How to become a better trader and escape trading failure
High performers call it “Evidence-Based Practice” or the TFAAT (try, fail, analyze, adjust, try again) approach. This way of improving and developing skills makes succeeding an almost certainty while following the “Hit and miss” approach leads to failure 99% of the time. In this article, we want to highlight the importance of this concept for traders and show how to apply it to your own trading.
Why traders fail – Hit and miss
Unfortunately, the hit and miss approach is how people usually approach their trading and it is obvious why the failure rate in trading is so high.
You start your computer in the morning, flip through a few charts, try to find an entry and if you can’t find anything, you go to a different market, try a new time frame or use a new indicator. Then, after you are done trading for the day, you close your trading platform and hope to find better trades tomorrow.
Traders who follow the hit and miss mindset usually change their system regularly, hop from market to market and do not have a systematic approach when it comes to analyzing charts and planning trades – let alone performance analysis.
Failure is the only possible outcome, although those traders believe that they are so close to finding “the right” system. Trading does not work this way. Expecting to become a professional and consistently profitable trader just by randomly clicking the mouse never works.
Success (almost) guaranteed – The evident-based approach
The reason why so few people follow the way trading should be is because it takes a lot of work and it requires constant effort. Professional trading, then, has nothing to do with hoping for success by clicking a mouse, but profitable trading becomes predictable and achievable.
Evidence-based training works in all areas where you need to develop skills – which is basically everywhere. It is not something we created out of thin air, but it is a proven way of achieving mastery. Let’s go through the 4 step process how anyone can improve and develop his skills:
1 – Try and fail
Trying means that you do the task. Naturally, your initial results will probably be rather disappointing and the most probable outcome for beginners is failure, besides the occasional beginner’s luck.
In trading especially, it is important to fail in a way that allows you to come back and keep on trading. Your initial risk should be small and implementing capital protection rules is essential to survive this first phase.
If you have made it to his phase, you are already ahead of 90% of all traders who will be stuck in the Try-Fail-Loop forever – or at least until they quit.
It is surprising how few people actually look for answers to their failures; most traders never stop losing and never change their approach. And no, just changing your trading system is not good enough here.
Insanity: doing the same thing over and over again and expecting different results. – Albert Einstein
Although we are a little biased, we see it every day when interacting with our users, keeping a trading journal is the only way to get adequate feedback about your performance. Analyzing your past trading performance has to be much more than just checking whether your account balance goes up or down. Here are 7 things to look for when analyzing your performance:
- Am I making impulsive and emotionally driven mistakes? When do I make most of my mistakes?
- How well do I respect my rules and when do I violate them most? How much money does it actually cost me?
- Under which market conditions does my method perform best/worst?
- Do I make trade management mistakes? If so, what causes my mistakes exactly?
- Is my order placement effective and is there room for improvement?
- Which time frame provides the best results and when should I not trade?
- What or other factors that influence my performance? And when do they interfere with my trading?
Most traders will never ask themselves those questions and even fewer will try to find answers. Broker statements won’t provide answers either. Manual journaling can be a tedious and time-consuming task, but there is no other way to find answers to the questions that will turn you into a professional trader. An effective feedback loop is critical for making improvements.
3 – Adjust
After you have identified your weaknesses and strengths, you need to adjust your approach. The majority of traders believes that adjusting means looking for a new trading strategy, but “system-hopping” has never made any trader profitable; it is a mental shortcut for the lazy ones.
The serious trader enjoys the learning process and each time he finds a performance “leak” he makes a small adjustment to his trading. However, the trader seeking professionalism avoids major changes to his methodology so that he can evaluate the exact impact of his adjustments effectively.
4 – Try again
After going through the analysis and adjustment loop, you can go back to your trading and apply what you have learned. You’ll probably have to repeat this cycle many times, but each time you feel more confident in your skills and your approach. You move away from the general gambling mentality and take full control over your journey, actively improving your skills and slowly moving towards your goals.
Becoming a better trader does not have to be a frustrating and impossible endeavor. We understand that in every other area of our lives it is important to analyze how we perform to get meaningful feedback and then be able to make necessary adjustments to improve. Why do so many people fail to see the connection when it comes to trading?
“If people knew how hard I had to work to gain my mastery, it would not seem so wonderful at all.”
– Michelangelo Buonarroti
“My overnight success was really 15 years in the making. I’d been writing songs since I was 6 and playing in bands and performing since I was 14.”
– Lisa Loeb
“An overnight success is ten years in the making.”
– Tom Clancy,
“What separates Masters from others is often something surprisingly simple. Whenever we learn a skill, we frequently reach a point of frustration – what we are learning seems beyond our capabilities. Giving in to these feelings, we unconsciously quit on ourselves before we actually give up.”
– Robert Greene