As we enter the new year, it’s a time for reflection on our performance as traders in the past year. This presents an opportunity to set fresh goals and strive for improvement and excellence in 2023
For those who faced challenges in 2022, it’s a chance to start anew and adopt a new mindset and approach to trading. This includes letting go of any hindering habits and taking a fresh approach to each trade.
For those who saw success and growth, it’s a chance to analyze their trading methodologies and eliminate any lingering bad habits, while continuing to refine the good habits that have contributed to their success.
Regardless of whether you’re a seasoned trader with a decade of experience or a beginner, it’s important to set clear goals, both at the start of the year and throughout the year. As you continue to grow in knowledge and skills, it’s also crucial to regularly modify your trading plan. This is something I personally practice and highly recommend.
Focus on one single trading strategy or chart pattern until you completely master it.
Adopting a singular focus when it comes to trading strategies can lead to greater mastery and success. Instead of spreading your attention across multiple strategies, concentrate your efforts on thoroughly studying and trading a single price action signal or pattern.
Aim to master your chosen technique and make it your own. Once you have demonstrated mastery through consistent success, you may consider incorporating another price action signal or pattern into your trading approach. It is important to resist the urge to frequently switch strategies and stay committed to your chosen approach. By dedicating yourself fully to a single technique, you are more likely to achieve your trading goals.
Reduce the amount of time you spend trading and increase the amount of time you spend learning about trading.
In my initial days as a trader, I was overly dedicated to the point where I would spend up to 14 hours a day monitoring my computer or phone screens, watching for trade opportunities, monitoring open trades, and constantly entering and exiting trades. I had no control over my emotions and neither do the majority of traders, as evidenced by statistics showing that 95% of traders struggle with similar issues.
Unfortunately, many traders tend to become addicted to trading, much like a gambler fixated on casino games. It’s important to note that regardless of one’s intelligence, education, or past success, anyone can fall prey to trading addiction. If you find yourself spending all your free time analyzing charts or obsessing over open trades, you risk damaging your trading career and eroding your trading account balance.
Contrary to what some may believe, I only dedicate less than an hour a day to analyzing charts and making trading decisions. Constantly monitoring the markets or trades serves no purpose as one has no control over their outcome. Trading can often be tedious and uneventful. I advise against seeking excitement or action in the markets as it is not a reliable source.
Get rid of your personal confirmation bias when it comes to trades and the market in general.
It may come as a surprise, but the way you perceive the market can vary based on two key factors: whether you are currently in a trade or actively seeking one. This phenomenon, known as “confirmation bias,” is a common human trait that requires significant practice and experience to overcome. Traders often make mistakes due to this built-in bias in their perspective.
For instance, if you buy gold and it increases by $20 in a day, you may feel confident. But if the next day you come across a news article announcing a war in Iran, and you become even more confident as a result, this is an example of confirmation bias. On the other hand, if you buy gold and it decreases by $20, and you see news that the war with Iran was averted and the price of gold is expected to drop, you may feel even more discouraged.
It’s important to note that whether gold went up or down, or whether the news was positive or negative, had no impact on your initial trade entry and the price action setup you used to make that entry. However, 95% of traders still develop a bias based on such “confirming factors.”
The solution is simple in theory but challenging to put into practice: approach every trade decision with complete neutrality, devoid of any bias or attachment. In a sense, this means acting in an almost unemotional, robotic manner.
As human beings, we have evolved over billions of years and have a natural way of thinking and operating. The financial markets, on the other hand, are a game created by humans, not part of our organic evolution. To succeed in the markets, we must learn its rules and master our emotions.
So, the next time you’re in a trade or about to enter one, don’t be influenced by external sources like news articles or videos on YouTube. The only person who should determine the outcome of a trade is you.
Recency Bias should be avoided.
Recency bias refers to the belief that current events or recent past trends will persist in the future. This bias is prevalent in trading, where traders become convinced that a market that has been trending upward for a significant period of time will continue to do so. This is a common human tendency to cling to what is happening now and ignore any countervailing evidence or alternative scenarios.
For instance, a trader who has been enjoying a winning streak for three months may become overly confident and start to believe they are unstoppable. As a result, they may increase their risk exposure to unacceptable levels, deviate from their trading plan, and forget their established business rules.
However, traders who are influenced by recency bias tend to alter their trading approach and deviate from what brought them recent success, leading to the undoing of their gains and sometimes even more significant losses. To avoid this pitfall, it is crucial to maintain perspective and approach every trade with a fresh mindset, adhering to your rules and processes at all times.
Write down your big goals as affirmations and read them aloud to yourself once every few days.
The use of affirmations, as espoused by prominent success and business authors such as Napoleon Hill and Carnegie, remains an effective tool for achieving personal and professional goals. To fully leverage the power of affirmations, it is recommended to write down specific and measurable goals on paper, and recite them daily, either in the morning or evening.
Goal setting with affirmations requires more effort than simply writing down a vague wish, such as “I want to be rich” or “I want to be a successful trader.” Instead, the affirmations should be well-crafted, with a focus on forward-looking, positively assumptive, or self-commanding statements. Examples of such affirmations include:
- “I will become a profitable trader by consistently managing my risk and emotions.”
- “I am a professional trader.”
- “I must approach trading like a business.”
- “I do not know the outcome of each trade, but I will strictly follow my trading plan without exception.”
Slow everything down.
To benefit from substantial trades with high risk-reward ratios, you must be willing to hold your positions for longer, even when it feels uncomfortable and stressful.
Avoid becoming frustrated by hindsight and give your trades the time and space to mature and yield results. Don’t rush to reap the rewards before they are ripe and don’t let temporary negative circumstances cause you to panic.
Think of trading as nurturing a fruit tree, allowing it time to grow and produce fruit. The market operates at a slower pace than you might imagine, so be patient and give it room to move.
Slowing down your trading has several benefits, including reducing the risk of over-trading and churning your account, reducing the chance of trading during periods of choppy price action, reducing the risk of addiction to trading, and allowing for a few solid trades a month to build a substantial trading account over the long-term. Embracing a professional trader’s mindset means embracing a slower pace and focusing on quality over quantity.
Don’t pass up trades.
As a trader, your ability to seize upon profitable trade opportunities is what defines your success. Unfortunately, many traders find themselves paralyzed in the face of a promising trade setup, either due to indecision or second-guessing. All too often, these missed opportunities turn out to be winning trades, leaving you feeling regretful and out of the market.
It’s important to understand that the outcome of each trade is inherently unpredictable and randomly distributed over time. Instead of trying to predict which trades will be winners or losers, focus on building your confidence in taking trades that align with your established trading plan. This way, you can capitalize on the edge you have identified and profit from it. Deviating from your plan or avoiding trade setups due to fear or self-doubt will ultimately undermine your edge and hinder your success as a trader.
Exit trades when they are close to your target.
In addressing a common concern among traders, missing out on profit targets or turning winners into losers, there are several strategies that can be implemented to mitigate these issues.
One option is to exit the trade slightly before the predetermined profit target level. This helps to avoid extended periods of anxiety as the market approaches the exit point, without reaching it precisely.
Additionally, modifying the profit target by a small margin, such as 10 pips less than the initial level, can lead to a higher likelihood of profit targets being achieved.
To further enhance confidence, traders may consider seeking lower reward-to-risk ratios, such as 1 to 1 or 1.5 to 1, for a set number of trades. Monitoring the performance of these trades can provide valuable insights for adjusting reward-to-risk ratios in the future.
While this approach may not be sustainable in the long-term, it can be an effective way to build confidence and gain valuable experience.
Risk the same every trade
Poor capital management, specifically the amount of risk per trade, is the primary cause of failure among traders. While it may not be the most exciting topic, proper capital management is critical for sustained success.
It is important to establish a fixed dollar amount for risk per trade and adhere to it until reaching 50 to 100 R in total profit units over a 12-month period. There is no reason to increase the risk amount on a trade if one cannot demonstrate profitability over an extended period.
Before impulsively increasing the risk on a trade, it is crucial to consider the long-term impact on one’s bank balance. Until a proven track record of profitability and confidence in one’s approach is established, it is advisable to stick to the predetermined risk amount outlined in the trading plan.
Avoid trading in markets where you should not be.
The world of trading offers numerous markets, each accessible with just a few clicks. However, not all markets have equal liquidity and size, which affects their viability. It is advisable to stick to the most liquid and widely followed markets, such as the major foreign exchange currencies, stock indices, gold, and oil, as these are the markets that professionals trade. Trading exotic markets, such as the Turkish Lira, may not offer the same long-term benefits as trading more established markets such as the Euro Dollar. It is recommended to focus on a select list of markets that have proven to be reliable, including the EUR/USD, GBP/USD, USD/JPY, AUD/USD, NZD/USD, EUR/JPY, GBP/JPY, Crude Oil, Gold, S&P 500, Hang Seng, SPI 200, and DAX.
Consider what you did well and what you did poorly.
Rewrite: Reflect on Your Trading Successes:
It’s important to acknowledge your achievements in trading over the past year. Consider what you did well and take pride in those accomplishments. Maintaining discipline in trading is a challenging task, so if you were able to stick to your strategy even partially, make sure to continue doing so in the future.
Assess Your Trading Shortcomings:
In order to improve your trading this year, it’s essential to reflect on your mistakes from the past year. A professional trader once advised me to focus less on my losing trades and even less on my winning trades. This means that every market situation is unique and no two trades will ever be exactly the same.
Traders often fail by repeating the same errors and not learning from them. Thus, it’s important to make a conscious effort to change this year. Are you making impulsive trade decisions based on emotions like fear or greed? Are you taking on too much risk per trade? Are you constantly changing your trading strategies and not following your trade entry rules?
The key to successful trading is making a deliberate decision to improve. Most trading mistakes that lead to losses can be prevented by self-control and adhering to your plan and rules. This involves approaching trading as a professional business.
Create a strategy for improvement.
Advancement is crucial in both trading and life. Eliminate recurring trading errors, such as lack of valid trade signals, excessive risk-taking, emotional and impulsive decisions, and lack of self-control. These common mistakes often lead to failure.
The key to successful trading is having a solid strategy, following a plan, and having the discipline and mental fortitude to persist in following it, allowing winning trades to compensate for losses.
If you encountered difficulties last year, now is the ideal time to assess your strengths and weaknesses and work on improvement. Don’t repeat the same mistakes a year from now. Take action now to secure a successful future.
I hope today’s lesson will inspire you to reflect on your successes and challenges in the past year and create a list of goals and affirmations for the rest of this year. This exercise can help steer your trading in the right direction.
What’s your biggest challenge in the market currently?
What area of your trading do you want to improve in the next year?
What’s your primary goal for 2023?
Do you have daily affirmations to boost your confidence and motivate you?
Please share your answers in the comments section. By doing so, you not only hold yourself accountable but also support fellow traders by showing them they’re not alone in facing challenges and pursuing goals.