November 25, 2020

Improve With Every Trade

Improve With Every Trade

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A good trader should improve with every trade. The focus for any trader should just be to make the next trade a good trade. Profitable trading comes from stringing together a lot of good trades in a row. A good trade is one that has a good risk/reward ratio on entry when you consider the stop loss versus the profit target. Each trade should be either a small loss or a big win in theory. If you repeat that pattern your trading results should consist of small losses, some break evens, small wins, and big wins with no big losses. This is the formula for profitable trading. Your goal should be to continue to improve your trading by minimizing losses and maximizing wins. Each trade can give you a small lesson on how to do this better the next time. 

No trade should be a make or break trade for your account. One of the biggest improvements traders can make is to stop trading so damn big. If you want to be successful it’s going to take time. You can grow and compound capital through a sequence of good trades, but you need to control yourself. Making money in trading is not the hard part, keeping it over the long term is. The same reckless position sizing that creates the huge wins is the same thing that will cause a trader to give it all back. If you manage your position sizing and stop loss each trade should just be just one of the next one hundred. 

A trading journal can help you both analyze your best and worst trades as well as your psychological errors with following entries and exits. To improve your trading you need to do more of what works and less of what doesn’t and you can only do that by tracking all your trades.

Once you have a quantified trading system with an edge the best way to improve it is by removing psychological errors of execution. The most common execution mistakes new traders make is not taking their stop loss when it is triggered and trading too big. Stop losses aren’t taken because a trader doesn’t want to accept the loss, they want to wait for the price to come back to entry to get out even. A trader trades too big when they believe their trade has to be right so they get greedy for a huge win. In the long term these are the two reasons traders have big losses, the reason most traders don’t make any money is because of big losses. The single best way to improve your trading is to eliminate all big losses. 

Not all trades are winners, but all trades can be good trades when you follow your trading plan. Measure quality in execution not results. If you keep executing a trading system that has an edge with discipline, the results will come on their own. 

When you improve with every trade, each trade is just a little better than the last one. 

Improve With Every Trade