It’s the start of the new year again, and everyone is talking about goal setting. In trading, goal setting is very important, and every trader has their own unique goals they are trying reach this year.
But there is one goal that every trader should strive for in 2019, no matter your experience level. The goal: make more money by making less trades.
This may seem confusing to newer traders, but trading less will actually make you more money. I don’t know a single trader that doesn’t have trades they know they should’ve avoided last year.
Capital preservation is essential to making money in the stock market. Overtrading and revenge trading are obstacles to overcome on your road to profitability. It is not just about having big winners.
So how do you achieve this goal? How do you condition yourself to avoid trading subpar setups, and wait for the best opportunities?
Avoiding Unnecessary Losses
A crucial concept to understand in trading is that there are good losing trades and bad losing trades. New traders are often baffled by this, because they are thinking that losing money is always bad. They think that when you take a loss, it means you are a bad trader.
What they don’t understand is that losing money is unavoidable in trading in the long run. We have talked about this before, but the stock market is random by nature, and there is no holy grail trading system that wins 100% of the time. The key is to have a system with positive expectancy, meaning the total value of all your winners exceeds the total value of your losers.
Good traders realize that they can have 10 losses in a row, and know that they will still be profitable at the end of the year. Controlling your losing trades is what separates the winners from the losers. Winning traders take small losing trades on high probability setups that fit their niche. Losing traders take unnecessary losses from over trading stocks and setups they have no edge on.
Discipline plays a major part in your ability to avoid forced trades. The temptation to take random, non-niche trades is greatest right after you have taken a losing trade. You want to make the money back as soon as possible, so you want to find a trade ASAP to give you that win.
The discipline to restrain yourself from emotional trading is essential to develop in order to become a consistently profitable trader. Discipline (or lack of) in other areas of your life will carry over into your trading. If you are good at showing restraint from unhealthy foods for example, you will likely be successful in restraining yourself from destructive trading behavior. Your lifestyle and habits in your everyday life will carry over into your trading.
Knowing Your Niche
Trading less is the result of knowing exactly what type of trading niche you have. If your trading strategy is undefined and vague, you cannot distinguish between good setups and bad setups.
As a result, you don’t know which setups to wait for, and the temptation to take random trades becomes much greater. If you are a trader who doesn’t know what style of trading you trade, what time frames you trade on, what type of stocks you trade, your risk parameters, or know your high probability trading setups, you are just gambling. You will always lose money in the long run.
All of the best traders have a very specific niche that they never deviate from. They have defined every aspect of their trading system, and they are constantly refining and improving it.
Free Trading Assessment
If there are other bad trading habits you need help with, fill out our free trader assessment here and we will go through all of your trading issues in detail. Don’t procrastinate on your success. Make 2019 the year where hit and exceed all of your trading goals.