In this post, I share 4 tips on how to improve your trading performance. If you can follow these 4 steps, you’ll be a way more relaxed and clear-headed trader.
The end of the year isn’t quite here yet but it’s just around the corner, and traders everywhere have entered crunch time – they feel pressured to do whatever they can to close the year with a trading performance they can feel proud of.
But, in this situation, one of the most counterproductive things you can do is worry and let yourself be pressured.
Worrying causes you to not think straight. And, while the need to have something to show at the end of the year is understandable, often, this also sets traders up for overtrading, also known as impulsive or emotional trading, which usually ends up making things much, much worse.
Of course, worrying is natural and you can’t really stop it from happening. But, when it does happen, you can learn to control it, work with it, see through it, and take the right type of action with a clear head.
No matter who you are, if the habit of worrying isn’t systematically eliminated from your life you will have a very hard time building a long-lasting and fulfilling trading career.
Mark my words ―I speak from experience.
That said, here are four tips to help you eliminate worry and the pressure to perform so that you can really improve your trading performance during these two remaining months until the end of the year.
Step 1: Notice the Habit
Get into the habit of noticing your habit of worrying and overthinking.
Meditation is a very powerful practice that can help you develop this habit of stepping back and noticing.
You see, very often, we’re just stuck in our heads. We trust indiscriminately the endless parade of thoughts flitting through our heads, and eventually, they make us more neurotic, unhappy, depressed…
One of the fundamental tenets of mindfulness is that we all take our thoughts way too seriously.
So, with a consistent meditation practice, we can begin to develop the habit of noticing the patterns of our minds so that we’re not automatically caught in all of it.
Ultimately, consistent profitability in trading comes down to a choice.
Do you let moods, emotions, and random thoughts drive your behavior and determine your trading performance or do you let yourself be guided by strategy, planning, clear-thinking, and process?
When the former and the latter conflict—and they will—only one can be satisfied.
But, mindfulness, when turned into a habit, can increase your ability to make wiser choices, hence, choose your strategy over your emotions with more ease.
So, don’t ignore meditation. Put in the time and effort, and practice it on a regular basis. You will see the benefits.
Step 2: Understand what’s Realistically Possible
When I first begin trading about 14 years ago, I came in with unrealistic expectations and a rather poor understanding of what consistency means in this business.
Although I knew there would be losses here and there, I somehow thought that by placing good trades, I would escape the pain of losses, not thinking that good trades can and do often turn out badly.
We can’t control the market and there’s an uncertainty component baked into price that no amount of analysis, preparation, or insight can dispel.
The reality of trading is that we don’t always get what we want, and this is just part of life.
So, I had to go through a progressive adjustment in what I believed consistency meant.
In trading, consistency doesn’t mean making money every day, week or month.
Of course, you strive to make it happen as much as you humanly can (by placing good trades, managing risk, and minimizing trading errors) but it cannot be something you reliably achieve.
The markets are ever-changing, and your strategy just won’t catch every move.
So, as a trader, you need to know what your strategy is better suited for?
- Is it slow, calm trending markets?
- Is it fast, volatile trending markets?
- is it sideways, rangebound markets?
You should be crystal clear about what your strategy is better designed to trade and stick with that.
That said, if your strategy performs better in slow and calm trending markets, sometimes, you’ll have months of sideways, rangebound action.
When that happens, chances are that your trading performance isn’t going to be stellar this year.
So, consistency is really about the very long term picture.
Do you make money over many, many trades? That’s what it’s all about, it’s making more money than you lose overall, and that’s what you should focus on. That’s how you improve your trading performance.
Step 3: Don’t Focus on Money, Focus on Trading Well
Now, what if you screwed up a bunch of times?
What if you didn’t follow your plan and overtraded and now you’re in negative territory for the year because of that?
Well, here’s the thing. I’m willing to bet that you screwed up a bunch of times this year because your focus was on the money.
You see, trading doesn’t have to be that complicated. The idea is very simple: given that something has happened a fair number of times in the past, what amount of money are you willing to risk to figure out if it’s going to happen this time around?
That’s what it is about.
The problem is that you want the money so badly, hence, you’re afraid of losing it, you have fear of missing out… and because of that you’re not a rational actor in the market.
To become a money-making trader (and not a money-losing one), you must shift your perspective from money-oriented to process-oriented.
Think of money as simply a way to keep scores.
When you trade for the love of it, and not merely for the money, you tend to do a better job.
Don’t get me wrong, money is indeed important. It represents security, status… it’s a very useful tool and is important to the project of human happiness.
But the paradox in trading is that the less you obsess about money (the outcome), the easier the endeavor of trading, and the better your trading performance.
Also, coming back to screwing up, you have to accept mistakes as part of the learning experience.
In trading, you can make quite a few mistakes and still get away with it. The only mistake that’ll eventually get you booted out of the game is in regards to risk management.
This is where you have to be firm and uncompromising.
So, manage your risk, and try not to beat yourself too much when you make mistakes. As long as you have ammunition (capital), you’re still in the game and every trade that you place, win or loss, is teaching you a lesson. Which brings you closer to mastery and bettering your trading performance.
Step 4: Identify, Prepare, Improve
Ask yourself this question:
What’s the worst thing that could possibly happen if I close the year with a negative performance?
Whatever your answer is, really visualize this happening.
Then, prepare yourself to accept the worst
Say, your trading performance is negative this year. You’re in a 30% drawdown.
Take a deep breath and mentally picture that, and accept that it actually happened.
You don’t have to like it; just accept it.
Now that you’ve already visualized and accepted the worst possible outcome, calmly try to improve upon it worry-free.
Put your mind at ease and try as best as you can during those two remaining months to maybe improve your performance by 5%.
In comparison to your -30%, that’s awesome, you’ve gained 5%.
Even if this is as far as you get this year, it’ll show you that with discipline and a clear mind, free from worry, you can improve your performance within what is in your control and possible.
This will motivate you to do even better next year.
The road to success in trading is not straightforward. But, I dare to say, there is a surefire way to make the path a little less rocky.
- First, worry less; become more self-aware
- Second, understand the game you’re playing. And understand it REALLY well.
- Third, don’t focus on money; be uncompromising with risk management.
- Fourth, ask yourself “what’s the worst possible thing that can happen?”, prepare yourself to accept the worst, and calmly try to improve upon the worst.
If you follow these 4 steps, you’ll be way more relaxed and clear-headed in the market.
I’ve been running Trading Composure for 5 years, and I’ve seen and worked with so many traders who struggled with trading for a number of years.
For some, the breakthrough never happened.
For others, it did. They put in the time and effort; they managed their desire to get rich quick, they traded small enough to stay in the game and keep learning, and they made this a lifelong journey.
Over time, they changed; they adapted; they evolved… and when they finally improved their trading performance, they were left scratching their heads at how obvious it all was.
The ‘secret’ to consistent profitability was hiding in plain sight all along… they just needed to seize it.