We are all looking for that extra edge in the markets, the edge that will take our results to the next level, here are some important steps and processes I have used to improve my trading.
Now by far the most important step in the morning is a double espresso, sitting next to me whilst I think about my plan of attack for the day.
- Step 1 – Every week in financial markets we have a “flavor of the day or week”, this is what moves financial markets. Is it trump’s random new policies, oil, more QE by the world’s central banks. Being aware of what is going on around you and knowing why will help you gain an edge that most novice traders will not have.
- Step 2 – Review your last 24 hours as a FTSE trader. Looking back at your trades is overlooked by so many. How was your discipline towards your trading plan? Did you break any rules? Did you let your trades run to their desired profit target? What could you have done better? Knowing and reviewing the above over time will help you weed out your problems.
- Step 3 – Record Keeping. Do you know what the win rate is for all your trades? Are you average winners higher than your average losses? If you’re taking multiple trades in your trading plan, which has the highest win rate? Which one is struggling? This is overlooked by so many traders as it is seen as “boring bookkeeping”. Do you back test your trade setups? Sure you have this really good MACD trade on the FTSE that has worked like a dream over the last 2 weeks, but how has it performed over the last 2 years? Find out go back and have a look, it will give you more confidence in taking your trades.
- Step 4 – The Day Ahead. Planning, organization are important aspects of any business. Are you treating your trading as a business or a bit of fun? If you’re serious about making money as a trader you would be treating it like a business. What has the potential to move markets in the next 24 hours? Are there any news events that could affect any of my trades in the next 24hrs? Do I need to set my charts up before I trade? What is my risk profile per trade? Is there any part of the day where I will not trade? (think work meeting, tube ride to work, after work drinks at the pub?)
- Step 5 – Mindset. Before you make any trade unless you’re a robot, your thought process and decision making will guide you into pushing that button each and every time. If you have set times of the day where you trade this is easy. Getting your mind ready to trade can be as simple as some light exercise before trading, meditation (10mins is fine to clear the mind), motivation videos. If you trade at random times of the day, you will have to be alert most of the day. So maintaining a good diet, being discipline in your trading plan, having some level of fitness will help in controlling your greatest asset.
Don’t know how to meditate try the google app store “headspace meditation” it’s free and fun!
- Step 6 – Having a Trade Plan and following it. Having a trading plan is very much like needing a seatbelt when traveling in a car, its a must. Not having a trading plan at all, the odds are heavily against you. My trading plan is written down on an A4 piece of paper, with 6 trade setups clearly visible, I will only trade these trades and nothing else. If I’m looking at other trades to take I must back test these for the last year to see what their win rate is before I risk any real money on them.
- Step 7 – Managing Money & Emotions. Are you a nervous nelly? A greedy Greg? Managing your money is so important when trading. Sticking to a strict risk profile is sadly overlooked by most novice traders. Risking the same amount per trade 1-2%, avoiding large losses, I know it sounds simple to say like we spoke about earlier do you know how much you are risking every trade? How about your average loss over the last 12months? Now we are all in this game to make some money, but some advice to you now (trust me on this one I’ve been there) do not trade when you are drunk and feel like you are Paul Tudor Jones, no trading when your having an argument with the Mrs or going through a break up or divorce, no trading when you are sick (being hungover from a night on the lager’s I believe is a form of sickness), mourning a loss of a family member or friend also take a day off from trading, your wife giving birth to a new family member. Your mind is not seeing clearly when you’re experiencing the above events, so take a day or two off and leave the computer off. Remember emotions can quite easily kill trading accounts.
- Step 8 – Trade Execution. No matter what your guru is predicting for the FTSE. Execution will determine whether or not you will make money as a trader in the long run. Anyone can trade, anyone can push a button to buy or sell as they please.
But it’s how you act after you push that button that will determine if you succeed as a trader. Will you get scared risking decent sums of money at the first sign of a losing trade? Can you handle a loss? Will you revenge trade after a loss? Are you able to push the button after a string of losses?
I have used these steps in my own trading and was lucky enough to be taught these from magnetic trading. To this day I continue to follow and implement these steps in my trading.