Some traders would make $1,000, or even $5,000, relatively easily., but then they would lose it. This cycle would repeat indefinitely.
Despite being able to make $1,000 or $5,000 (depending on starting account size) over and over again, most day traders end up being like a recreational fisherman: catching a fish but then throwing it back. Professionals on the other hand make $1,000 and then make another $1,000, and another, drawing an income from their trading or growing their account.
If you want to go from making $1,000 and losing it, to making $1,000, keeping it and making another $1,000 (the $100,000 trader) here are the common pitfalls to overcome.
Focused on the Wrong Thing
As a trader your goal is to focus on the task at hand, and not get caught up in thinking about how big your account is or isn’t. In trading your purpose is to execute the entry exactly as practiced, place your stop loss where it is supposed to be and adjust it accordingly (if needed) and take profit when your trading plan dictates.
As soon as you start thinking about money, your emotions get involved, you take profits too early, or losses to late, you may avoid valid trades or take trades which aren’t valid. Your focus has shifted away from the only thing that can consistently make you money—following your plan which you have tested for profitability.
Traders lose focus because they get stuck in short-sighted mode. When focus is on immediate trading results (not process) you’ll continually lose whatever money you make. If you start trading to make some quick cash, and do, you’re still in trouble. As discussed above your focus is still on the wrong thing.
If you do the right thing (follow your trading plan and make it your sole purpose to execute that plan flawlessly) your long-term goals take themselves.
Fear, Greed and Other Psychological Issues
It takes less than 5 seconds of actual physical activity to open and manage a trade (set orders, and adjust them if needed). Make five trades in a two hour period, and you have spent probably about 25 seconds doing “actual work.” The rest of the time you’re tinkering around or thinking. That’s almost 7200 seconds where you aren’t trading, but have the opportunity to mess up if you’re not focused (and that’s only for a two hour period; trade all day and you have loads of seconds of where a slight lapse in focus can ruin a trading day).
Thinking is good while trading, but it should be laser focused on how you will implement your plan under current market conditions. If you start thinking about how much money you are up or down, that car you want to buy, overdue bills, your losing day yesterday, or the insane winning streak you’re on, you’re already off track. It doesn’t mean you’ll lose your next trade–the market can produce lots of random winners–but you are in a state where you’re more likely to give money back .
Most trading issues can be linked back to focusing on the wrong thing.
As a trader you’re only job is to research and test a plan as best you can. When you prove to yourself that you can trade it properly, then focus solely on implementing that plan.
Trader Aleksandar Kumanov