Trading Lessons I Learned the Hard Way, Part 19

08/27/2012 1:36 pm EST


Ron Wagner

Principal Partner,

Ron Wagner of Revolutionary Trading discusses the lessons he learned from his early days of trading, and how his trading has evolved to become profitable.

Find the previous article here. Start at the beginning here.

Last time, I talked about some of the mindsets that were major obstacles for me to overcome. Let me continue my journey on this subject.

I now typically trade four days per week and about 40 weeks out of the year. I only take swing trades when the macro market environment is suitable. Using software, we can manage trades and adjust positions once or twice per day.

In trading, subject to one’s capital account size, making more money is not about taking more trades, but rather taking the right trades at the right time and controlling risk by how many shares we take. Once I grasped this concept, I was on a mission to feel in control of my trading and to trade only high-probability opportunities.

We all know that it is possible to make money with a 50:50 win-loss ratio, but for most this is hard to do. Most people have trouble with the emotional aspects of trading. In addition, most are challenged as to how best to manage trades in “whippy” and unpredictable markets. Figuring this out, I chose to work on the patience and discipline side of trading while achieving a higher win percentage.

Psychologically I found a lower win rate affected my attitude about trading. I strived to achieve a greater amount of success with a lower winning percentage. I found this worked in a trending market, but in a trending market I always had a larger number of winning trades anyway. This became a catch-22.

I know some traders that have done OK with a 50:50 win-loss ratio, but they are very few and far between. It was my choice on how to proceed with my trading plan. To best suit my personality, I was OK with reasonable gains, fewer trades, and trading with purpose. Each of us has that choice...and this must become part of our trading plan.

Once I knew that I wanted to achieve a higher degree of accuracy, trading became more about knowing that if I missed a pivot move, I should not chase a trade. I found this to be one of the hardest mindsets to overcome. When I first came to trading and studied different patterns and strategies, I thought they could be used at any time on any trading day. I sure learned quickly that this was not true.

I have talked to other traders over the past 12-plus years, and we all thought and wanted something to work all of the time and at any time we chose to trade. Unfortunately, I found trading was not so black and white, and therefore a great many elements I had to process.

Once I broke out of that mindset, I learned to be ready with my specific plan of action, which actually has not changed for about the past ten years. You see, once I found my niche and broke down my incorrect mindsets, I was free to trade with purpose. No longer was I taking trades from an emotional reaction. I no longer chased stocks or looked for trades when the market was not conducive to a high-probability trade.

I trained myself to only take the highest-probability trades during the best potential time, with the market helping my trade work out. Everything needed to be in alignment with my strict trading plan rules, and It actually became easy and nearly automatic.

I have found that sometimes when speaking in public, or online to hundreds of other traders, I may be oversimplifying trading. Maybe sometimes I do forget all the different challenges and obstacles I had to get through to simplify my trading. In my opinion, anyone can do some form of trading, and do it very well, if they follow a set number of guidelines.

I had to construct my own guidelines and trading plan and perfect each area of my trading along my journey. It was so worth it!

I am certainly not suggesting that everyone should trade exactly as I do, or for the same length of time I prefer, but I would strongly recommend everyone write down the steps needed to become a good trader and work on improving one element at a time.

Breaking down some of the incorrect mindsets and figuring out where you fit in will take you a little time, but it is very worthwhile. You only need to figure all this out once.

Lessons learned:

  1. You can make more money by increasing your share size after you have established your desired win-loss percentage!
  2. Don’t feel you have to take more trades, but rather focus on taking your trades with high probabilities of success!
  3. Find what win-loss ratio fits your personality and what will be needed to reach your goals!
  4. The higher your win-loss percentage, the easier it will be to become consistent. Once consistent, reducing average losses and increasing average gains can be worked on!
  5. Find out which mindsets you might have that are affecting your trading, and make adjustments so you can improve one step at a time!

Next, I’m going to talk about various points about trading in today’s current market environment.

Ron Wagner can be found at Revolutionary Trading.

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