Imagine you have a rich uncle willing to grubstake you 500K if you can provide him a solid outline of your methodology and why that methodology will be profitable. He's a skeptical hard-ass but willing to read what you've written down. Would you be able to convince him with what you've got now?
Even if you are totally discretionary, you should be able to articulate and justify, in clear words on paper, the reasoning behind every action you take. Discretionary traders are ultimately systematic too because they just trade conceptual patterns instead of mechanical ones.
When do you enter and why? When do you add? When do you exit and why? What is your planned risk per trade? What is your typical R:R target per trade? What is your survivability quotient (i.e. how many losses in a row would it take to kill you?). How feasible is your planned risk in regards to matching up with real world volatility risk (i.e. what would a five point jump do to your half point stop?). Are your range captures realistic or too close to random? Are you using viable software or trying to get by with a cheap piece of crap? On and on it goes.
First and foremost when it comes to trading performance is to put FUN and PASSION FIRST. If trading isn't fun to you, there are a lot less costly ways to be miserable. Get the performance pressures out of your head and forget about statistics, win/loss ratios, etc. Don't think about trying to win the game. A good analogy is a professional tennis player who focuses only on the point at hand. He'll probably lose 1/2 the points he plays, but he doesn't allow himself to worry about whether or not he's down a set.
Another important part of performance is CONFIDENCE. Confidence in yourself, in your methodology, and your ability to succeed. Some people are born confident, while others are able to transfer it from other aspects of life. There's also the old-fashioned "hard work" way of gaining confidence. Put in the hours of finding out what works for you. Tweak and modify systems so you can truly call them your own. Just as you should put the pressure of winning out of your mind, you should put losing out even quicker. A bad trade doesn't mean you've blown your day.
It's like cheating on a diet. You can't undo the damage that's been done, however, it doesn't mean you've blown the whole diet. A certain amount of detachment adds a healthy dose of objectivity. Trading is a great business because the market closes at the end of the day. This gives a clean slate to start the next day. Forget about what you did yesterday, or last week, or last month, or last year. What counts is your focus on TODAY.
Finally, give your ATTITUDE a test. Attitude is how you deal with the inevitable adverse situations that occur in the markets. Attitude is how you handle the daily grind, the constant 2 steps forward and 2 steps back. Slumps are inevitable and every trader has gone through them, but once you dig yourself out of a hole, no matter how long it takes, you know that you can do it again. That knowledge is a powerful weapon. A good trade is one that has the probabilities in its favor, but that doesn't always mean that it'll work out. Just like sports, the statistics are only meaningful when looking at a string of numbers.
For example, in football, not every play is going to gain yardage. What percentage of games need to be won to make the playoffs? It's a number much smaller than most are willing to accept as a win/loss ratio. Here's a question for you: Should you look at a trade logically or psychologically? In other words, should every trade stand on its own merits? Theoretically yes, but it's much easier said than done and doesn't always work out that way. Most of us are likely to manage a trade differently depending on whether the previous trade was a winner or a loser.
Realistically, every trader has made a stubborn, big losing trade. What do you do if you're really "stuck" in a doozy? First, there's no such thing as "stuck." No supreme being is preventing you from pushing the buttons. The first thing you can do is offer a sacrifice to the trading gods. In other words, immediately get rid of 1/2 or so. Whatever the case, cut down the size.
Right off the bat, you're taking action instead of freezing up. You're reducing your risk, and you have shifted the psychological balance to a win-win situation. If the market turns around, you still have part of the trade on. If it continues against you, the loss will be more manageable. I've found that I usually would have been better off if I had exited the whole position on the first order, but not everyone can do this. A famous trader was speaking and somebody asked him what he did when he had a terrible losing trade. He replied that his stomach would begin to hurt and he'd "puke them at the lows along with everyone else." The point is, everyone makes mistakes but sooner or later, you're gonna have to exit that nasty losing trade. "Feel good" trades help one get back in the game.
It's nice to start the day with a winning scalp. It tends to give you more breathing room on the next trade. The day's psychology is shifted in your favor right away. This is also why it's so important to get rid of losing trades the day before, so you don't have to deal with them the next morning. A small profitable scalp is the easiest trade to make. The whole secret is to get in and out of the market as quickly as possible. Of course, this strategy isn't substantial enough to make a living, but remember that the object is to start the day out on the right foot.
If you're following a method consistently (consistently being the key word) and making money, how do you make more money? You must build up the number of units traded without increasing the leverage. In other words, don't try swinging for the fences on every trade, and instead, add more trading units. Proper understanding and use of leverage can be the key to your success and longevity in this business.
Most traders who run into trouble have too big of a trade on. Size influences your objectivity, and most people react differently when they're under pressure from being overleveraged. They tend to be more emotional or reactive. They tense up and their judgment becomes impaired. Many talented athletes can't cut it simply because they choke when the pressure's on. You could be a brilliant analyst but a lousy trader. Consistency is by far more important than brilliance.
If you admit to yourself that you truly don't have the will to win at this game, then it's very simple. Don't try to trade. There are easier ways to throw away money. Many people think they'll enjoy trading when they really don't. It's boring at times, it can get lonely, it can get mentally trying, and it offers little structure or security. The markets are not a logical or fair playing ground, BUT there are numerous inefficiencies and patterns ready to be exploited, and there always will be.
How many would agree or disagree that the most effective motivation a trader can have, or an individual in life can have for that matter, is bettering himself/herself?
Think about it: if your motivation is money, then at a certain point your desires will ebb, either because you have obtained all the money you could want or need, or else you have reached a point where your sense of fatigue is stronger than your sense of desire. If your motivation is personal accomplishment, then you will eventually run into the wall of "how much accomplishment is enough" or else burn yourself out by being held prisoner to the idea that there is never enough.
The ability to better ourselves is the only goal that all individuals truly have equal access to. The playing field is far from level. Some are born with wealth. Some have the good fortune of having a powerful mentor in their life. Some were simply in the right place at the right time. Others have incredible amounts of raw talent. But everyone, down to the most mediocre individual, the most down and out person, has the ability to better themselves. I think bettering ourselves is ultimately a reflection of the teaching that the heart is what's most important, not appearances or physical accomplishments. Who can claim superiority because of genes they inherited, or situations they stumbled upon, or teachers they had the good fortune to sit under at an early age?
But in terms of the heart, who a person is or what kind of character that person has, are things that are independent of uncontrolled circumstances. The classic virtues: honesty, patience, wisdom, discipline, delayed self gratification, and humbleness all lead to better trading, and ultimately to larger profits. There is real freedom in getting off the outcome-based treadmill, and ironically, it lets you enjoy your successes even more than those who are overly attached to results. A millionaire who needs his money to be happy is a slave. A millionaire who can be content with any amount of money is free, and can enjoy his gifts more freely. Another benefit of true commitment to bettering ourselves is that it is more likely to be a true guide than other motivations. Many, if not most, who want to be traders were never meant to be traders. A motivation of greed or fear or boredom can mask that truth, as opposed to bettering ourselves and really listening to that inner voice. What that voice tells us can be painful in the short run, but turn into a blessing in long run.
I get asked a lot why I do this. I absolutely love this game (and it's most definitely a game) and unless I get hit by a truck, I'll be trading for the next 50 years, whether I need the money or not.
My comments lately regarding success and accomplishment are directed at 3 types of individuals.
In all cases, a reality check can help give the individual renewed purpose. Honesty either gives you the strength to persevere knowing you do so for the right reasons, or the strength to change course if that's what your heart is really telling you to do. As I always say, honesty with oneself can be painful in the short run, but a blessing in the long run.
It's interesting how responses to my views on accomplishment and success tend to fall into two different categories. Many of those who are successful by their own standards will agree with me that the true measure of fulfillment is internal, regardless of external appearance or reward. On the other side of the coin, many of those who tend to view themselves as unsuccessful (and again this is completely a subjective thing, as many accomplished people see themselves as failures) tend to believe that such views are copouts, excuses, or justification for falling short.
Somebody emailed me last week and asked me why I call trading a "game" (before they asked how much they could expect to make their first year!) I call it a game because you can never, ever have complete knowledge or total control. You are always exposed to that proverbial "black swan," or that unpredictable event that defies prediction. Even if you have a set-up that gives you a 1 in 1 million chance of a loss, it might as well have been 100% if it happens to you. Trading is also a game in which you will never have the most money. Real trading success requires humility because it can bring you to a point where further pursuit of money just for money's sake is a recipe for disaster. A trader who brags about making $100k/year is naive, and the trader who brags about making $1mil/year is no less of an idiot. A trader who has done well trading doesn't need to look far to find a businessman who amassed a bigger fortune in a "normal" industry, like coat hangers or bug spray.
At the same time, though, what trading ultimately does is allow for freedom from the strain of money. It is freedom in the sense that money no longer controls you. You're free from that "grind," meaning you can work when you want to, and not when you have to. You can live the lifestyle you desire within reason, and realize that real happiness is not found on that "success treadmill." Trading success lets you pursue and do what you really want to. .
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