Remember, in part 1, I said that you need to be honest with yourself in what you are doing. Your trading approach or day trading system is determined by the way in which you handle the choices that are presented to you. For example, if you associate more pain to a losing trade of a certain amount versus the amount of joy you get from a winning trade of the same size, you will subconsciously create a self-destructive pattern. This will result in “doubling down” or adding more shares to a losing position and possibly putting you in the hole even further. Ask yourself this question, do you add to your winning positions? The answer for most is NO.
If you can understand your thought process around handling a simple issue as the one posed above, you can start to figure out which lines of thought process you need to change. Once you have understood, modified and finalized your approach to how you should trade, you are in a good place where you can commit to a successful trading strategy. You need to dig deep and understand how your brain is wired and then you can understand the conscious and subconscious decisions that you make and how they influence your day trading. Now you can commit yourself to a larger vision of what you believe is trading success and then trade in relation to specific goals.
Committing to a Goal
What is commitment? It is allowing to risk yourself by promising an end result which has no guarantees associated with it. When you promise something, you begin to think in that realm which allows for the possibility. For example, I have experienced time and time again that when I sell a stock for a small gain, it begins to accelerate up in earnest and I am left wondering why I did not make most of that gain. Why was this happening? Well, first of all, I was fixated on taking ½% out of a trade and that prevented me from seeing the bigger picture. After I experienced this more times than I care to mention, I started believing in myself and created a larger vision for my expectations. I started to train my eyes and mind to look for 1%. Don’t get me wrong; you cannot be using a day trading system that is not meant to make the gains that you psychologically are looking for. Be honest with yourself and over time, you will notice patterns about your trading and be able to commit to larger goals.
We can do anything we put our minds to if we apply our minds and bodies with diligence. The key to persevering is to overcome the innate tendency to protect ourselves. This is fear and fear will inhibit your action. Get focused on what you are doing. Truly focus on your trades. One of the greatest stock traders of all time, Jesse Livermore, required pin drop silence when he was trading. He applied every ounce of concentration that his mind could devote to his trades. Give yourself the best chance to succeed.
When you commit yourself to a goal or target, you are promising to stand up in the face of hindrances, circumstances, or failures. You are promising to stick to the path that you envisioned and concede to the fact that you are not perfect and there will be difficulties along the way. So many traders fail to do this. In trying to protect ourselves, we run at first sign of trouble. That is easy, the harder part is sticking with your convictions. When I was an inexperienced day trader, I would change my strategy daily and sometimes intra-day. As soon as I put on one or two bad trades, I immediately deviated from the plan and started trying new ideas/concepts. I realized that after 3 months, I was no further along than I was when I started day trading because I never gave myself more than a couple days to be successful. Again, patience is a virtue and it comes with confidence and a belief in yourself in the face of uncertainty.
Setting daily targets implores you to take full responsibility for your trading decisions and results. It forces you to look at yourself objectively and analyze behavioral issues that are preventing you from maximizing your profit lowering your trading risk. Additionally, setting targets provides boundaries which set off internal alarms. For example, if you set a daily profit target of $1000 and a loss threshold of $500, you can prevent yourself from taking big draw-downs on single trades and actually force yourself to put more thought behind the trade. Targets also allow you to do a gut check. What am I missing from my current trading strategy that is preventing me from hitting my daily profit targets? Or, on the flip side, what part of my trading strategy is allowing me to hit the loss threshold for the day? It forces us to face our issues up front and center. This approach is a little different than you are probably accustomed to. Many times, traders will develop a trading system and let that dictate what they will make out of the market, without thought to goals. This approach is based on the idea that you can define your results upfront by deciding on them in advance and then creating a trading strategy around the concept of producing those specific results. You are creating results rather then having them dictated to you.
I recommend you keep a day trading journal of your trading activities. This will allow you to track your progress and also create thought provoking dialogue internally to understand how you are doing against your targeted goals and how you are doing with your commitment to a trading strategy. You should be asking questions such as: What do you think worked today? What didn’t? Why? What could you do to have your profits reach your goal? What is holding you back from achieving your goals? Does your goal need to be adjusted? Why did you put the trade on? What trading strategy did I use to when putting this trade on? You get the picture. Always incite the truth from within yourself when you are day trading. Only then will you be able to reach higher ground.