I have been coaching, mentoring and managing traders for over ten years now and the number one difference between those that earn a consistent living and those that find trading to be a never ending challenge is how losing trades are managed.
Let’s face it, finding or learning a method to place a trade is simple. Most traders mistakenly believe the entry signal is the be all and end all to earning money. I know I did when I first started trading. I would buy book after book looking for the entry that would finally help me turn the corner.
You will finally have a “eureka” moment when you realize that entries are a tactic and not a strategy. Your strategy is your edge; your tactics are how you apply your edge.
Pretend that you are trying to raise money to trade and you need to explain to potential investors how you PLAN to earn a return for them. This is your strategy. If you own a business you do this when you write a business plan, you define your competitive advantage.
Continuing this thought process and taking it a little deeper is the consistency with which a trader applies his strategy. Far too many traders execute random, non-planned/non-strategy related trades. The point I want to make here is very simple, the more of these mediocre, small edge, impulsive trades that you execute the more difficult it is for you to earn consistent money.
A concept that must become a core part of your belief system as a trader is the only way to have conviction in your ideas. The only way to have conviction is for those ideas to be 100% your own. You thought out the scenario. It fits the criteria according to your edge.
So what does this have to do with losing money? Consistent traders took the time to define an edge. Consistent traders ONLY execute trades that are based on the edge. These traders can exit a trade that does not earn money with the thought “I lost money on a good idea, and I am OK with that.”
Inconsistent traders will not be able to say this. These traders (and I was one of them early in my career) execute far too many trades that do not have a solid well planned edge.
Your goal should be to lose money on great ideas then the probabilities will take care of themselves. Everyone will have losing trades; make it a performance goal for them to be solid ideas.
Try putting yourself on a strict “great trades only” diet for the remainder of the year. It will be worth its weight in gold.
*DISCLOSURES: No relevant positions
