Trading's “Secret Sauce”

05/23/2014 6:00 am EST


Just like most things in life, the secret to trading success is simple, says John Locke of SMB Training Blog.

For those of you who knew me early on in my trading career, you’ll remember that I’ve had some great failures. I’ve made mistakes, had repeated losses, and have felt like I was never going to make it at times.

Luckily for me, I had already secret knowledge required to become a great trader and once I discovered I already had it, things began to quickly turn in my favor. This secret knowledge helped me go from an aspiring trader who was losing money and frantically jumping around from system to system, getting nowhere, into the trader that I am today in a very short period of time by most peoples standards.

So what is this secret knowledge that was responsible such a dramatic change in my results?

First let me tell you what it wasn’t. It wasn’t finding the perfect set of trading rules or some new adjustment strategy. It wasn’t continually trying the next new thing that came along. It wasn’t trying to find the perfect entry. And it wasn’t sitting there spending hours on things that don’t matter like the exact day you should enter and diving deep into every possible thing I could know about the Greeks.

Here is the secret to your success in trading.

Know specifically what you want in great detail. Not just how much money you want to make but how much time you want to spend trading, the amount of drawdowns you are willing to experience and the amount of risk you are willing to put up with, and be realistic. For example if you say I want to make 100% on my account per year, I want no drawdowns, I want to look at my positions once a week and not take on any risk. That’s like saying I want to make a million dollars a year as a pro basketball player, and all I’m willing to do is buy some courses on how to play basketball and practice a few times a week. It’s not going to happen that way and you’ll need to change your expectations or you are wasting your time. It’s the same way with trading.

Take action with intention. Make lots of trades, not just one per month, try 30 per month or more. Find someone who is getting the results you want in the fashion you’d like to get them and model them. Decide on a system or set of systems that have the potential to get the results you want and then work with that system until it works for you. This is key, you are not going to find some set of rules that are instantly going to get you the results you want. You are going to have to pick a system and work with it for extended periods of time and experience many failures before it works for you, and even then, you will still experience losing periods. That’s just part of trading and if you cannot deal with it save yourself a lot of time and money and find a new profession.

Have situational awareness. Notice what is working and what isn’t as well as when certain things are effective and when they are not. Notice EVERYTHING and then record it so you can reference the information later.

Exercise behavioral flexibility. When something isn’t working, find out why and change your approach. This does not mean switch systems! This means make modifications as needed to adapt your system so that it works. There is a big difference. If you had done your research, you should have already determined that the system was capable of reaching your goals, so you should be able to make it work. If for some reason you have exhausted the possibilities and have definitely determined the system or a modified version of the system will not fit your wants, only then should you switch programs.

Operate from a psychology of excellence. Even if you found the Holy Grail you’ve been looking for, it’s not going to do you any good if you don’t follow it or if you become overly stresses out or if you take on a negative mindset. As soon as this happens no trading system is going to work, ever. Therefore, it is essential that you acquire and maintain a positive mindset. I’ve seen many people give up on great trading systems solely because of mindset issues and I’ve also seen people achieve amazing results with very simplistic systems that most experts pass off as poor systems. What’s the difference? The mindset!

Utilize anything and everything to your advantage. If the market makes a move against your position or if you take a major loss or if you make a mistake, NEVER sit there and get upset and ask “Why did this happen to me?” or “How could I be so stupid?” All that does is make your brain come up with some stupid answer that is going to have absolutely no benefit to you. Instead ask yourself empowering questions that will help you become a better trader or make a better choice next time. Ask questions like “How can I best take advantage of this move?” or “What can I do next time to insure I make a better decision?”

By John Locke, Contributor, SMB Training Blog

Related Articles on STRATEGIES