One of the key exercises I believe all traders of any experience level should engage in, is the development of some key principles that you want to always have to mind, to help anchor you through the good times and the bad times during your trading life.
These principles should help ground and guide you, they don’t need to be detailed and they will certainly develop for you over time, as you gain experience, but you will find some of the lessons you learn in the first 100 days of trading a live account will be equally relevant to you day 1000 or day 10,000.
These anchoring principles should be easily accessible to you as a screen saver, on a whiteboard or framed above your trading desk. These principles should immediately resonate with you be sure to re-read them after your biggest losing trade and absolutely after your biggest winning trade. These principle should ultimately help to keep you centered
Planning Prevents Poor Trading
Plan plan plan, don’t turn on a broker platform unless you are ready to execute your tried and tested trading plan, anything else is for gamblers and god knows you can have more fun in Vegas, while losing money, treat trading as a business ALWAYS.
Process Over Outcome
Your trading plan delivers profits over a significant series of outcomes, your role is to monitor the markets looking for premium examples of your predefined trading edge, when it presents itself execute your trade in adherence to your trading plan.
Probability Beats Perfection Over Time
Excellence in trading is about taking advantage of stacking probabilities in your favour, it is about trusting your plan and your edge, the greatest enemy of the good is perfection. Only amateurs will spend endless hours trying to define a a 100% winning strategy, while professional traders know that a 60% hit rate will deliver fantastic rewards over time.
Patience is a virtue that it is absolutely essential in trading excellence, a huge percentage of your returns will ultimately be derived from watching and waiting not doing. The majority of your time will be spent stalking the market not actually trading it. Trading execution should be routine to the point that all excitement is removed from the process, if you find yourself experiencing heightened emotions from trading there is probably a larger problem that needs to be addressed.
The lack of heightened emotion from a professional approach to trading can spike boredom levels from time to time and it is at these times that discipline is paramount, stick to your trading rule’s from the minute you turn your execution platform to the minute you turn it off. It is futile to be disciplined 99% of the time you are trading and allow an undisciplined mistake in the 1% of your trading time to ruin your day, week or month.
Risk Before Reward
Mange your risk and your rewards will take care of themselves, professional traders know that it is essential to focus on risk management in trading, always managing the downside precedes the inevitable upside over time. Predefining a price where your trade thesis is invalidated and managing your position size are essential ingredients to your risk profile and delivering consistent stable returns.
Hope Is Not A Strategy
If you find yourself in a position that was driven by any other reason than it being part of your predefined trading plan, exit the position at the first opportunity, do not sit in a position that has no plan or valid trade thesis, it is these impulse trades that lead to the main leak in your overall account equity. Sitting staring at the screen hoping that the position comes back to scratch is not a proactive or productive strategy. Even if you do exit the position with a positive gain in time this only leads to loss, as you will find yourself repeating poorly planned trades that have no edge in the long run.
Embrace Loss It Leads To gain
If you are trading a predefined trading strategy that has a definable positive edge then it is important to grasp the concept that losses, single instances of such or extended periods of drawn downs are most probably going to precede the next phase of new equity highs in your account equity. In this sense it is imperative for the professional trader to embrace losses in the knowledge that the highest probability is that this period is the precursor to new gains.
Journal Journal Journal
When in doubt – get your trade journal out! It is absolutely essential for a professional trader to journal all aspects of his trading experience, over the years this tool has been a life saver on more than one occasion. The Trade journal is a tool that is to be used to record both the good times and the bad, it will help you keep sight of the big picture when things aren’t firing on all cylinders. It will also help you to remain grounded through the times when it feels like you will never place a losing trading ever again.