Quick Tips for Improving Your Trading Skills

Imagine transforming your trading journey starting next week. The possibility lies within your own choices, as the path to becoming a better trader is paved with a willingness to alter your mindset and behavior in the market. If you find yourself dissatisfied with your current trading outcomes, it’s time for a crucial change, wouldn’t you agree?

One significant reason many traders fail to reach the pinnacle of trading success is their entrapment in a chaotic loop: incessantly placing trades, obsessively monitoring price fluctuations, and frequently adjusting strategies mid-trade, often leading to premature or delayed exits. This cyclical nature of trading can create a whirlwind of anxiety, leading to irrational decisions.

Many of these traders intuitively know that their position sizes exceed what is manageable. A large position can become addictive, keeping traders hooked on market oscillations, precluding them from the opportunity to think clearly about their investments. Have you ever noticed yourself compulsively checking your phone or computer throughout the day, or even waking up in the middle of the night, compelled to see how your trades are faring? This obsession can breed destructive behaviors that escalate to dire financial and psychological consequences.

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What propels traders into this destructive mental loop? The answers can often be distilled into three core issues:

Firstly, traders find themselves bearing oversized positions, causing an exaggerated fear of unbearable losses.

Secondly, many step into trading without the proper skills or mindset of a seasoned trader, treating their entries as all-in bets at a casino. Deep down, these traders seek entertainment from trading, lacking the acumen to perceive it as a business or career.

Lastly, trading addiction manifests, as some traders, despite being adept in technical chart analysis, become bored in their daily lives, fixating on screens day and night to capture the thrill of trading. Each trade triggers a dopamine release in the brain, reinforcing the urge to keep trading.

As I emphasize frequently, a trader’s objective should ideally be to step away from every trade after entering. Trade, then release, allowing the market to move independently. You enter the market to capitalize on price fluctuations, so it is counterproductive to constantly interfere with that movement. Your primary task is to establish a robust trading plan and execute it correctly; once you’ve entered a position, the bulk of your job is done. Staring at charts won’t yield benefits!

Transitioning out of this detrimental mindset can be achieved through four impactful strategies.

If you heed and implement the suggestions below, I assure you, it will significantly alter your trading landscape...

Align position sizes with your trading capabilities and knowledge.

New traders often dive into the market recklessly, risking a substantial amount of money shortly after they begin. This is a critical pitfall that needs addressing before it spirals out of control.

I urge you to self-assess realistically. If you’ve only been trading for six months to a year, you haven’t fully grasped all the necessary knowledge. Therefore, you should only risk a minuscule portion relative to your overall capital and net worth. Until you evolve into a proficient trader who no longer requires lessons like this, you remain a novice. Remind yourself, novices should not recklessly enter the market, pretending they can invest 20% of their account in one trade.

It baffles me when individuals enter the market with a $5,000 or $10,000 account, risking $200 per trade simply because a book or article advises them to risk 2% of their capital. This notion is utterly absurd. If you aim to survive long enough to thrive as a profitable trader, you must allow ample time to experience and learn from market fluctuations. Guard your capital by managing position sizes; always maintain solid defensive strategies.

Risk should allow you to sleep peacefully.

Forget anyone’s advice on the risk percentage per trade or the absolute dollar value at play. What matters is your understanding of how much risk you can handle comfortably… Know your limits and find a figure that lets you sleep soundly at night.

You need to establish a position size that you can psychologically afford, enabling you to go to bed at a reasonable hour without ruminating about your trades.

To achieve this, determine the risk amount that you can realistically bear based on your true financial situation. What is your income? What are your debts? What is your total net worth? Compute a number that represents the risk you can comfortably take in a single trade, so even if you incur losses, it doesn’t disrupt your daily life. The easiest technique I have come across over the years is the “sleep test”: if you can sleep well and remain undisturbed by trading concerns throughout the night, you are operating within a suitable risk level (everyone’s risk tolerance will differ).

Remember, everyone must start somewhere. If you can’t make profits with small positions, how do you expect to be profitable with bigger ones? The market isn’t going anywhere, so shed the urgency or fear of missing out (FOMO)—these are purely psychological constructs; if left unchecked, they will control you. (For further reading, check out: “Are You Suffering from Trading FOMO?”)

Rebuilding your trading confidence.

If your trading discipline and consistency are faltering, I can help you restore your self-assurance. Adhere to these steps...

The key is to rebuild your confidence in trading. You need to eradicate doubt and fear, which can be particularly challenging, especially following significant losses driven by trading addiction.

You require mental “exercise,” effectively training your brain to cultivate the right habits and routines, which will bolster your confidence in executing trading strategies.

Consider this: set a goal of executing 20 trades consecutively, maintaining a 100% “set it and forget it” approach. Employ smaller position sizes than previously, targeting a risk/reward ratio of 1:1 for each trade. Remember, this practice is about training your brain to place trades, have faith in them, and then let the market do its own thing. You’re striving to let go of the compulsion to intervene excessively. Aim to complete 20 such trades successfully; you should start seeing some emerging profits. This process will replenish your confidence and help your brain establish beneficial habits—illustrating the profound value of doing nothing.

The best distractions.

At the onset, I mentioned the necessity of distractions. Many traders—even the proficient ones—fall into trading addiction out of boredom. The antidote lies in discovering ways to divert your attention. Activities such as engaging in hobbies, spending time with family, or taking vacations can help immensely. Yet, the most effective distraction may stem from a robust eagerness for knowledge and the enhancement of trading skills. Ideally, you should integrate several of these methods. Seek activities that speed up time, so you won't dwell on checking trades or worrying about your risk.

Maintain a positive mindset! Sitting in front of charts, fixated on every tiny market fluctuation, will not yield any advantageous results; instead, it breeds poor trading outcomes and breeds unnecessary stress.

In conclusion, the emphasis of this article is on the need to shift your mindset towards trading. The straightforward “mindset tricks” outlined suggest that to thrive in trading, you must adopt a realistic viewpoint, shedding the notion that “trading is a fast track to wealth.” While trading opens a plethora of opportunities, the more you feel a desperate need for instant success, the slimmer your chances become. When individuals feel dejected or anxious about generating profits, they are more likely to make reckless decisions, risking oversized positions and inevitably spiraling into trading addiction. Honesty with oneself, a gradual approach, commencing with smaller trades, and progressing as experience and confidence build is essential.

If you embrace the outlined recommendations—significantly reducing position sizes (even temporarily) and undertaking the proposed mental training—you’ll find it becomes easier over time to understand charts, identify signals, and execute decisively while maintaining a pressure-free state of confidence. This is precisely the state you wish to attain—and it is wholly achievable with the right focus and discipline. While you might not amass a million dollars in one year, you will undoubtedly adopt the mindset and actions of the top 1% of traders, setting a solid foundation for growth. Concentrate on one victory at a time, letting go of psychological fixations on trade outcomes (be it wins or losses) and reaching a state where you can confidently place trades, allowing them to evolve naturally.