The 3 Pillars Of Profitable Trading – 3 Steps To Consistent Profitability
After years of engaging with hundreds of traders, we have seen that most traders feel overwhelmed and do not really know where to get started when it comes to improving their trading skills. There are so many things you could be doing: testing indicators, using different timeframes, optimizing position sizing and risk management, learning about fundamentals, managing trades differently…the list goes on and on and on.
The most successful people in any industry and profession are always the ones who have mastered and perfected the basics. The professional tennis players hit the same ball tens of thousands of times, golfers work on their swing for hundreds of hours and boxers practice their jab until exhaustion. It is not the special tricks that set the professionals apart, but their willingness to perfect the core basics and keep practicing them even when they are already the #1 in their field – whether they feel it like it or not.
“I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick 10,000 times.”
The 80 – 20 rule of profitable trading
The same holds true for traders and the best traders keep working on the basics. We will now explore the 80-20 rule which suggests that 80% of our results come from 20% of our actions and this principle is widely accepted in the business world (80% of the revenue comes from 20% of the customers…)
80% of trading success is caused by 20% of your actions. What this means is that there are only a handful of core trading principles and components that make up for most of your trading results. We have worked with thousands of traders and we noticed that a trader rarely does completely everything wrong. Usually, there are just one or two habits or errors that make up the most of his losses and he keeps repeating them.
While most traders get lost in the nitty gritty, they are overlooking what is really stopping them from trading success. Therefore, ask yourself:
- What is my greatest trading problem right now?
- What is causing my greatest losses?
- What would make the biggest difference in my trading?
- What is the one thing that I just can’t stop doing although I know it’s killing my trading?
Most traders always worry about finding a better indicator, trying a new price action signal or jumping around timeframes, trying to find the Holy Grail that will suddenly turn them into winning traders.
Just pause for a second here and think if those things are really ones that keep you from reaching success or is it maybe your inability to adhere to your rules, to write and follow a trading plan, to stay patient and wait for good signals, to stop revenge-trading and over-leveraging that is causing your trading losses?
When it comes to profitable trading, there are mainly only 3 pillars that you need to master if you want to trade successfully:
The 3 pillars of profitable trading
Those three pillars describe probably 90% of all the issues that keep novice and struggling traders from reaching profitability:
1 – Making mistakes that wipe out all your profits
Often, traders can be incredibly disciplined for 2, 3 or 4 weeks and really perform at their best. But then, suddenly, something messes with their mind and they lose all their previously made profits on one trade by revenge-trading, taking random trades, widening their stop loss or adding to the losing trade.
Often, traders are much closer to profitable trading than they realize, if they could just stop repeating the same old mistakes they KNOW they shouldn’t be making.
The Edgewonk Tiltmeter provides direct feedback about your level of discipline and shows you how well you respected your rules over the past trades…or didn’t. Solely by knowing that their mistakes will cause the Tiltmeter to rise, some customers reported that their trading has improved significantly.
2 – Mismanaging your trades. Turning winners into losers
Once in a trade, traders are often clueless what to do because they have focused only on the entry. By mismanaging stop loss and take profit orders, taking profits too soon or exiting losing trades too late, traders often turn their potentially profitable trades into painful losers.
How often did you pull your stop too fast too close to the current price just to get taken out by a small pullback? How many times did you close your trade ahead of your take profit because you were scared to give back profits, but then price went on to your target without you? How many times did you hesitate to close your loss even though you knew it was the right thing to do and then ended up with an even bigger loss?
Edgewonk calculates your potential performance and shows you exactly whether your trading behavior and your trade management are making or costing you money. It eliminates the guesswork and shows you directly what you should be doing.
3 – Overleveraging & Expectations
Most, if not all traders, start out in this business with dreams of riches and an easy lifestyle. They throw some numbers on a spreadsheet and see that if they can “only” make 10 ticks or pips per day, with an average risk of 5-10% per trade, they will be a millionaire in 6 months. It seems that learning lessons the hard way is the only way to go in the early stages of a trading career. But does it really have to be painful and expensive? Not necessarily.
It’s important that you get your expectations right from the start. Don’t expect to quit your day job within the next few years and live off your trading income. Understand that this is a long-term play and it does not matter if it takes 3, 5 or 10 years. You have plenty of time and you must approach trading from a conservative standpoint.
Unrealistic expectations also quickly lead to frustration and can be demotivating. Don’t worry how much money you can possibly make. Instead, make sure that you become a disciplined trader who does not jump around trading systems and that you make progress continuously.
What is your greatest hurdle? We challenge you to really dig into your performance and look beyond flashy indicators or different signal methods. Really understand your biggest leaks and find those 1 or 2 things that cause your account to bleed. I am fairly positive that for most, their losses are not caused by choosing the wrong indicator, but because they are the weakest link in their trading.
Don’t know where to start? Take a look at our trader development program where we will give you a step by step system on how to find your weaknesses, turn them around and hopefully become a better trader