Long Posts

The Ultimate Trader’s Guide to 2020 | How to Be the Best Trader You Can Be

Start the new year right with this ultimate guide on how to be the best trader you can be and achieve your goals in the market.

Another year down! And it’s that time again when you’re probably thinking of these new steps and habits that you’re going to do to level up your trading this year, become the best trader you can be, and finally firmly establish yourself as a consistently profitable one.

January is a clean slate and this has a positive effect on us. But, the effect of that fresh slate usually wears off within a few days for some or a few weeks for others.

It’s pretty much a meme at this point that nobody is going to follow through with their new year’s resolution; despite this fact, millions of people around the globe fantasize about changing their lives comes January 1st.

Being a trader, if you actually want this New Year to be the one where you make considerable changes to your life and become the top trader you want to become, then you have to take it seriously.

This means two things:

  1. You need a game plan.
  2. You need to take note of the 6 points I list below.

#1 – System Trumps Discretion

Everyone makes mistakes in life.

Even when we know better, we still make mistakes, sometimes over and over.

In the markets, traders and investors as a whole continually make decisions that economists deem as irrational.

And that’s why the failure rate is so high. (No, it’s not because people trade without an edge, rather it’s because they can’t get themselves to stick with their edge.)

Our brains are not designed to navigate complex financial markets.

Humans have roamed this earth for millions of years. Our ancestors spent most of their time fighting for survival, reproducing, or foraging for food.

It wasn’t until the last millennium that we actually began to use our brains for financial decisions.

The thing is, our brains are really good at dealing with survival out in the open, but it hasn’t had the time yet to get good at making financial decisions.

We see the world through our different biases –confirmation bias, attention bias, anchoring, loss aversion, disposition effect, hindsight bias, get-even-it is, representativeness bias, gambler’s fallacy, framing bias, regret avoidance, and a plethora of others. (See the full list on Wikipedia)

No wonder, then, why traders and investors alike systematically deviate from rational decision-making behavior.

As a trader, this is what I’ve learned over the years: If consistency is your main goal, if you are to become the best trader you can be, the set of rules that make up your trading system must prime over your in-the-moment personal convictions.

Again, you see reality through your biases. And this is especially true in the market… your biases will make you see what you want to see instead of seeing what’s there to see.

So, why take the risk and have your trading results (and your emotional wellbeing) go on this rollercoaster ride when you could get consistent results if you would just stick with your rules?

Because make no mistakes, it’s the systematic adherence to your rules that gets you consistent results, not the other way around.

So, this year, focus on that. Internalize your rules if you have to, but stick with them no matter what, and focus on execution. It’s unglamorous, unremarkable, and boring, but that’s the point.

#2 – Pain is Important; Feel It, Don’t Block It

This year, like all others, there will be pain; there will be losses.

I can’t say this enough: Losses are part of the process of trading. You won’t be able to become the great trader you wish you become if you don’t come to terms with this fact.

We all have this natural urge to protect ourselves from pain and difficulty, to curl up in a ball or to lash out in frustration.

But this year, I want you to adopt a different approach.

When pain peeks its head, welcome it, and vow to let it be and to embrace it with gratitude and maybe a smile.

In one of his many essays, German philosopher Nietzsche writes:

To those human beings who are of any concern to me I wish suffering, desolation, sickness, ill-treatment, indignities — I wish that they should not remain unfamiliar with profound self-contempt, the torture of self-mistrust, the wretchedness of the vanquished: I have no pity for them, because I wish them the only thing that can prove today whether one is worth anything or not — that one endures.

Nietzsche believed that difficulty (pain) and joy operated in some sort of osmotic relationship, and diminishing one would also diminish the other.

So, he routinely wished upon everyone to go through pain and hardship because, otherwise, one cannot master the ingredients of fulfillment.

Nietzsche thought that the belief that fulfillment must come easily led us to withdraw too early from challenges that might have been overcome if only we saw pain as a necessary demand by almost everything worth accomplishing.

When we deprive ourselves of the challenges that will help us grow intellectually, emotionally, or physically, we also deprive ourselves of the chance to know what we are made of, to learn to cope with life’s inevitable difficulties, to develop our grit.

In other words, we stagnate.

So, all in all, I’m not telling you to jump for joy the next time you reap a trading loss. I’m just saying that in these moments of vulnerability, you can actually find a lot more wisdom, strength, gratitude, and perspective than you think you might have if you can remember that pain is just there to help you grow.

#3 – Focus on trading well

When traders can’t stop themselves from making trading errors, it’s because their primary goal is to make money.

You’ve got to understand this: when you focus too much on what’s earned and what’s lost, you’re going to stress out unnecessarily and your results won’t be as fruitful as if you had a more detached approach.

If you crave money, you’ll fear losing it; hence, you won’t be able to relax. You’ll get agitated very easily by adverse market moves, and your execution will be inconsistent.

At this point, you’re just ruled by your emotions. This is not a way to be in the market.

This year, if you can take your focus off of money and instead put it on trading well and being consistent, you’ll get much better results.

The traders that are openly obsessed about money are the most neurotic people in the world. They don’t have peace of mind. And that’s why they fail.

That’s because money is their primary goal.

I’m speaking from experience. Money used to be a primary goal for me. This would make me identify with my trades and I just couldn’t relax.

Eventually, I learned that such an approach wasn’t optimal.

Now, my primary focus is on placing good trades. Winners or losers… it doesn’t matter because a good trade is one that is backed by a plan. Simple as that.

So, this year, can you trade without putting too much emphasis on what you ought to win or lose?

The best traders can, believe it or not. And that’s why they excel at what they do.

If you can focus on developing such an ability to detach yourself from the value of money, your results will come together.

#4 – Don’t Trade Unless You Get a Clear Signal

Warren Buffett once said that his stellar investing performance would have been even more impressive if he went more to the movies.

What he’s essentially saying is that he spent too much time in his office watching his investments, and this caused him to want to ‘overtrade.’

If he had just spent more time at the movies and not thinking about his investments, he would probably have made fewer and smarter decisions and would have gotten better results.

This shows you that even the best of us, guys like Warren Buffett, Howard Marks, or even Paul Tudor Jones, succumb to these behavioral biases I mentioned above.

So, I hope the message is clear: don’t actively try to find reasons to trade. Let trades come to you.

You should create a watch list with a couple of names you like to trade. Only focus on those names and go through the list on a daily or weekly basis to see which one is setting up.

That’s it. If you want to be the best trader you can be, begin by acting like one.

No mental gymnastics is required. Stay consistent.

#5 – Cut Out the Noise

As a trader, sometimes you have to live in your own echo chamber.

The reason is that, from a behavioral standpoint, you were born to be a sheep; to follow the consensus; to fit in.

That’s just how we are as humans.

But, trading requires you to stand out. And it’s easier to do so when you cut out the noise from your trading.

Tuning out the news is a good start.

Good news tends to make us excited and buy high out of greed; bad news tends to make us depressed and sell low out of fear.

As you see, news brings a level of noise in your mind and your trading process that you could do without.

So, tuning it out is certainly one of the best decisions you can make this year.

Then, if you’re used to sharing your trade ideas with random strangers on social media, try not doing it this year and see how you do at the level of your state of mind but also in terms of your performance.

I’m willing to bet those two steps will improve in some measure because when you’re keeping it to yourself, others’ opinions won’t sway your decisions and plan.

That’s the thing with people… when you’re wrong, they think you have shit for brains. When you’re right, they say its luck… unless you have a certain number of followers who worship you uncritically, then, if you’re right, they’ll ignore the previous 100+ times when you were wrong and you’ll be celebrated as a hero.

It’s madness! Personally, it’s a fool’s game I’d rather not play, and I suggest you don’t play it as well.

#6 – Set a Time Limit for Trading

Being a full-time trader doesn’t mean that you have to stay in front of the screen all day.

If you do so, you will undoubtedly end up shooting yourself in the foot.

Trust me on this… I have done it too many times.

Nowadays, I spend no more than 2 hours in front of my trading desk and I can’t emphasize enough how much of a game-changer this has been for me. It’s protected me against myself and I’m a much healthier, happier, and profitable trader as a result.

Here’s how my typical trading day unfolds:

I wake up at the same time every day (usually 6 a.m.), I stretch, and I take a sip of water.

Sometimes I take a quick shower, sometimes I don’t, but in any case, right after, I will sit and meditate for 20-30 minutes.

Then I’ll have a coffee and I’ll put on some coffee shop tunes on Spotify (calm, soothing and peace-inducing tunes, nothing too sad or happy) and I’ll set things up – I’ll set up my trade station, look at futures, review my plan and open positions, etc…

As the market opens, I’ll stay there and watch how price action unfolds. I’ll close some long term positions and initiate new ones; I’ll also be on the lookout for day trades.

Two hours in, I’m usually out of any day trades. If I’m not, I’ll set contingent orders, and then I’ll close my trading platform.

If I have stuff to do on the computer, like emails, blog posts, recording my trades, etc., I’ll stay there for a while; if not, I usually leave for the gym right after, followed by a yoga class.

That’s how my typical Monday-to-Friday mornings go. Then, I’ll usually do my trade research late in the afternoon.

As you see, I use active trading hours to simply execute my plan.

Such planning and time away from screens saves me from potential self-sabotaging behaviors.

But whenever I am trading, I am fully there… I am 100% committed to the task. My beliefs, state of mind, and actions are aligned so that I am able to execute my plan to the fullest extent of my abilities.

This more balanced approach to trading has definitely changed my whole experience of trading; it’s helped me become the best trader I can be, and I now approach the markets in a more relaxed way — and my results show.

So, this year, work in a way that makes this whole trading thing sustainable.

  • Prioritize health — physical and mental
  • Focus on quality vs quantity
  • Think process
  • Think consistency
  • Trust your plan

If you can do that, I guarantee you’ll see some significant changes this year and you’ll be closer to being the best trader you can be.

Conclusion

People often set their sights on an unrealistic overnight success.

But, whether you’re a trader or investor, success in the market is about planning and being able to stay the course. It’s about consistency, and that consistency starts with you.

If you don’t maintain a level of consistency in what you do, you will never be able to make the progress, become the best trader you can be, and achieve the results you desire.

This is why so many successful traders talk about the importance of consistency in their approach – whether it is in regards to the adherence to their trading system or in the work that they do on themselves to expand their mind and become more enlightened versions of themselves.

So, this year, focus on consistency and invest in yourself.  This is one of the best investments you’ll make. Set yourself on this mission. This is the real Holy Grail.

A few books I suggest reading this year:

The Incerto Collection by Nassim Nicholas Taleb

The Hour Between Dog and Wolf by John Coates

The Behavioral Investor by Daniel Crosby

Mindfulness in Plain English by Bhante Henepola Gunaratana

The Little Book of Stoicism by Jonas Salzgeber

The Four Agreements by Don Miguel Ruiz

Read them; reflect on them; internalize them; embody the lessons…

Eventually, if you reach a point where you want to dive deeper, then maybe consider enrolling in the Trading Psychology Mastery Course.

In there, I help you develop a trader’s mindset.

Lastly, I’m releasing a free mini-course before the end of the month called The Psychology of Risk for Traders.

In this course, we’ll see how to develop a more thoughtful approach to risk management so that you can begin to manage uncertainty and minimize adverse events more effectively, in the market, but more broadly in your life.

This course will be a nice complement to the things we see in the Trading Psychology Mastery Course.

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Yvan
I've been trading for a living since 2006. By merging mindfulness (an in-depth study of the mind and its tendencies in the present moment), a good trading process, and an efficient business practice, I went from being a losing trader to a consistently profitable one. Through my work here at Trading Composure, I aim at helping you do the same.
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