Every trader strides for consistent results from trading stocks. Almost everyone who tries trading stocks makes money at some point. But they do not have the skill to keep the money they make. And this is one of the main reasons why most fail. Every trader has to go through these boom and bust cycles until they change what is needed to become consistent, or they give up.
Understanding ConsistencyMost new traders have huge misconceptions about what it means to be a consistent stock trader. Most people believe that consistent traders make money every day and win on every trade. Most new traders think they are failures just because they lost on one trade. They then become emotional and reckless, and then they make rash decisions that cost them even more money. The reality is that consistently profitable traders occasionally have red days, usually at least 1 every month. But they are usually small and just a paper cut. Great traders understand that they just need to stick to their process, and the results will follow. They do not panic over one small losing trade or a small red day. Trading consistency is about being green at the end every week and month, and not necessarily making money every day. Here are 3 simple ways to immediately improve consistency in your trading:
1. Write Out Your Trading RulesAs a trader, you are the CEO of your small business. You answer to no one which is great, but it also means your the only one who can hold yourself accountable for your results. As a trader, the only way you can achieve consistent results is by having rules in place to ensure the correct courses of action are taken. In trading, we are own worst enemies, and we need to have rules in place to protect ourselves from our self-destructive tendencies. Everyone is different, and you need to know your weaknesses in your trading that need addressing. Here are some examples of rules you could have:
- Never add to losing positions
- Stop trading after 3 losses in a row
- Stop trading after losing $X amount of money on the day ($X depends on your trading account size and risk tolerance)
- Write out your trade plan before you put on a position
- Don’t short day 1, low-float runners
2.Create A Winning RoutineWaking up at 9:15 AM and asking your chatroom what stocks everyone is watching will not lead you to success. Creating a routine and sticking to it eliminates decision fatigue, helps you trade better. A winning routine looks something like this: 6:00 AM: Wake Up 6:30 AM: Work Out 7:15 AM: Eat Breakfast 7:30 AM: Plan out your day, write down your goals 8:00 AM: Get to your computer, start your scans 8:30 AM: Make Watchlist, make trading plans, research stocks 9:30 AM: Market Opens, execute trading plans You will need to experiment with your routine a bit, in the beginning, to find out what works. Try waking up an hour earlier, allowing yourself more time to prepare for the open, etc. If you are not seeing results you are satisfied with.
3. Never Take Big LossesEasier said than done, but not taking big losses makes it WAY easier to be green at the end of the week and each month. We talked a lot about risk management in earlier articles this week, but I cannot emphasize this point enough. It is a lot harder to become consistently profitable if one red day wipes out ten green days. There are only 4 possible outcomes you should see on your trades:
- Big winner
- Small winner
- Breakeven trade
- Small loser