Are You Made of Trading Demons or Balls of Steel?

If you’re trading already, you’ll know exactly what I’m talking about here. If you’re not but you want to start, you’d better make sure you’ve got the bollocks for it because the trading demons will try to tear them off for as long as you keep at it; unless you do something about it…

With meticulous planning, a level head and about 10,000 hours of practice, you can rid yourself of these demons of the trade.

I’m no mug (well, maybe I am) but it is a bit scary that I think I can turn £500 into a million in a couple of years. Even scarier, perhaps, is that I’ve only been actively trading for about 3 months and think I can write about it. Ah well, you’re reading aren’t you?

Anyway, to the point at hand, it’s well documented that the best traders have a well defined trading plan. They have a system (a trading framework, if you will) that they stick to and know exactly what their entry signals are, what their risk will be and when they will take profits (and losses, let’s not forget).

It is this meticulous planning and unflinching adherence to it that helps them fend off the biggest demons of trading; fear, greed and revenge and allows them to soar into the echelons of the mighty 10% – the 10% who actually make a profit from this game.

Unfortunately, I’m not there yet (clearly shown by my recent trading history below), and the demons are constantly nibbling at my nuts.

How Can You Win This Battle if You Don’t Even Have Your Trading System Yet?

If you’re like me and are still floundering about with trying to identify your system, fending off these trading demons is infinitely more difficult. If your system hasn’t shown a profit (like mine), then how can you realistically enter a trading position and adhere to your plan if, at every increase or decrease in the share price, you keep asking yourself if you should take profits now? if you should cut your losses now? if the entry signal is strong enough? etc. etc.

You can’t second guess a second guess and then expect to be able to make sense of your results at the end of it all, can you? It’d be like asking a golfer with a different swing on every shot what the problem with his swing was at the end of a bad 18. Unless his swing was identical in each shot, he could’t possibly tell you what was wrong with it with any degree of accuracy.

Well the answer, I believe, for us traders at least, is simple.

Before you place your next trade:

  • Make sure you have a trading theory – a hypothosis of a trading framework.
  • Make the rules of your new system specific, defined and absolutely clear with no room for movement.
  • Once you have this clearly defined, test it with your next 100 trades and do not deviate once.
  • Record every position in as much detail as you can; entry/exit, reasons for entry, reasons for exit, state of mind at entry, state of mind at exit, etc. etc.

Only by implementing a rigid system can you fend off the demons of greed, fear and revenge and avoid constantly flicking between your trading screens for the latest update. This kind of unstructured approach will only result in costs.

With a system in place and a mechanical adherence to it, your trades simply become entries and exits that are predefined before the position is opened and it’s only when the trade is closed that you will know if you made a realised profit or incurred a cost.

Practicing What I Preach?

So far, looking at my results, I seem to be a bad trader.  I’ll concede that – for now.

But what I am optimistic about is the fact that I have got a system in place that is forcing me to record every trade. I haven’t made 100 trades yet using my October System, so I’m not yet in a position to decide if it works or not (although looking at the results below you’d think it was pretty clear), but what I can see is a list of all of my trades, along with associated charts and the reasons I entered positions.

This is proving to be a very useful and interesting back catalogue of my old trades that just on its own feels like a goldmine of information . Even now, 40 trades in, I am already picking out trades that I made in the beginning that I would no longer make now and even more fascinating is that I am even picking out trades I made just 3 days ago that I wouldn’t make tomorrow.

If you’re not failing, you’re not learning (I just better learn quicker!)

I’m finding post-trade analysis both fascinating and disheartening in equal measure, but am seasoning it all off with a slice of optimism and a pinch of hope. Optimism from the fact that I am actually learning from all of these mistakes and hope that all of this growing knowledge will turn me into a better, more mechanical, demon-slaying trader.

If that doesn’t sound compelling enough, for those of you who want to follow my daily journey from Pit Village Trader to Demon-Slaying Billionaire, start following me on twitter today.

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