Becoming a consistently profitable trader is a journey fraught with challenges, and at times, even the most seasoned traders find themselves facing setbacks. The allure of quick wins and instant rewards often clashes with the reality of trading – consistency, persistence, and hard work, all without the guarantee of success. This article delves into the strategies and mindset shifts needed when your trading isn't going as planned.
What to do if you are not trading well:
Impatience and instant success are built into our minds from the get-go. We want instant wins and instant rewards. This has as much to do with our psychological build-up as it does with the society we live in. The problem is, this is not a great mental framework to use for trading and can often result in poor performance or losses. If you are struggling with your trading right now, try this:
1. Set Rules for Yourself
Identify when you're not trading well, like a "3 Strike Rule" – three consecutive losing trades means a day off. Adjust this rule based on your experience to combat self-sabotage. The 3 strike rule gives you time to reassess and establish if your read was off or if your emotions are guiding your decisions. The market isn’t going anywhere… Reassess and come back stronger tomorrow before doing too much damage to your account.
2. Equity Curve Analysis
Monitor your equity curve closely. When you're 5-7% off the top, step back. Reduce your trade sizes, take breaks, return with a fresh mindset, and assess if market conditions have changed. Once again your market read could be wrong, and this might be a sign that the market is shifting or a top is in.
3. Size Down
Avoid the urge to overcompensate for losses. When struggling, size down and only add exposure if you see progress. Avoid treating the market like a slot machine; it won't end well. The normal tendency is to ADD SIZE when you are down on the day or facing a drawdown on your account. This is an easy way to blow up!
4. Discipline Matters
After a few poor trades, become more selective. Focus on top-tier setups, execution, and risk management. Sloppy trading can turn a small loss into a bigger problem. Do your post-trade analysis and make sure you are respecting your system and your playbook.
5. Preserve Emotional and Mental Capital
Take breaks. The market is always there; reenergize yourself to return with a fresh perspective. As Jesse Livermore said, "There is a time to go fishing." A depletion of emotional capital can be detrimental to your trading account.
6. Focus on Yourself
Ignore the noise on social media. Others' results don't impact your performance. Concentrate on your mindset, portfolio, and recent performance. Make changes to limit exposure when trading poorly.
7. Wait for the Right Market Conditions
If your setups aren't working, it might be a sign of poor market conditions for your style. Step back and wait for better opportunities. This is a simple yet often overlooked way to improve your performance. You do not need to trade every day!
Conclusion
Setbacks are not the end but rather opportunities to evolve and improve. Instant success may be a tempting idea, but in reality, trading demands consistency, discipline, and resilience. When you find yourself facing trading challenges, remember the tips listed in this article. By applying these principles, you'll be better equipped to navigate the challenging nature of trading and come out on top in the long run.