One of the most serious flaws of a struggling trader is the inability to stay focused on a single strategy or method i.e. chasing the Holy Grail. You can watch this happening in any trading forum you visit. Every time a new thread is opened by someone trotting out a new strategy, watch how traders are drawn there and start using it and then fizzle out after a few weeks and then appear again when another new strategy is introduced. This goes on and on in an endless cycle. Jumping around from strategy to strategy before at least testing it out to see if it works or not reveals an underlying psychological flaw that manifests itself as a fascination for the newest strategy on the block.
Make a commitment to stick with learning a very simple strategy like Support and Resistance and learn to master just this one strategy. Nothing wrong in learning one or two more, but leave it out until you master this one strategy first. Test it on demo account at least three to six months. Stay focused in one strategy, if it works then why chase another? Until you are consistently profitable for this period, don’t go live. Once you have proven to yourself then go live on a micro account. If you are again consistently profitable, then fund your account according to you financial ability. Don’t even skip this step else you will remain struggling.
It’s all about Money Management (MM)
I have written articles after articles here in the past and it’s all about MM alone or related to it. Put it this way, you will never, I repeat – never, be successful in trading without mastering MM. Period. No one chooses a losing system as their strategy or “edge” to trade yet 95% of them lose money. How can this be? Why are traders losing if their systems show a winning probability of 80%, 85% or even 90%? Isn’t it funny and incredulous? The answer is a lack of MM which is fueled by their emotions in trading. How many times have you watched a candle shooting up all of a sudden and you wanted so badly to pump your entire remaining margin into that single trade so that you can get the most profits? Sounds familiar? It’s the familiar emotion in trading called greed. Its goes hand-in-hand with its cousin called fear. Fear of losing out on a good opportunity. Essentially this is just emotional trading and it will drain out your account before you can say ‘Pips’.
Use no more than 2% or the most 3% of your account. The lesser the better but you need to be consistent and not vary this % as you like. Once decided on a fixed %, don’t deviate from this no matter how tempting it looks. Leave your emotions out and adopt a mechanical approach. Trust yourself and don’t give in to your emotions. Most people know this is important but knowing and doing it is a separate matter. They do not practice it in trading. Commit yourself to doing this and your struggles will cease.
This is about having an expected return from trading that is so unrealistic, I prefer calling it an unhealthy expectation. You should not expect to win all the time or being right all the time. It is not necessary to be profitable. If you traded using a smart risk to reward ratio (R:R) like at least 1:2 or 1:3 where the reward is twice the risk or thrice the risk, you can afford to lose more times than you win and still end up profitable. It’s the use of simple logic and basic math. Losses are inevitable in any trading system and you must not avoid it. This is why you are asked to use MM with 2% risk or lower. Also, this is not a call for you to trade recklessly since you are using a small risk %. You need to exercise patience and wait for your setup to occur and don’t jump the gun. And when it appears, execute the trade using proper MM rules as specified in your trading plan, without any emotions. No fear no greed, just rules. This is how you become consistent and rise above your struggling stage.
As long as you have followed your rules and trading plan, it doesn’t matter if the particular trade didn’t pan out as expected. It’s called the “cost of doing business” and there is no business without one, even trading. Your edge lies in the cumulative total of all your winning and losing trades summed up. So don’t get hung up on your losers or put yourself on top of the world just because you have won one single trade. If you are consistently following the 2% rule, then each time you have a streak of winners your account will grow incrementally higher with each consecutive wins. The opposite happens when you have a streak of losers. If you stick to the constant 2% risk rule, then each subsequent loss will be smaller than the one before. In other words, you are letting your winners ‘run’ and cutting your losers ‘short’ just by following this constant 2% fixed risk principle.
Have a realistic expectation of returns from trading like 5% every week or whatever % that commensurate with your current level of development as a trader. Dump all the wildly exaggerated figures like 120% a week or 12 million dollars in 2 years and so on, into the rubbish bin. This is not to say it is not possible, I am just saying it is not feasible for you as a struggling trader. You should not neglect this unless you want to remain a struggling trader. Give yourself a realistic allowance that at least 1 out of 4 trades will be a loser. Remember, if you used a healthy R: R, you can even have less than 50% of your trades as winners but still end up profitable. Have a trading plan where you write down all your entry and exit strategies, MM rules, etc and follow it steadfastly. You will build your account slowly but steadily and consistently.
There are of course, other important factors that affect your trading performance but mastering the above puts you head-and-shoulders above other traders. Try it and see if it doesn't turn you from a struggling trader into a consistently profitable one. You have now had your “chicken soup” specially prepared for you as a struggling trader and give it time to digest and work your mind. After all, trading is all a mental endeavor. Come back here and drink as much “chicken soup” as you want until you are satisfied and if you have any questions at all, please feel free to ask in the comments section below. I will be more than glad to help. Good trading to all of you and with this, I hope you will no longer have the need to struggle anymore. To your success!