Trading Success

While it is important to remain focused each and every trading day, it is equally important to remain focused on the big picture. One losing trade (or day) should not be a surprise. It is a part of trading. Nor should one winning trade (or day) be cause for a celebration. It’s just one step along the path to long-term profitability. Because trading is a business, it is the cumulative profits that matter.

Win or lose, trading is just another day at the office. Once a trader accepts that wins and losses are part of the business, it is easier to keep emotions in check.

Setting realistic goals is an essential part of keeping trading in perspective. If a trader has a small trading account, for example, it would not be reasonable to expect huge returns: a 30% return on a $5,000 account is much different than a 30% return on a $1 million account. It is helpful to remember that the multimillion-dollar traders are the exception, not the norm. Most traders who survive the tough part of the learning curve are able to make a comfortable living.

Always use a trading plan

A new trader would not have to look far to come across the well-known saying, “Plan your trade and trade your plan.”

The first part — plan your trade — is accomplished through a trading plan: A written set of rules that defines entry, exit and money management criteria. Good trading plans often are based on experience or market observations and developed through research and exhaustive testing. While it is time-consuming and challenging to develop a profitable plan, a major advantage is the consistency it delivers.

The second part — trade your plan — for many traders, as difficult as developing a trading plan. Trade your plan means following your trading plan exactly, without making excuses, second-guessing or otherwise deviating from the rules that were so painstakingly created. Taking trades that fall outside the plan is considered bad trading, even if they turn out to be profitable.

** A trade-plan was created by a fellow trader and posted on Facebook. As you can see from the trade-plan using PPTA, a short signal was identified.

** Did the trader and other fellow traders with the same trade plan execute their plan accordingly? This is where this phrase will come into the picture: “Plan your trade and trade your plan.”

** Trade plan for ES -- GAP Fib together with risk management

** Trade plan for Nikkei 225 -- FIB waves together with risk management

Manage risk and protect capital

Properly managing risk and protecting trading capital is what keeps traders in the game.

Trading with a stop loss is a way to manage risk and protect capital. A stop loss limits the risk that a trader is exposed to for each trade. We all would like to always exit with a profit, but that is not realistic. Because losing trades are inevitable, it makes sense to know how big those trades are going to be. If the trade moves in the wrong direction, it is closed and the trader moves on to the next opportunity.

Being undercapitalized — not having enough money — is perhaps the primary reason why many traders fail. This is for a couple of reasons. One is that traders need money to make money. Imagine a trader makes a 30% gain in one year. That might be enough to live off if it’s based on a $200,000 account. However, 30% of a $5,000 account is not enough to pay the bills. Being undercapitalized also is detrimental because it becomes impossible to withstand the inevitable drawdowns. Again, it wouldn’t take many losing trades in a row to wipe out a small account.