I've noticed that since my epiphany of accepting losses and ALWAYS having a complete trade plan, that I ALWAYS follow, that my trading has been much less stressful. I feel more calm when in my trades. Now don't get me wrong, I'm still losing, but....
I'm finally beginning to understand when the successful traders talk about. It's not about the money but instead, it’s all about the process. I didn't really know what that meant, because we're all in it for the money. But what I see now, is that in order to get the money, we all need to develop our own process, because everyone learns differently. Everyone has their own personal strengths and weaknesses. And everyone has to start from the beginning. By following your SYSTEM, the money will follow. But if you have no system, it’s impossible to be consistently profitable.
So what I see now is I'm trying to figure out a process for becoming a successful trader. From my Challenge materials, to outside books and videos and podcasts, I've taken a lot of good information, and am now starting to integrate them all.
I see my process in steps or levels. And without mastering the step below, you won't have a solid foundation to succeed with the next step.
So my first step was being able understand the concept of risk and risk levels. That all the successful traders first and foremost manage their risk. We don't want to blow up our accounts before we actually learn to be consistent. In the beginning, I thought this meant how much money I would be putting on a trade. Like I would make all $500 trades, and get as many shares as I could afford with the $500. In hindsight, I now see how ridiculous that was.
Now my understanding is so much different. I now understand that what I want to do is to tell myself I want to risk, let's say, only $100 on each trade. If based on support and resistance levels my stop price is 0.20 away from my entry, then I can buy up to 500 shares. And this way, as long as I get out at my stop price, I will GUARANTEE I will only lose $100 on that trade. This was mindblowing to me! Which leads me into the second step.
The second step was being able to create and ENTIRE trade plan. Based on the charts, I need to determine three things: my entry zone, stop price and goal prices in order to make an entire plan. If I am missing any one of these three parts I cannot calculate my risk, how many shares I should get, and my reward/risk analysis. I realized I was not being consistent with this step. For a long time, I was focused mainly on setups, and entries. But once I got into trades, when I didn't have complete plans, I was stressed and confused. It's hard to create plans once already in a trade.
The third step I see after having a plan, is truly accepting I will be wrong and lose money most of the time in the beginning. And even though intellectually, I accepted this. Emotionally I didn't. It's unnatural to be okay with losing money, or being wrong about plays. All the great traders tell us that psychology plays a huge role in how we trade. I've read books about it, and I understand it. But only now am I starting to truly internalize and accept emotionally what I've studied about psychology. So because I didn't truly accept that I would lose, I have frequently taken costly losses, far greater than I intended. I waited too long because I wanted to be right and hope it would turn around, or I added more shares into a losing position, etc. On the other side, because I didn't want to lose or be wrong, I also take early exits for small profits, even when there was nothing in the trade telling me to get out. More often than not, I was actually right and could have made even more profit. So without truly accepting a loss, I won't be able to do the next step...
The fourth step I see is actually being able to FOLLOW THE PLAN. And for this step, I really mean STOPPING OUT. So many times, I would create a plan. But when it came time to stop out, I didn't do it for reasons discussed above. If I can't stop out, I can't keep my losses small, and I can't stay in the game long enough to get past my learning period. Looking back on my trades, I found I didn't have the discipline to stop out, or I was too slow and had significant slippage. So what I've decided to do for now to protect myself is to put in hard stops. I understand that I can get stopped out prematurely, but I'm so bad at my entries right now, that more often than not it has been protecting me more than hurting me. I can always get back in (sometimes not, if shorting). Since instituting my hard stops, I feel I've mastered steps 1-4 so far. I believe it's because of this that my trading has become far less stressful. And I can think more clearly before and during my trades.
I'm not too sure as to what order the next steps are, as they I am still forming them in my mind, but I believe they are:
5. Finding good setups, seeing the big picture
6. Making good entries in those good setups, seeing the small picture, understanding the crowd/amateur/newbie mentality vs the pro mentality
7. Making fewer trades, patience in waiting for ideal situations
8. Trade management (the profit taking side)
9. Sizing up
I think the fifth and sixth steps go hand in hand. I have found several setups that I like, occur frequently, and am confident in because I've seen others use them successfully. Examples of these are buying pullbacks on spiking stocks, dip buying into support, ABCD patterns, r/g moves, Dip buying panics, shorting lower highs, shorting into resistances, and g/r moves. Currently I am working on trying to narrow these down to one or two. So I am experimenting with all of them and trying to find out which ones work best for me. So right now, my focus is making good entries on them. I am trying to achieve positive expectancy and not even focusing on maximizing profits from them. I'm still entering too late and getting taken out at my stops.
Just trying to improve a little at a time.