10 Ways to Stay Focused
For Real-Time Traders
Disclaimer & Risk Warning
Trading can result in a serious increase of wealth, but always involves risk. You should never trade with money you can't afford to lose. This ebook is meant for general information purposes only. Examples are provided for illustrative purposes only and should not be construed as investment advice or strategy. Past performance is not indicative of future results. Although every effort has been made to assure accuracy, the publishers can assume no responsibility for errors or omissions. The publishers or content providers will not be liable for any damages of any kind whatsoever with respect to the service, material and products provided herein.
Introduction
Interesting, how people given the exact same chance and circumstance can reach entirely different outcomes.
If you give two different traders the same starting capital, the same platform, same market, the same trading strategies and the same specific rules, after six weeks one will be up 23% while the other is down 38%. Why? Because every person is unique. This is why we believe the secret to success is within ourselves, and each and every individual is in absolute control of their own trading success.
So, after several conversations with successful traders, we created this “top 10” list. A few items you may already know, but several are new and all of it is valuable.
1. The Truth
Trading isn’t a random game of chance, but a wager of probability.
If you’re flipping a penny, there's a 50/50 chance it will land with heads facing up and a 50/50 chance tails will be facing up. If I were betting against you - heads I win a dollar, tails you win a dollar, after several rounds neither of us would've won or lost any money.
Now imagine you have a loaded penny. For every 100 throws, heads is up 47 times and tails is up 53 times. This is the closest thing in the world to being able to legally print your own money. If you bet on tails forever, you’ll eventually win all my money and anyone else’s who bet against you.
Trading systems are designed to give you a “loaded penny”. An advantage based on probability. An outcome that is more likely to happen than not. Any trading system, whether you use pattern breakouts, trend-following, Fibonacci, moving averages, channel following, oscillator signals, Bollinger bands, swing trading or opening gaps, you are depending on that “loaded penny”. It’s a trading strategies based on the logic of “when THIS happens… THAT usually follows.” Sometimes it doesn't, more often it does. Adopt a system that can help you identify high probability trades, enter them correctly, and protect yourself while allowing your profits to grow.
Sure, some trading systems are better than others. But don't get preoccupied with finding the “perfect system”... that elusive pot of gold at the end of the rainbow that guarantees profit and never, ever gets it wrong. Be realistic with your expectations and find a trading system that you understand and feel comfortable with. Then stick with it and be consistent.
Any average system will make money for a trader that's cool, collected and under control. But an anxious trader who is inconsistent or easily spooked will make the most brilliant system fall apart. All traders have good days and bad days when it comes to making money. Many days will close with small profits and many with small losses. Then one or two days a month you’ll make a really big profit. That's how you make money trading.
Even with our "Loaded Penny" trading system, you never know when the big trades are about to happen. The one time you don't take the trade is exactly the time the market takes off and never looks back. It can happen to anyone. That's why it’s imperative that you see the bigger picture. The current trade is insignificant because it's only one of many. It's merely a single star among thousands in a huge galaxy. It's more important to manage your risk, and then surrender yourself to the Universal Law of Probability.
2. The Plan
Your job as a trader is to follow a trading plan.
It needs to be written down and on your trading desk in front you. Who’s going to write it? You are. Your trading system will give you the rules to follow. All you do is translate them into a plan.
A trading plan has three parts: Setup, Entry and Exit. A good trading plan covers every eventuality. You know what to look for in the market, when to get into a trade and when to get out. Just keep it simple and follow it religiously
There are literally hundreds of trading plans, some of which are featured in our atomictrades.com newsletter.
3. Minimize Your Exposure
The more money you put into any one trade, the more emotional fuel you are pouring into the fire. Eventually it will get you burned so badly you may never get over the trauma.
One of the biggest mistakes a trader can make is have too much money riding on a single trade. An experienced trader knows better than to stake too much in the hope of a quick win.
When day trading, the trades can come thick and fast. It only takes a few big losers to get eaten alive very quickly. This is why successful day traders will risk only a tiny amount of their trading capital on any one trade.
If you're "under capitalized" then consider using a trading system that offers a tight stop loss. Or, trade a shorter time-frame, like the 1-minute chart, where losses can be minimized.
Overconfidence is another cause of excessive risk.
"Hey... heads has come up 10 times in a row... let's put half the trading capital on tails (which is sure to come up next) and clean up."
The problem with sure-thing trades is that:
a) The market hardly ever obliges;
b) Everyone else sees them as sure-things as well and jumps aboard. So when they go wrong, they go wrong big-time.
Risk a tiny amount on each trade. You'll be more relaxed, and more able to execute the trade properly.
4. Getting the Numbers Right
Now it’s time to rethink your relationship with money.
Whether we like it or not, money is highly prized in our society. It's important. And we attach a lot of feeling to it. How then will you feel when you see hundreds of dollars (perhaps thousands, depending on your account size) go up in smoke in front of you? The problem is, "expenses" are part of the game. You have to lose some to win some more. There is no holy grail, like we said before.
If you can't change your relationship with money, focus instead on numbers. Think in terms of “percentage of account” and “average risk-to reward ration” and “potential profit points versus maximum points risked”.
If you concentrate on getting the numbers right, the money will take care of itself.
5. All Part of the Job...
Don’t get emotional about trading.
Self-destructive behavior is a trap you don’t want to fall into, yet it commonly manifests itself in the market, especially among day traders. When the price is jumping up and down in front of your eyes, it can take a grip of you. You can start to feel like it's playing with you. But if you’re about to boil over, you’re in for a seriously bad experience in the market.
This is why you have to be very, very careful to avoid emotional trading. Again, remember the current trade is only one of a long series and you’re in it for the long term. Remember that and don’t ever, ever get too attached to any one trade.
See yourself as a professional trader. At the start of each trading day, before the market opens, take a few minutes for you. Close your eyes and visualizing the market. See the real-time chart on your computer screen. Watch as the price fluctuates up and down. You enter a trade feeling relaxed. You're alert but calm and completely unemotional. See how the price moves after you enter. It comes close to your stop loss.
Now mentally place a number of trades and follow them through. You get a losing trade and you’re completely calm and unemotional. You see the big picture. You put in another trade. Again, another small loss, but you are unperturbed. Next, it’s a winning trade and again, you are completely relaxed. It's all part of the job.
Practice this regularly to get the maximum benefit. Try it every morning, and any time you even begin feel stressed or you lose your focus. The payoff for this technique is excellent, and the practice is free. ;-)
6. Be Your Mentor
You are the only one in charge of your trading. You alone are control your success or failure as a trader. Not the market, not the trading systems, not the government or the Federal Reserve. It’s all up to you. That's quite a responsibility. Handle it by treating yourself with kindness.
If you make a mistake during your trading - and who doesn't - don't beat yourself over the head with it. Learn from it. Make a mental note to build on it. Thank the market for the training lesson ;-) and move on. It's very important that you avoid spiraling down into an emotional cycle where you end up doing some serious damage to your account and to your own ego.
Become your own mentor. Be mindful of how you're behaving during the trading session. Pay careful attention to your feelings. This will give you useful feedback about your performance. Having a "winning day" or a "losing day" is not the issue here. All that's important is how you're performing in the job. Are you being professional, remaining emotionally detached? Or are you starting to get irritable at the market, the market makers and the unfairness of life? Negative emotions are early-warning signals that you need to cool down and relax. Get back into your state. Observe the tension in your body and release it. Just let it go. Perform the visualization exercise again. Remind yourself that it's all percentages. This is just another trade, just another day.
7. Watch Your Language
Words are powerful. Don’t believe it? Try this experiment sometime.
Tell a friend to close her eyes and stretch her arm out wide. Now get her to think of the word "weak" then press down on her hand. You'll notice her whole arm moves down easily. Repeat the experiment as before, only this time you tell her to focus on the word "strong". This time you'll notice enormous resistance in her arm, and you might struggle to move it at all.
If words are so powerful, just think what you do to yourself when you call yourself an "idiot" or worse! But words are more subtle than just name-calling. How about this one...
Loss.
Wow, think what that one conjures up. Heartbreak? Missed opportunity? A gaping hole in your life? A theft? A bereavement? Let's call it something else…
An expense.
Now doesn’t that sound much better? Much more business like. Puts it into its true perspective.
Similarly, on the other side of the balance sheet, let's stop talking about the word “win” which is also steeped in emotion, and change it to “income”.
Income versus expenses – a business. That’s what trading is. You're much more likely to become profitable when you realize this and don’t get sucked into imaginary battles that cloud your sense of reason. Watch your language when trading and use neutral words at all times, when talking about yourself and the market.
8. Less Is More
Accumulate your profits over time and you'll make more by doing less. Usually the ideal time to day trade is the first two hours after the open and the last 30 minutes before the close. Momentum is greatest at these times, with high buying and selling pressure creating the best trends. Don't trade a 40-hour week. Take it easy.
Many real-time traders also follow the "3 strikes and you're out" rule. If you limit yourself to only three per day, it will reduce your stress level tremendously, and you’ll be sharper, less likely to make mistakes. This will also help you protect yourself against an avalanche - when you take loss after loss after loss, each time trying to recover from the previous loss. Reading this away from the market, you may think that'll never happen to you, but it's surprising how easily a trader can get caught in the avalanche as their losses begin to snowball. Keep in mind, tomorrow is another day.
9. Hidden Agenda
Think about why you trade.
Are you hooked on the exhilarating adrenaline rush that comes from trading the word's financial markets? Maybe you enjoy the status of being a trader? "Hi - Joe Smith - Futures Trader - nice to meet you..." For some traders, it's about escapism. They’re unhappy with their job, their boss, their spouse, their whole life. For them, trading is a fantasy to slip into at will.
Trading should be about one thing only - making a profit. If you trade for any other reason, you’re doomed to failure, because you'll operate from emotion instead of the cold, mechanical thinking that's the hallmark of a successful trader.
Examine your motive for trading. See if you can detect any hidden agenda. If tsomething is missing in your life that trading is currently filling, then you need to address that.
Don't trade all day. Live a balanced life. Meet people. Get out! Start a new business. Find new interests.
Keep your trading desk free from emotional clutter.
10. The Essential Real-Time Trading Tool
Because real-time traders live from moment to moment, it’s often challenging to see the bigger picture. This is something you MUST accomplish if you want to survive and thrive as a trader.
There's one trading tool that will improve your performance more than anything else - a journal.
Your trading journal can be computer-based, pen and paper or a personal tape recorder - whatever works best for you. What will you record? Your thoughts.
Sure, you can note down the facts and figures - stock code, time and date, position size, entry price, stop loss, exit price. But more importantly - record your thoughts.
If you were hesitant about getting in the trade, say so. If you're terrified now you're in (the dreaded "Trader's Remorse") then make a note of it. When you exit, say why. Stopped out? Took profits? Why? How did you feel before the exit? How do you feel now, afterwards?
It only takes a few seconds to record this ongoing commentary of your own trading. But the information you get can be priceless.
Here's why:
At the end of each week, preferably at the weekend when the markets are closed, review the week's entries. You can guarantee that you'll see a pattern in your behavior.
There is probably something you are doing consistently that's causing negative results. And once you've identified the problem, the solution usually becomes obvious.
Do this exercise every week, and also every month to get a longer term perspective. Only you can do this for yourself. Nobody looks after your own affairs better than you do. You don't need the latest million dollar trading strategies to be successful in this business. Look within. You may be amazed with the results.
What's Next?
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Trade well.
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