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:

  1. Your strategy will NOT work all the time. There will be times it loses.
  2. Your strategy will NOT be able to catch every single move. There will be moves that your strategy just cannot catch.
  3. 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.

Things I’ve Learnt About Trading

  1. 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.
  2. 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.
  3. 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.)
  4. 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.
  5. 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.
  6. Even the world’s best traders suffer losses. Nobody can consistently buy at the lowest and sell at the highest.
  7. 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.
  8. 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.
  9. 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.
  10. A mental stop-loss is probably not a good idea.
  11. Trading against the trend is usually not a good idea.
  12. 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.
  13. 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.
  14. When you hit a string of losses, you will be glad your bet sizes were kept small.
  15. 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.
  16. 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.
  17. 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.
  18. Risk management is what keeps you in the game. Revenge trading only hastens the blowing up of your account.
  19. 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.
  20. 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.
  21. 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.
  22. 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:

  1. Take what the market gives you.
  2. Be content with the profits that you managed to get. Some profits is always better than no profits (or worse, losses).
  3. Win or lose, just stay the course and stick to your strategy.
  4. 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.
  5. 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.
  6. Nobody can buy at the lowest and sell at the highest.
  7. Even the very best traders lose trades from time to time.
  8. Always focus not primarily on the profits, but on flawless execution of your whole strategy.
  9. 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.

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:

  1. 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.
  2. 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.

A Mental Trick To Handle Losses

Here’s a mental trick which I like to use to help manage my mindset when trading, and to help me take losses better.

If you’ve traded long enough, you would know that “revenge trading” is one of the most dangerous mindsets to lapse into when day trading.

Once you start losing (especially if you lose big), you feel angry and you want to hulk smash everything and take risky trades just to get back to breakeven.

Which would obviously lead to even further destruction.

So, what’s the mental trick?

Well, before I go further, I have to first state that the number one rule to prevent lapsing into revenge trading is to keep your risk per trade small.

Small position sizes make you far less attached to every trade, and make you less angry when you lose them.

OK so here’s the mental trick I use:

Before I take any trade, I will determine my remaining account balance assuming I lose the trade and ask myself: “Are you OK with having this remaining account balance assuming you lose this trade?”

If the answer is “Yes”, then I will proceed with the trade.

For example, assume I have an account size of $10,000 and my bet size is $100:

Before jumping into the trade, I will ask myself if I am OK if I am left with $9,900 in the event this trade is a loss.

This makes me mentally prepared in the eventuality that the trade turns out to be a losing one.

And I’ve found that this mental trick serves me quite well in handling losses.

Most of the time, we take trades only thinking that it will be a winning trade, and we refuse to entertain the thought of the trade being a losing one.

And when we see our remaining account balance after a loss, our emotions simply cannot handle it.

Professional Loss Taker

I like this term a lot – “Professional Loss Taker”.

I feel it’s a great mindset to have when trading, because you will have to deal with losses whether you like it or not.

If you simply cannot stand losing trades, then perhaps you shouldn’t be trading.

Handling Losing

In my opinion, the greatest NBA season ever was the 72-10 Bulls season in 1995-96.

It’s even greater than the 73-9 Warriors team in 2015-16 because the 72-10 Bulls actually won the title that year.

But this is not a discussion on who the greatest basketball team was.

My point is that even in the 72-10 Bulls season where they won the title, they still lost 10 games in the regular season and 3 games in the post-season.

They. Still. Lost. Games.

Similarly, in trading, you will lose trades.

The sooner you accept the fact that you will lose some trades, the better it will be for you.

I have to admit I’m not totally accustomed to losing trades. In fact, I hate losing trades.

Nobody likes to lose, especially when there is money at stake.

However, you have to accept that it is part of trading.

You will need to lose some trades in order to make an overall profit.

If you absolutely do not want to lose, then trading is not for you.

Trading Should Be Boring

I recently saw this, and I love this quote so much.

It’s so true. You really need to get to the point where trading becomes boring.

You need to be completely emotion-less and not care less whether you won or lost your last trade, knowing that you have a system that will give you an overall nett profit provided you stick to it completely, and trade often enough.

Once you reach the stage where winning or losing each trade means nothing to you, you know you are on the right track.

Trading should be the complete opposite of a roller-coaster ride.