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.

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.

What’s Your Exit Strategy?

The are tons of YouTube videos about the best entry signals for day trading.

However, I feel there is a relative lack of discussion with regards to exit signals.

Which is ironic, because someone once said that the exit strategy is far more important than the entry strategy, and I think that is absolutely true.

You don’t make a single cent from an entry strategy. The exit strategy is where your money is made.

Every exit strategy has its own pros and cons.

Let me try to summarize:

EXIT STRATEGY 1: “SET AND FORGET”

Description: Set a fixed stop-loss (e.g. 1x ATR) and take-profit target (e.g. 2x ATR) and don’t do anything else.

Pros:

Easy to manage. In fact, no management required at all.
Won’t get stopped-out prematurely (as compared to moving up your stop-loss midway through the trade).

Cons:

Potentially frustrating if price comes very close to hitting your profit-target but then it goes all the way down and you end up losing the trade instead.
Determining the optimum take-profit target is tricky. Is it 1.5x? Or 2x? Or 2.5x? A lot of backtesting is required to determine this.

EXIT STRATEGY 2: USING EXIT INDICATORS

Description: There are numerous indicators which can be used as an exit indicator, such as moving average lines, MACD, Parabolic SAR, Heikin Ashi bars, SSL Hybrid, Aroon, etc.

Pros:

Straightforward. No ambiguity.
Occasionally you may catch really huge moves.

Cons:

In my experience, you usually leave significant profits on the table, which can be frustrating. For example, your trade may have gone to 4x profit, but the exit indicator only gives the signal when it comes back down to 2x profit. Also, if the move is a small one, you may actually end up with no profit or even a small loss. Some people may not be able to take this.

EXIT STRATEGY 3: USING A TRAILING STOP-LOSS

Description: This method means you don’t set a profit-target at all. You just let the trailing stop-loss trail price all the way until it comes back down and triggers the trailing stop-loss.

Pros:

Easy to implement. No management required. Just let the trailing stop-loss do all the work for you.
You may catch really big moves.

Cons:

Determining the optimum trailing stop-loss value is a tricky problem. Too big, and you may end up with no profits if the move is a small one. Too small, and the trailing stop-loss may get triggered easily.
Similarly with using exit indicators, you may end up with no profit or even a small loss if the move is a small one.

EXIT STRATEGY 4: TAKING PARTIAL PROFITS

Description: Take off partial profits in tiers when price reaches specific checkpoints, e.g. cash out 25% when it hits 1x profit, cash out 25% when it hits 1.5x profit, and cash out all the remainder when it hits 2x profit.

Pros:

You are wisely putting some money in your pocket as your trade becomes more and more profitable.
Psychologically comforting. You know that even if the trade suddenly goes south, you already have some profits safely cashed out. You will be more willing to let the trade run until it hits your desired take-profit target.

Cons:

Tedious to manage, especially if you have multiple trades going on simultaneously.
You will collect less profits as compared to if you had waited till the final take-profit target to cash out 100%. For example, if you had a profit-target of 2x, you will collect more profits by cashing out 100% of your position at 2x, as compared to taking partial profits along the way.

Apart from the 4 strategies above, you could even do a hybrid strategy where you take partial profits in tiers, and then let the remainder trail with either an exit indicator or a trailing stop-loss.

I’ve spent countless hours pondering over what the best exit strategy for a trade is.

And the conclusion I’ve reached is that there is no one perfect exit strategy.

It depends on factors such as your personality, the style of trading you prefer, your risk appetite, the volatility and nature of the instrument you trade, etc.

If you’re the kind that likes to make your profits slowly, surely and steadily, then maybe Exit Strategy 4 might be best suited for you.

Personally, I don’t really like Exit Strategy 2 and 3 because I just don’t like seeing that I’ve only made 1x profit on a trade that had gone as high as 3x at one point. It just doesn’t sit well with me.

As such, at this point in my trading, and after trying out so many different types of exit strategies, I’m leaning towards Exit Strategy 1 (“Set and Forget”) because despite its simplicity, I actually find it’s one of the most suitable methods for me.

But of course, before you decide to adopt any kind of exit strategy, make sure you do a lot of backtesting first.

Trading Should Be Boring

If you’re trading is becoming boring, you’re probably trading well.
— Sara | The Perceptive Trader (@PerceptivTrader) July 2, 2022

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.

Only Take High-Percentage Shots

In basketball, you always want to take the highest-percentage shot available to you.

A 3-point shot from the logo, or forcing a shot when you are being double-teamed, is considered a low-percentage shot.

Sure, you could still make the shot. But that still doesn’t change the fact that it is a low-percentage shot, and by doing it enough times, you will see that your actual completion rate will be rather low.

A dunk or a lay-up is considered a high-percentage shot because the odds of making it are considered very high.

Sure, there have been missed dunks or missed lay-ups in the NBA, but these are few and far between. And the fact remains that dunks and lay-ups are always going to be high-percentage shots.

My point is that as traders, we always want to take the trades with the highest chance of success.

Sure, you could take a risky trade and still end up winning the trade. It happens.

But the law of large numbers will show you that by doing this often enough, you would end up failing big time.

Play it safe. Be very selective. Be very disciplined.

Don’t take trades which do not match every single criteria of your trading strategy.

At least you will know that the law of large numbers is on your side.

The Battle Is With Yourself

It’s really true what they say – that trading is essentially a battle with yourself.

The strategies are all there. The hard part is making yourself stick 100% to the strategies and staying disciplined.

It’s true that when you are day trading, you are discovering who you really are. What you’re really made of.

Some of the struggles I’m still trying to overcome while trying to trade forex

Learning to NOT trade during Asian session and wait till London session to open before trading.
Jumping into the occasional poorly-planned “quick profit” trade (and ending up losing most of the time).
Feeling frustrated that there aren’t enough good setups to find in a day.
Feeling frustrated that my trade doesn’t shoot up as quickly as I would have liked.

Still got a lot to learn.

A Bad Trade Is…

Just came across a great quote today so I’m writing this down.

“A bad trade is not a trade that you lost. A bad trade is a trade you made without following your system.”

So good. Will always keep this in mind.

Everyone faces losing trades. It’s all part of trading.

No need to feel bad about a losing trade.

No trading system gives you a 100% win-rate.

What you do need to feel bad about, however, is when you take a trade that is totally against your system.

Getting Out Too Early

Backtesting is one thing, but when you’re in an actual trade and it’s going well for you, that’s when emotions start to mess with your head.

I just did a trade which went well right at the start, but instead of holding it till my intended 2x profit target, I got scared and cashed everything out midway through.

It eventually went on to hit the 2x profit target.

I got scared because I saw my real-time gains fluctuating wildly with every second.

Sometimes I’m up by a lot, sometimes I’m up by only a little.

My biggest fear is for a major reversal to take place, for the price to suddenly hit my stop-loss, and for all my theoretical gains to be completely wiped out.

I didn’t have the faith to hold it right till my intended profit target, which worked so well for me on paper in my backtesting.

In other words, I can be fairly confident that the trade I got into would more often than not hit my 2x profit target, but I just got scared midway through and decided it was better to cash out some profits than have none.

This is something I have to work on – managing my emotions during a trade.

To have faith to see it through right till the end.

To have confidence in the results of my backtesting.

It’s a long road ahead. I still have plenty to learn.

Get Stronger

The past week wasn’t a particularly great week for me, trading wise.

Made a few poor decisions, got greedy/impatient and jumped into a few bad trades, took trades which did not perfectly fit my strategy, and needless to say, I ended the week red.

The only thing I’m sort of thankful for was that I did not lose that much.

I mean, don’t get me wrong, it was a significant overall loss nonetheless, but it could definitely have been much worse had I not practised risk management and limited the amount I would lose per trade. (This is why it is always very important to practise risk management in day trading, because it can go really wrong really quickly.)

Bad Things That Happened This Week:

Got impatient as there were very few good setups this week, and ended up jumping into some bad (i.e. losing) trades.
Got greedy when I saw some setups with strong trend indications, and jumped into them even though they did not perfectly fit my entry criteria.
Ended the week red due to poor decisions, and it is not a good feeling.

Good Things That Happened This Week:

Faithfully stuck to my intended stop-loss for each trade. Did not hesitate to exit the trade when my stop-loss target was hit.
Got less and less emotional with each losing trade.
Through my losses, I analysed them and came up with significant adjustments to my strategy which I’m confident will increase my win-rate.

It is obvious that I still have a lot of learn in this game, and I still have a long way to go.

Through my struggles this past week, I came up with a number of adjustments which I’m confident will increase my win-rate (based on the results of new backtesting).

I’m spending this weekend going through my mistakes, analysing the new adjustments that I came up with, and training myself to be an even better day trader next week.

You just have to be resilient in this game.

Take your knocks and get stronger (while not blowing up your account).

Perfect Execution > Winning A Trade

I am of the belief that it is far more satisfying to have executed a trade perfectly, rather than have won a trade.

(When I say “executing perfectly”, I mean you had followed every single step of your strategy.)

When you win a trade, of course that is a good thing.

However, the win could have been due to perfect execution, or it could have been due to pure luck with haphazard execution.

Between “perfect execution” and “winning a trade”, which one leads you to becoming a successful day trader in the long run?

I would say it is “perfect execution”.

Therefore, you should condition your mind to be more pleased with having executed a trade perfectly (regardless of the outcome), rather than getting a win.