Do you find yourself losing your nerves when you are trading live? Emotion induced by losses later may push you to take highly impulsive and even spur of the moment decisions that finally shoot back into your account. Without good trading psychology and discipline, the best of strategies may end up giving away very badly.
Implementing these six must-haves will help you improve your trading psychology and discipline, turn losses into learning experiences, and help you grow as a trader. This is a piece of advice for any beginner or experienced trader who wishes to keep his or her mental clarity, control emotions, and manage risk properly.
Rule 1: Emotional Control
The first rule is simple but potent: emotional control. Newer traders have difficulty with losing trades, especially once they see a great entry executed right into a stop loss and then the price start moving in your favor afterwards. It’s very tempting to revenge trade in such situations. However, fighting the urge to trade emotionally is crucial.
Take at least a 10-minute break if you have been frustrated by the trade. Your mind gets too focused, leading to cognitive fatigue, which dumbs down the decision-making and increases emotional reactions. Taking time to stretch, breathe, or call a friend will reset your mind, reduce the stress, and bring back the clarity. You return to the screen refreshed and with more logical, deliberate decisions to make, which in turn develops a healthier and more sustainable way of trading.
Rule 2: Simple Risk Management
Effective risk management is critical, and it’s one of the most important skills to master in trading. Many traders make the mistake of using a fixed position size for all trades, which can be risky when trading volatile stocks like Tesla. The key is to assess each trade’s risk based on the stock’s volatility and your desired risk amount.
Instead of using a fixed share size, this will be calculated with how much you are willing to risk. For example, if you want to risk $2,000 and the stop loss is 50 cents away, you should buy 4,000 shares. This approach then fits the volatility of the stocks and ensures that you are managing risk well.
Use some technique like to average your five winner days and taking it as stop loss for everyday trading. Because then you cannot lose more that you can produce.
Rule 3: Consistency on Strategy
Trading is all about consistency, and deviating from your strategy can lead to unnecessary risks. At SMB, we build chart archives and playbooks for specific patterns we trade, such as breaking news gaps or second-day setups. These patterns are thoroughly researched, backtested, and analyzed before we trade them.
Many losing traders try to invent trades on the fly, chasing random opportunities out of fear of missing out (FOMO). But if it doesn’t fit into your playbook, don’t do it. Always ask yourself: “What setup is this?” If you don’t know, walk away from the trade. Stick to the strategies you know and trust.
Rule 4: Patience and Discipline
This doesn’t mean that patience is sitting around waiting for trades to come along. Instead, it is waiting for the right setups. The best traders don’t trade just to make a quota. They only trade when they have an edge and if that edge doesn’t present itself, then they stay out of the market.
At SMB, we’ve observed that elite traders evaluate about five potential trades for every one trade they take. Discipline involves waiting for the market conditions to align with your strategy. It’s not about taking trades for the sake of it, but making decisions that are well-thought-out and grounded in analysis.
Rule 5: Size Down After Consecutive Losing Days
Losing streaks occur, but the difference is the way you are going to handle them. Several traders increase position size in their attempts to retrieve losses, yet this can sometimes lead to the drawdown that becomes larger with more losses.
Instead, reduce after two or three consecutive losing days. That way, you’ll have time to reassess and get back your confidence. You can increase the position size when you start to print green days again. Do not forget that it is not about avoiding losses but rather about managing risks to achieve long-term success.
Rule 6: Loss Management
Losses are all part of trading, but definitely not a failed trader. Proper traders treat each loss as having value in being learned from them. After every trading loss, see what went wrong. Did you miss some signal? Were the emotions clouding your judgment?
This understanding of losses will allow you to devise feasible strategies through which you do not make a similar mistake for the future. Use losses like feedback from a system you must refine your tactics and trading behavior over time. Growth and resilience will make you a new trader in times of losses with this new orientation.
There are no technical skills in trading but discipline, control of emotions, and constant improvement. These six principles form the bases for long-term success in trading. The key to protecting the capital, the ability to maintain discipline, and the right mind-set will evolve through these lessons. Trading, after all is a journey: every loss could be an experience.
Taking the next step of trading requires something more than preparation. You get to explore different opportunities available by our firm today. SMB Capital aims for talented, fierce traders who may learn and mature with the growth of our corporation. Join SMB Capital today absolutely free online with our presentation regarding the joining into our elite forces.