The Three Phases of Successful Trading | Momo Trader Day 2 - Bulls on Wall Street

The Three Phases of Successful Trading | Momo Trader Day 2

The Three Phases of Successful Trading

Successful trading is not an overnight process. Many people get into trading because they think it will be an easy way to make a lot of money without hard work. This couldn’t be further from the truth. Trading is no different from any other entrepreneurial adventure. You need an education, and you have to put in a lot of lonely hours in front of the computer.

However, there is no other profession that has the same level of freedom. No boss, no salary cap, work from anywhere with wifi, and when you get good, you can scale your income. Today we’re going to identify the three phases we see our students go through on their path to successful trading. Note these don’t always occur in this exact order, every person is different and unique.  

1. Finding Your Niche

There a ton of different trading instruments, trading styles, and trading strategies out there. It can be quite overwhelming at first. To start out, you need to figure out on what time frame you will trade on. Are you a day trader, swing trader, or long term investor? Or some mix of the 3? What you chose will often depend on your personality and time commitment you have available.

When starting out it’s recommended you pick a very specific niche where you look for one trading setup that you know inside and out. For example, it’s good to be day trading opening range breakouts on stocks with earnings breakouts. Whatever it is, you have to master one trading setup before you can master more.

Traders often make the mistake and try to be the jack of all trades, and trade everything that they “feel” looks hot. You have to develop the discipline and patience to wait for your “go-to setup”. Otherwise you will never make it as a successful trader who can do this for a living.  

2. Follow Risk Management Rules Like A Robot

Over the course of the trading year, risk management is the difference between winning and losing traders. Losing traders are not losing traders because they cannot put on a winning trade. They are losing traders because they don’t follow proper risk management rules and let emotion take over.

The most common combination we see is students who actually have a decent win percentage, but their risk vs reward is poor so they end up not making any money in the long run. These traders will often go on a hot streak of 5-10 consecutive green days, and then give back all their gains and then some in one trading day where they got stubborn.

Another common mistake traders will make is that they will take profits too soon. They get in the green on a trade, and they immediately lock it in because they are afraid it will turn into a loser. This behavior not only makes you emotional because you sold too soon, but it also skews your risk vs reward on your trades in the long run. Your losers will consistently be bigger than your winners because you are taking profits too soon. Developing a solid risk management strategy and following it like a robot is crucial to your success.

3. Mastering Your Psychology

Psychology is one of the most complex topics in trading. Trading psychology is what allows you to execute your trading strategy effectively, without letting you get in your own way. In trading you are your own worst enemy. Even if you have a profitable trading strategy, psychological obstacles can prevent you from executing the strategy correctly. There are three common psychological issues traders have to overcome: Fear, stubbornness, and greed.

Being overly fearful will prevent you from becoming a profitable trader. “Scared money don’t make money.” Fear of missing out on a big move will cause you to get bad entries. Fear of losing will cause you to misperceive market information, and not give your trades space to breathe. Fear in your trading will often be the result of trading too much size, because you are emotionally attached to the money you’re risking.

Stubbornness is a big issue for many traders. They really believe their trade thesis is correct, and don’t want to cut their loss and admit they are wrong. The market doesn’t care about your opinion. The stock market is just a mechanism for displaying information. If the market is showing you that your opinion is wrong, you have to listen to it. Losing trades are inevitable in trading, therefore you always have to prepare a course of action for your trade if it turns out to be a loser. Stubbornness can cause your trading career to end in a single day if you do not cut your losses when you are supposed to.

Greed causes you to incorrectly manage a trade because you want a big winning trade. Every winning trade will not be a home run. Trading for a career is about making consistent gains, not just one, over-leveraged, winning trade. Greed will cause you to act irrationally in the markets because you want to make a lot of money fast. It will cause you to not take profits when you should because you want a big winner. You are not listening to what the market is saying. Instead you are being controlled by a certain $ amount in your head that you want to make.

Did you check out day 1 of our Momo Trader Series? Yesterday we talked about ‘Who We Are As Momentum Traders‘.

Free Webinar With A Successful Student

We will be hosting a free 2 day webclass on Aug 28th and 29th. We invited one of our students who has taken our bootcamp and has created some great success in trading for himself. His name is Brian and he will teach his method for trading on the 29th. Reserve your seat here.