The most overlooked trading skill and what is takes to turn your trading around
Why is it that traders tend to repeat the same mistakes and apply incorrect trading behavior over and over again? Some traders are stuck in the same loop of losing money consistently and making absolute beginner mistakes, even after years.
There are, in fact, numerous reasons behind such destructive behavior:
- Unrealistic expectations (which leads to over-trading, over-leveraging and breaking the rules)
- Impatience and wanting to grow the trading account faster
- Always wanting to make up for losses
- Not being clear about trading rules and chasing price and trades
- No clear structure to the trading process
Undoubtedly, it’s a lot of work to overcome all these challenges one by one; however, there is one skill and action that can help traders make progress a lot faster which we will come to in a second.
What do you do after you close your trade?
A typical trader closes his trades and then never looks at them again – ever. Such a trader is avoiding all possible learning effects because a trader who does not review his trades will quickly forget about his mistakes and screw-ups and repeat his behavior over and over. If that describes your approach, don’t worry, there is an easy fix for all your problems.
In any profession or business endeavor, people follow review processes in order to improve and make sure they stay on track. A (good) sports team watches the recordings of their last games analyzing weaknesses and then start working on them very targetedly; a business man does weekly and monthly audits and goes over his accounting to make sure he understands where his enterprise is doing well and what isn’t working; and a good student reviews his past tests to find areas where he needs to study more in order to pass the next exam. That’s nothing new, right?!
But traders too often fail to apply common sense to their trading process – if you can call it that – and they just stumble from one trade to the next. Traders then usually say things like “my system isn’t working”, “I need a better indicator” or “the market is just unfair” whereas they have no way of quantifying if that is actually true.
We have worked with over a thousand traders and although traders usually believe that their losses are their trading method’s fault, THEY themselves are the real problem. At the same time, the majority has no review process in place that could tell them what is going wrong.
Self-awareness – the missing link to your trading success
Self-awareness has nothing to do with spiritualism or meditation, but it describes a way of understanding your (trading) behavior and objectively overseeing yourself and your actions. As we said earlier, record keeping is the easiest way to create a professional review process and in trading, having a trading journal does just that for you.
A trading journal forces you to go over your closed trades once again and relive them. When you write down the reasons why you (falsely) entered, note whether you broke the rules or not, keep track of how you (incorrectly) managed the trade and why you exited too early or too late, you are already ahead of most traders. Once you start reliving your closed trades with the help of a trading journal, with some distance to the trade and with more objectivity, the lessons tend to sink in much better. Also, when you have to enter for the 10th time that you made the same mistake, took an early entry or didn’t wait for your indicator confirmation, many traders report that they tend to skip such bad trades more often in the future. If you know that you have to come back to your journal and enter such an unnecessary losing trade AGAIN, you’ll also keep that in mind during your trading.
We are the first to admit that journaling trades is work and we know that most (amateur) traders prefer to spend their time trading and hunting signals instead of copying trades into a journal but there is no replacement for what journaling does for you. Becoming more self-aware and understanding how much money your mistakes are costing you can be a real eye opener for many traders.
A professional trading routine
In your Edgewonk trading journal you can also attach 2 screenshots to your trades and review them in the ‘Chartbook’ section to get an even better understanding of how well you keep following your rules and trading plan. We recommend coming back to your Chartbook once a week, preferably on a quiet Saturday and going over your past trades. Take a look at your screenshots, see how well you executed your trades, try to find common patterns in your trading and become aware of your weaknesses.
For starters, assess whether your trades and screenshots look similar of very different from each other. Especially if you are a technical trader, your screenshots and trades look very similar if you obey the rules.
Then, in the final step, go to the ‘Sessions’ section in your Edgewonk journal and create a new session for your trading week and capture your thoughts and lessons (more tips on how to create a session and using the sessions section).
And this is all there is to it. A trader who has no review process in place misses all learning opportunities and he is more likely to repeat his bad trading behavior. A trading journal is the easiest and the most effective way to create a professional review process and to become more self-aware. With Edgewonk, you can establish a powerful routine all in one place to help you take your trading to the next level.