it's some sort of pattern. And you see how this goes downhill from there.
Traders with small accounts struggle especially with this when they set monetary unrealistic goals. Trading with less capital is difficult, very difficult. With a small account, your wins are often close to meaningless, which then creates the need to trade more and introduce more risk in your trading. When we start out and trade a small account. Our goal is to learn to develop consistency. Experiment with different strategies to find our edge. Just understanding the very purpose of a small account and not setting uncontrollable goals will already put you a big step ahead of 90% of the new traders out there.
Instead, I advocate setting proper goals, goals that aim at things that we could actually have control over. What I call Process Goals.
- I will only take a maximum of 'X' share size to help mitigate my risk daily per trade.
- I will adhere to my planned stop loss.
- I will make record all my trades daily at a specific time of day and categorize them.
- I will wait for that planned set up I'm best at trading.
- I won't take any sub-par set ups nor will I chase.
- I will diligently monitor my emotions throughout the trading day.
- I will stop trading if I lose 'X' amount of dollars within the day.
As we control our losses consistently, minimizing them on a daily basis, sticking to that edge that we have found, that 3:1 risk to reward minimum ratio will pay for it self. The successful traders I study from have many small controlled losses. But when they win, they win big to cover the losses all up and than some.
Instead of looking at our PNL(profit and loss) for the day, look back of when we first started, and how far we have came along now compared to when we first started. How much we have learnt and applied. That in turn will keep our mind positive.
Once we are able to consistently able follow our process goals, we will find ourselves in the green naturally. The name of the game is not about making money at all, it's about how to control our losses and mitigate our risk. Something we have 100% control of. Hence as a trader, we should aim daily to set perfect stop losses for our trading plan. The stop loss in our plan is the ultimate weapon that determines whether we are a winning trader, or a part of the majority losing ones.
Understanding this very simple fact, I started working on my stop loss strategy when I plan my trade as a primary focus. As I get good at this and keep adhering to my own set of trading rules, refining them daily to help correct my mistakes. That was my 'Aha' moment.
I'd also like to give an example to how one would categorize their trades at the end of each day as well. To simply put, there are only 4 kinds of trades:
- Our trade worked and we followed our rules. (good trade)
- Our trade failed and we followed our rules. (good trade, no big deal.)
- Our trade worked, but we broke our rules by holding on too long past our stop loss. Eventually we got lucky and the trade reversed in our favor. (bad trade. worst of all trades.) This type of trades fools us into fake confidence and we will continue to make this mistake over and over if we don't recognize it early. Eventually this type of trade will blow us up! I've done it personally, I've seen it happen to so many others.
- Our trade failed, and we broke the our rules. (bad trade, but correctable once recognized.) These types of trades usually derives from chasing, jumping in, FOMO(fear of missing out)
"You don't try to build a wall. You don't set out to build a wall. You don't say 'I'm going to build the biggest, baddest, greatest wall that's ever been built.' You don't start there. You say 'I'm gonna lay this brick as perfectly as a brick can be laid.' and you do that every single day, and soon you have a wall." ~ Will Smith
If you like this FREE content that I offer and you find it useful. Please consider keeping me motivated and caffeinated by buying me a coffee. =) Ultimately I think the market offers equal opportunity to everyone to gain financial freedom. No one should have to pay an arm or a leg of their hard earned money to gain that freedom we all deserve. This is why I write my blog for FREE and keep it ad free. Thank you for your consideration and your time.
This is great info Matrix. My problem is finding/deciding on a trade setup.
ReplyDeleteThank you for the helpful and informative blog and look forward to reading thru it as this has been my first time on here! Yes I will buy you a coffee at some point as soon as I can afford to buy myself a cup I will gladly extend another cup your way! :) GL and Happy Trading
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