The Most Valuable Trading Lesson Anyone Could Teach

There are countless topics that I could have chosen to start my Trading Blog with, but no other would have been more fitting than this. The title is something you would find on countless over-ambitious ads, promising you to be rich tomorrow. That is not what this is. I could tell you of all my secret strategies, algorithms, patterns and what not, but I’m not your average self-declared guru. I’m a real trader, and I’m here to give you real advice… and this piece of advice may just safe you all your money if you are starting out and even turn your whole game around. Intellectually, you may agree and say some of this is common sense, but you will not grasp the power of these lessons until you apply them to your trading.




  1. Treat trading like a game, but don’t gamble

One of the biggest mistakes you can make is seeing money as money. We all have emotional neuro-associations linked to the concept of money, which leads to reactionary behavior following both winners and losers. Once a trader makes $500 in 30 minutes, she may all the sudden feel invincible and break her rules, as she envisions yachts and mansions at her finger tips. Another trader may lose $100 in 10 minutes and panic, seeing the dream of wealth shatter in pieces. The dollar sign evokes a feeling of pain or power in traders, whereupon all plans and analysis are thrown out the window. So treat it like a game. Call it points, units, experience… give it a label that you feel neutral about, and that still makes you excited about raising more of it. To be successful you must be numb to the idea of losing money. For most this is hard, so this is your best shot at cheating your brain.

  1. Define how much you are willing to lose

Now that you got a label, how many points are you willing to lose, or how big is the unit you are willing to lose? $50, $100, $500? Write that number down. Stick to it. Never risk more. Most traders lose, because their winners are dwarfed by their losers. By putting a set limit on every trade’s downside, while ensuring that the targeted upside is a multiple of your unit, will allow you to be profitable even when you lose 7 out of 10 times.

  1. Know your Stop and Target before you enter… and write it down

The primary reason why traders panic in the middle of a trade and do not know what to do is because they never decided when to take profits and when to cut loses. If you actually choose a target and a stop (based on prior analysis) before entering the trade, there is zero thought that you have to put into trading. A. Are you at the stop yet? B. Are you at the target yet? If you answer either with yes, then sell. If you answer both with a no, then close the window of your brokerage account and move on with your day.




 

It may seem simple, but it will transform your trading, because believe it or not, these simple mistakes is what keep the 70-90% of independent retail traders from crossing the break-even line.

If you have any questions, shoot me an email, and follow me on Twitter, Stocktwits, Profit.ly, Traderplanet, LinkedIn, or whatever you are on.

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