Your mind set is the absolute key to trading success. It will separate you from the 90% of losing traders who go jump in all guns rattling to be shot down by a distant level headed sniper. That sniper is YOU. Ice cold, calculated, accurate and DISCIPLINED. Your looking for the one shot kill every time.
As a trader you have to separate your self from what you are doing, as soon fear and greed come in to the equation things can quickly go wrong. Can you maintain a cool head?
You have to wait patiently for that perfect pin, confirmed by confluence with a TSR (trend, support, resistance) level and then plan your trade. You have to know before hand when you will get in, and when you will get out. Once the trade is planned and executed it’s a good tip to log out of your chosen trading platform, or go and look for some other trade set ups, even grab a cup of tea. You must at all costs stop the urge to change anything about the trade. Only a stop loss, limit order or sell signal should get you out of the market.
This will help you understand why it’s so important, a top broker analysed over 2.5m trades and over 60% of trades are winners, but still 90% of traders lose money. How is this possible? The answer is incorrect mind set and poor money management, traders take an average of 60 pips on the winning trades, but lose 140 pips on their losing trades. If they could just stick to the golden rule, they would be highly profitable:
“Let your profits run, and get out of bad trades quickly” – Everything to do with trading mindset is represented in this simple expression.
However obvious this rule is, it’s seldom followed. Once a trade starts going bad, unsuccessful traders will move the stop loss even further down in the hope the stock will somehow bounce back. When it doesn’t the loss is far higher than expectable. Then on the next trade, let’s say the trade was a winner, but you just lost the last trade, it’s so tempting to try and get some of that loss back, and take the profit early, when the correct thing is to let the profit run. Each trade should be judged on it’s own merit during the exact moment your analysing it, with absolutely no interference from any past trades clouding your mind.
If your losses are bigger than your wins, even if you get a higher percentage of your trades correct you will probably still lose. This is called risk management, and I will cover this is more detail. It’s literally the key to success and how all big banks make billions in profits every year. They probably don’t get any more trades correct than you will, that’s not the tough part.
It’s all about risk management
Risk management is the absolute key to success. That’s why traders in banks are not called traders, there job title is actually: Risk Manager. It’s the biggest secret in the industry and once you understand this, you can see a pin bar on a chart and draw a line on a chart you can make as much money as you need. I will explain this in more detail in just a moment, but here are some other inside track tips that will help you win.
1. Be realistic – Your not going to make a million pounds with a £5,000 trading account in a short period of time. Your not going to find one magic trade that will make you super rich. Nothing about how the market works will change now, tomorrow, next year or ten years time. It’s been working the same since times in ancient Japan. So you need to learn how to spot the pin bars, and make the trades. Then you can scale up. A great wall street trader will make 20% a year profit. The company Berkshire hathaway, run by the worlds best investor Warren Buffet makes 20% a year for it’s investors. So if you have £100k you can make £20k per year. However if you can prove you can make 20% profit per year constantly, firms will be falling over them self’s to lend you capital. You can then start playing with massive amounts of money, and with no risk to your self. Plus you get to keep 20-50% of the profits, which of course you can reinvest yourself and keep 100%.
2. Never over commit – If you can’t afford to lose it, don’t risk it. If you can afford to risk it, only risk 1% – 2% per trade of your total bank roll (ideally less if you have enough capital). That way you can still lose 25 – 50 trades in a row and still have only 50% of you capital in draw down. Sure losing 50% is tough, but you will still be firmly in the game and provided you can stick to the above rules, you will pull it back. Making small amounts of profit is far better than being broke. If you start risking 20% of your total bank roll, your playing with fire. Five bad trades in a row and congratulations you have just blown your account.
4. Be almost sociopathic with your money – Don’t think of the money as anything other than score in a game. Don’t start mentally associating it with gas bills, cars, houses etc or you will form an emotional attachment with it, and that is doom. It will make you take higher than normal risks, and do stupid things like move your stop loss. You want no emotion what so ever, set the trade and forget about it. If it wins, doesn’t matter. If it loses, doesn’t matter. Just on to the next trade with a clear head about what just happened. Practice this and your half way there.
5. Don’t gamble – I have shown you the edge, the highest probability set ups you can trade. Trade only those pin bars confirmed by TSR. Make sure it’s exactly that, don’t trade anything that is almost there. Just leave it alone and wait patiently for the one that jumps of that page, slaps you in the face and shouts ‘Trade me’!! If you have even a split second of doubt, any niggling negative feeling in your body, leave it alone and wait.
6. Don’t over trade. When using these high probability set ups, there should only be around 2-6 solid setups a month. That’s it. If your trading more than once a week frequently then your probably trading too much, thus taking unnecessary risks. It’s very tempting to be in the market for the rush, it does have a strange lure when you start, but try and get the rush from outsmarting the market, not just being in it. If you want a realistic view on the frequency of trades you should be, get on the newsletter and I’ll email you every time I enter the market or sell a position.