Must. Remember.

Trading is a mental game.

It’s the ultimate test of mental discipline and mental strength.

Here are some things I need to always remind myself:

Your strategy will NOT work all the time. There will be times it loses.
Your strategy will NOT be able to catch every single move. There will be moves that your strategy just cannot catch.
The moment you deviate even slightly from your strategy, you WILL lose money.

Just these three things alone will take me a long time to learn.

First, You Must Learn How Not To Lose

I read a tweet somewhere which I thought was really good, but I can’t remember the exact wording right now.

It goes something like this (I’m paraphrasing):

“In order to make money from trading, first you have to learn how not to lose money.”

Really good advice.

This is what I’m currently still working on – minimizing my losses.

It’s frustrating when I make good trades here and there, but then give the gains away soon after by entering silly trades which I shouldn’t have taken.

Trading And Being A Magician

There’s a big difference between knowing how to trade and becoming a professional, full-time, consistently-profitable trader.

I liken it to being a professional magician.

A lot of people think that just because you’ve learnt a card trick or two, you are now a professional magician.

They think that being a magician is all about “knowing all the secrets”.

That’s hardly the case.

With YouTube these days, anyone can learn the secrets to a few card tricks in less than ten minutes.

However, does that necessarily enable you to earn a living as a full-time magician?

Hardly.

There’s so much more you need to master in order to perform magic full-time:

Practise until your presentation chops are almost perfect (this may take months or even years)
Develop an entire act with multiple complete routines (a routine is a much more elaborate presentation as opposed to just a simple trick, and each routine can last up to ten minutes or more)
Develop a unique style or persona that you are comfortable with (some are funny, some are sophisticated, some are quirky, some are mysterious)
Train yourself to be able to perform confidently, without fear or anxiety (this takes lots of performing experience and can’t be acquired in just a short time)
Network and build up your contacts so as to get consistent, well-paying gigs (without anyone hiring you, you can’t make any money)
Learn to deal with mishaps or unforeseen circumstances, such as tricks going wrong or hecklers in the audience (again, this all comes with lots of experience)
Building up consistency and bringing your A-game to every single gig, week in and week out

In the same way, being a full-time trader is not just a matter of “learning the right strategy”.

There is so much more to that, such as:

Having a complete, fully thought-out strategy encompassing entry, trade management and profit-taking
Practising your trades until you can execute them flawlessly according to your full strategy
Learning to block out emotions and not let fear, anxiety or FOMO affect your execution (this is extremely hard to do)
Being disciplined and consistent as a trader
Learning to manage risk competently
Being able to excel in all market conditions

Things I’ve Learnt About Trading

Don’t chase after trades. Let the market come to you. Take what the market gives you, at the market’s own timing. The more you try to chase after wins, the more losses you will get.
Be contented with the profits that you managed to get. Resist the temptation to think about what you could have made, and just focus on the profits you actually made. It’s always better to be in the green than in the red.
Whether you win or lose, just stay the course and stick to your strategy. Switching strategies only makes things worse. (This is assuming your strategy is a sound one and has been fully tested.)
Don’t feel happy when you win a trade, and don’t feel disappointed when you lose a trade. In fact, just don’t feel anything. Be emotionless, as if you were a bot.
Trading is a long-term game. You are merely doing your best to ensure that the odds will work out in your favour in the long run.
Even the world’s best traders suffer losses. Nobody can consistently buy at the lowest and sell at the highest.
Don’t focus on the profits. But rather, focus primarily on flawless execution of your entire strategy. The profits will then take care of themselves.
If your strategy doesn’t have specific rules for (a) entry criteria, (b) stop-loss, (c) take-profit, then you don’t have a complete strategy.
Your strategy rules must be so clearly defined that if you were to let someone else read your strategy rules, he/she would be able to make the exact same trades and get the exact same results as you would.
A mental stop-loss is probably not a good idea.
Trading against the trend is usually not a good idea.
Win-rate means nothing if you’re just scalping for very small profits each time. But it sure feels good to see a high win-rate.
If you only strictly risk 1% per trade, then the good news is that the most you could ever lose in a trade, no matter what happens to the market, is only just 1%. This is a very comforting thing to know.
When you hit a string of losses, you will be glad your bet sizes were kept small.
Everybody’s character is different, and thus every trader will have a specific strategy which will suit him/her. Find the strategy that suits you best. Just because another trader uses that strategy, it doesn’t mean that strategy will necessarily suit your style and temperament.
Nobody ever made money having a great entry into a trade. You only make money when you exit a trade. Your exit strategy is far more important than your entry.
There is no perfect way to take profits. Every take-profit strategy will have its own pros and cons. No take-profit strategy can capture all the available profits all the time. Just find the one that gives you the greatest peace.
Risk management is what keeps you in the game. Revenge trading only hastens the blowing up of your account.
Never give yourself targets, e.g. “I’ll close this trade once this trade hits $300 profit.” or “I’ll take all my profits from this trade once my account balance hits $12,000. I just want my account balance to hit $12,000 before I’m done for today.” The market doesn’t care about your targets.
Approach every trade the same way, regardless of your account balance. Execute every trade the way your strategy dictates. Take profit exactly the way your strategy dictates. Don’t take profits early/late just because your account balance is high/low.
There isn’t a single trader out there who has never wished he/she could have done things differently. Every trader makes mistakes: Jumping into sub-optimum setups, moving to breakeven too early, taking profits too early, fiddling with stop-losses, risking too much per trade. We’ve all been there. It’s how you deal with the mistakes that sets you apart.
And most importantly – React, don’t predict. Take what the market gives you. Never expect anything from the market. The market doesn’t owe you anything.

Bad Thoughts That Will Harm Your Trading

“I should have entered that trade. Would have made myself very good profits there.”

“Why do the trades I take always end up worse than the trades I didn’t take?”

“Wow, if only I had held on to that trade. I would have made so much more.”

“I can’t get over the fact that I could have been at least 2x or 3x more profitable today.”

“If only I didn’t do this-and-that, I would have been so much more profitable today.”

Remember, these are all self-destructive thoughts and are detrimental to your long-term performance as a trader.

Trust me, I’ve been there and have done all that.

The key things to remember are:

Take what the market gives you.
Be content with the profits that you managed to get. Some profits is always better than no profits (or worse, losses).
Win or lose, just stay the course and stick to your strategy.
No need to be too happy when you win a trade, and no need to be disappointed when you lose a trade. Just trade as if you were emotionless.
Trading is a long-term game. You are merely doing your best to ensure that the odds will work out in your favour in the long run.
Nobody can buy at the lowest and sell at the highest.
Even the very best traders lose trades from time to time.
Always focus not primarily on the profits, but on flawless execution of your whole strategy.
Risk management is what keeps you in the game.

React, Don’t Predict

I think one of the best trading advice I’ve ever seen on Twitter is these three words:

React, don’t predict.

Take what the market gives you. React to what the market shows you.

Don’t ever go in with preconceived notions of how this trade will turn out.

Don’t ever say things like:

“This is going to give me at least 2x. I can just feel it.”

“This is the perfect setup I’ve been waiting for. I’m going to make a killing on this trade.”

“I’m holding this trade until I get my 3x. I feel good about this one.”

I think trying to predict anything in trading is a recipe for disaster, for a few reasons:

One, it makes you take emotional decisions despite the conditions hinting otherwise.

Two, it may end up with you going into “revenge trading” mode if your so-called “prediction” doesn’t turn out correct.

So remember, we’re not psychics. We can’t predict the future.

All we can do is come prepared with a solid plan, execute the solid plan to perfection, and learn to take what the market gives to us.

That’s basically what trading is to me – taking whatever you can from the market based on the conditions that are presented to us.

Things Every Trading System Must Have

Anyone who has tried actual live day trading would know how absolutely difficult and frustrating it can be.

I’ve studied literally hundreds of trading strategies, backtested many of them, live traded many of them, lost money on many of them…and I’ve come to the conclusion that every day trading system must address the following things:

[Assumption: You are employing a trend-following strategy.]

Step 1: How are you avoiding ranging markets?

Ranging (or sideways) markets are the major killer of many many trades. And when you lose one trade in a ranging market, you tend to want to take another trade to get even, and you end up losing the second trade and so on. It’s a downward spiral.

Therefore, make very sure your system effectively filters out ranging markets or else you are just giving up all the gains you’ve painstakingly made.

Step 2: How do you know you are in a strong trend?

Only in a strong trend can price be relied upon to continue in the direction you want it to go.

Make sure your system is able to determine if a trend is a strong or a weak one, and only trade when the trend is determined to be a strong one.

Otherwise, you will not be able to hit the profit target that you desire.

Step 3: How do you identify entries in a strong trend?

OK, assuming we have found a strong trend.

We do not just jump in blindly whenever we have found a strong trend.

The best entries are in the “areas of value”, i.e. the pullbacks. You want to enter when price has pulled back, so that your chances of making a good profit are much higher.

You don’t want to enter when the price is at a high point within the strong trend’s ebbs and flows.

Therefore, make sure your system is able to give you the accurate signal on a pullback.

Step 4: How do you know if the strong trend is ending soon?

The thing I particularly hate most is when I enter trades only to realise that I’m now at the tail end of the trend, which means I would lose the trade because the price doesn’t move any further and starts to retrace.

Make sure your system is able to tell you whether the strong trend is reaching its conclusion.

I would highly recommend not doing any live trading unless you have sufficiently addressed the above 4 steps.

I’m not saying it is necessarily easy to solve the above 4 steps, but if they are not addressed clearly, you will inevitably face many painful and frustrating losses, which would either cause you a lot of angst, or make you give up on your strategy altogether.

Choose Two

I believe everyone wants the following three qualities in an ideal day-trading strategy:

High win-rate
High average profit factor per trade
High frequency, i.e. there are many such setups appearing in a day

However, I also believe that you can only realistically only choose two out of the above three qualities with any day-trading strategy.

I have never come across a strategy – and believe me I’ve studied many – that possesses all the above three qualities.

It would literally be the holy grail of strategies.

Strategies with high win-rate and high profitability don’t have frequent setups appearing.

Strategies with high win-rate and frequent setups appearing don’t have high profitability.

Strategies with high profitability and frequent setups appearing don’t have high win-rate.

If you know of a strategy that has all three, I’d love to hear it!

High Win-Rate Or High Profitability?

Which do you prefer – a strategy which gives you a high win-rate or one which gives you higher profitability?

The answer, of course, is “it depends”.

It really depends on what kind of win-rate we’re talking about and what kind of profitability we’re talking about.

Personally, I would rather a high win-rate. Definitely one that is higher than 50%.

In fact, I ideally would want something that is at least 60% or higher.

I would rather a strategy which gives say a 60% win-rate and an overall 30% gain on account after 100 trades, as compared to a strategy which gives a 40% win-rate and an overall 50% gain on account after 100 trades.

It’s just me.

I don’t like experiencing more losing trades than winning trades.

It’s a mental and emotional thing.

I suppose some traders can accept a less-than-50% win-rate.

But I know myself pretty well. I don’t like to lose more than I win, even if the overall profitability may be higher for a lower win-rate.

There are two main reasons for this:

More losing trades leads to emotional vulnerability, and you need to have a really strong mental game to be able to withstand a 40% win-rate.
Emotional vulnerability may lead to revenge trading (i.e. taking ill-advised trades which leads to even more losses).

Important Lesson Learnt

Just learnt an important lesson recently, after going through a day of higher than expected losses.

The lesson is: Create an extremely stringent set of rules so that it completely filters out any discretion whatsoever.

Because if your strategy rules aren’t stringent enough, after some losses you may end up wanting to take more and more trades just to “get back” at your initial losses, and these trades may be ill-advised ones.

And it makes you even more upset when you lose even more.

This is just my own experience.

I personally feel it would be better for me to have multiple stringent rules and indicators so that I don’t take bad trades and start getting upset and want to trade more.

To be more specific, in my case here I’m talking about using multiple indicators to make absolutely sure that I’m in a legit trend (and not in consolidation) before taking a trade.