Don’t want to be a loser? Clarity and Discipline are what you need

Let’s get real – most retail traders lose money and are engaged in a game of self-deception

If you haven’t heard about thinking errors, cognitive biases or attributional thinking styles, make that the first thing you do after you finish reading this blog.

They are the reason why the majority of retail traders lose money and carry on trading: it is the same reason why gamblers think they can beat the house, why humanity hasn’t taken on board the fact that we are headed towards extinction because of climate change, why people think they won’t run into trouble when using their handheld device while driving.

So yes, can we say it any more loudly: the majority of retail traders lose money.

But also, those that are uninitiated in the ways of the market makers, the big professional trading companies, the banks and hedge funds, they are engaged in waging a massive act of group deception on retail traders, albeit legal. Players with huge account sizes can outwit new retail traders who, for example, pay too much attention to the news and buy into an asset whose price is about to drop.

So it’s not without clarity and discipline that you won’t be one of the traders who loses money time after time. Want to trade successfully? Do the following....

Treat your trading like a business

Part of that discipline is treating your trading like a business. While individual traders who engage in the activity outside of an existing job might see it as a hobby and therefore think that they don`t need to apply standard performance measurements and indicators to it, most people don`t want to burn through money without consideration. So it is important to put some checks and balances in place, both to stop money loss but also to promote increasing profits.

So, get clear on the following:

1 - The WHY - What is your mission statement? What, in one sentence, is your overarching goal?

Are you clear on what you exactly want to get from your trading activity?  Is it a way to pass the time, to burn through your pension, to add some extra money for treats, to double your savings pot in ten years, crack how to trade FOREX successfully? Get that clear in your head so you could pitch it to a fellow occupant of the proverbial elevator.

Then make sure that everything in your strategy - when you trade and how long for, what style of trader you are, what your risk reward ratio is, what the amount you are prepared to lose is  - matches your goal. It doesn`t matter whether it is the first goal of a novice trader or for someone who has been trading for decades - this always needs reappraisal and recalibration. 

 2 – The WHAT - Do you have a viable business proposition? Remember that the market is not your asset, nor is your amount of capital. You are your key asset. You are your product because it is your mindset which dictates everything. If you have a solid mindset you will make good decisions about what market suits you best, what style of trader you are, and of course, when to enter and exit a trade. You also will make good decisions about which information sources to focus on.

Are you hooked on social media influencers who might be pumping out paid-for stock recommendations? Do you waste time looking for patterns in the chart based on past price performance, when price movements are random, and the only patterns that are worth looking for are the moves of the smart money or perhaps long-term trends?

If your asset is strong, you will be focusing on methodologies and information that are born out by market truths.

3 – The HOW - Do you have processes to create structure around your activity to build your success? Are you practicing self-awareness so you can respond to your emotions rather than react to them unawares? From that, be sure you execute with discipline the small steps that get you there:

• Having the right trading space
• Being rested, watered, well fed
• Have a stress management plan in place
• Stick to your routines
• Be disciplined about logging, analysing and improving upon your performance
• Practice non-striving and acceptance whether you win or lose

And then get specific What is your specific trading goal and over what period of time? Is it:  To get your trading account to US$xK in a year’s time A specific figure for your daily profit and loss ratio Always sticking to no more than 2% of your capital on any one trade Writing up your past trades in your trading journal every time Have a good stress management system in place

Anyone who has ever been near any coaching knows it is often said that objectives need to be SMART [SMART criteria - Wikipedia] Specific, Measurable, Achievable, Relevant and Time-based.

How are you going to measure your performance? Is it as simple as comparisons in a spreadsheet? Are you going to rank yourself at the end of each month, as this article [Realistic Goals For A Forex Trader - Trading College] suggests?

And if you miss your goals?

Summary: Reality check with yourself: your mindset is everything

Be real with yourself: do you believe you can achieve either your overarching goal or the small steps it will take to get there along the way? If not then have an honest conversation with yourself because setting yourself a target that, deep down, a large part of you doesn’t really believe you can meet is a recipe for failure.

Visualise and believe you can achieve it, both the small daily items and the big overarching goal, and it will come easier. But nothing comes without applying yourself and without focus on your particular end game. That has to be goal number 1.

Sources

How to set effective trading goals - Rob Booker Trading

Considerations when defining effective trading goals - CMC Markets

What are realistic goals for a FOREX trader - Trading College

How to set realistic goals as a trader - Business Mole