The ultimate goal of traders is to reach the point where they become consistently profitable in the market. However, this does not happen overnight. In fact, it takes many traders many years to get to this level and, unfortunately, some traders never make it.
So, what traits lead to market stability? Well, there are some similarities among successful traders that can be analyzed. Below you will find a list of key concepts that can help you achieve consistent profits in your trading.
Choose one trading strategy and stick to it
The very first element to achieving consistency in trading is to learn and stick to a proven trading methodology. You can learn many different methods of market analysis. Some of them will be based on technical analysis , while others will be based on fundamental analysis , statistical analysis or market sentiment analysis.
In the beginning, you will need to become familiar with as many different market techniques as possible so that you can figure out which trading style best suits your skills and temperament. Once you have narrowed down your trading style that best suits your psychology, you need to dive deep into this strategy and learn everything you can.
This includes reading all relevant books from authorities in the field, taking courses, and attending training sessions as needed. The point is that whatever trading strategy you choose, you should ultimately have the goal of becoming a master of that trading technique.
Now one of the biggest problems for traders is lack of patience. Due to lack of patience, it often manifests itself in the inability of many aspiring traders to stick to one method of trading or another for any reasonable amount of time. In other words, at the first sign of a problem, such as a drawdown, these traders may stop using the strategy and start looking for another method altogether.
This usually ends in a futile search leading nowhere. The fact is that every trading strategy has its periods of ups and downs. The sooner you realize this as a trader, the closer you will be to becoming a consistently profitable trader.
Focus on trade setups with the highest probability
It goes without saying that you should focus on using only the best trading setups that the market has to offer. However, this is easier said than done. Often our desire to constantly work in the market leads to the conclusion of low-quality deals.
The misconception is that a trader must trade often and always have a position in order to make good profits in the market. This is far from the truth. What matters is not the number of trades you make, but their quality.
Most traders know from experience which trading setup works best for them in terms of providing the best risk reward profile. Thus, isolating this part is not too difficult for many traders who have been trading at least for a while.
The problem arises when you sit idle for a while due to a lack of market opportunities. It is at this time that we become most vulnerable in terms of trade. When there weren't many deals, we tend to lower our standards and get involved in deals that we wouldn't normally get done.
So, we need to obey those urges that force us to use types of less likely trading setups. As you begin to internalize the concept that trade choice is far more important than trading frequency, you will be well on your way to focusing on consistently winning setups in your trading arsenal.
Create a detailed trading plan
To get on the road to consistency, you must start with a well-defined trading plan. A trading plan should detail every aspect of your trading business. This includes items such as your trading settings, including entry, exit and trade management processes. You should also specify which markets you will be trading in, as well as your preferred time frame and position sizing options.
In addition to this, a well-written trading plan should include your main trading objectives, including both short and long term trading goals. There are many details that need to be included in a trading plan. It should serve as a guideline for your trading business as a whole. While it is not possible to account for all the known and unknown situations that may arise in the market, traders should try to account for as many of these variables as possible.
This will go a long way in becoming a more profitable trader. This is because planning and executing your plan will help you avoid losing trades. Instead, you will have a set of well-defined rules to follow that have been planned in advance.
Create a trade execution checklist
A trade execution checklist goes hand in hand with a properly prepared trading plan. Think of a trading plan as the big picture related to your trading business, and think of a trade execution checklist as a more detailed process for completing certain details of your trading plan.
The trading checklist should be as simple as possible to avoid analysis paralysis. Essentially, a trading checklist should detail every step you need to take before setting up a trade. This is extremely important because while we like to think we know exactly what needs to be done before entering a trade, in many cases lapses can and do occur. With a trade checklist, you will be more confident in finding quality trade setups.
A simple example of this can be illustrated as follows: after defining my bullish trade setup, I:
- check long-term support and resistance levels
- confirm that prices are trading above the 50-period moving average line
- make sure there is no planned news that could affect the deal
- check to make sure I don't have any open positions that are positively correlated with this new trade.
So you see, a trading checklist can help control your thought process and help you become more efficient throughout the execution process, leading to more consistency in your trading.
Complete all trades, even the most complex ones
Once you have a trading plan and trade execution checklist in place, the real work begins. In other words, you must learn to trade based on the rules you have laid out with as little fluctuation and emotion as possible.
This is because if you start carefully choosing the trades you take and the ones you avoid, you will inevitably miss out on some potential opportunities. More importantly, by accidentally taking only a percentage of the settings that were required based on your trading rules and trading plan, you are actually creating an inconsistency in your trading program.
And by creating such inconsistency, you will not be able to effectively track the performance of your overall trading strategy. Thus, it is of the utmost importance that you use all the trading setups provided by your trading strategy.
We all know that some trades are much easier to execute compared to others. But as many successful traders have learned, you never know which of your setups will eventually work and which won't. As such, you must become consistently consistent in following your trading plan and sticking to all of your trading setups, even those that are difficult for you to pull the trigger on.
Publish all information about your transactions in the magazine
If there is one step in the entire trading process that more traders bypass than anything else, it will be the task of keeping a log of trades on a regular basis. It is often said that what can be measured can be improved.
This is certainly true when it comes to trading in the financial markets. If you don't take the time to post the details of each of your trades, as well as your thought process while trading, you won't be able to improve your results over time.
By examining all your trade data and your state during the execution process, you can help isolate problem areas that you need to work on. At the same time, you will begin to understand where your strengths lie in the trading process and how you can improve these qualities.
Creating a trading journal doesn't have to be a difficult task. Of course, there are trading journal programs that you can use to get more detailed data, but you don't have to start with these advanced tools. You can simply write down your trading details and thought process on a piece of paper or Word document and work from there.
Eventually, you will want to become more organized in your task of keeping a trading journal, but more importantly than anything else, you must believe in it and start doing it right away.
Build your daily trading routine
One of the best things you can do to achieve consistency in trading is to build a daily routine that will become second nature to you. There is something inherently valuable in repeating positive habits every day. And it's not just a matter of opinion, it's a well-documented fact that many psychologists have assumed.
Simply doing a task on a regular basis can have a positive effect on our mental state. Once we build our daily routine around our trading, we feel more comfortable with the overall process, and as such it puts us in a more relaxed state, which will inevitably improve our decision-making thought processes.
An example of a daily routine might be the following: get up at 7 am. Take a shower, shave and have breakfast by 8 o'clock. Complete a 15-minute meditation session between 8:15 AM and 8:30 AM. Get to my trading station by 8:45. Check overnight market activity and draw all relevant support and resistance levels by 9:15. Watch the New York Stock Exchange market open at 9:30. Look through all the stocks on my watchlist at 10am and identify the ones that show the highest bullish momentum. Between 10 and 11 hours, look for a potential pullback to enter one or more of these trades.
Know Win Rate is Only Half the Equation
To make a profit in the market, you must have a consistent trading strategy. A consistent trading method does not mean that every trade will be profitable. In fact, many profitable trading strategies have a win rate of less than 50%. This is something that seems a bit confusing to some beginner traders. These traders often believe that the only way to make money in the markets is to use a strategy with a high percentage of winning trades. The one that brings more profitable trades than unprofitable ones.
What these traders don't realize is that win rate is just one aspect of the profitability equation. Another component that is often overlooked is the risk profile reward. In particular, the higher the risk reward on a trade, the lower your win percentage can be to achieve profitability. Conversely, the lower the risk reward on a trade, the higher your win rate should be. This is an important distinction that all traders should be aware of.
Depending on your own mental makeup, you may prefer a trading strategy that offers a higher win percentage but a lower average profit to average loss ratio. On the other hand, you may be interested in a strategy that offers a lower percentage of profits, but has a higher ratio of average profit to average loss. You must decide which methodology is more attractive to you and implement it in your trading program accordingly.
Understand that your main job is to contain risks
It is important to understand that we have very little control over the markets. What we can control is how we react to market events and how much risk we allocate on any given trade. Thus, even with a trading strategy that has a significant advantage, we can still suffer from black swan events that can permanently destroy our trading account. Thus, as a trader, we must realize that our main role in the market is that of a risk manager.
Unfortunately, most traders are too focused on making a profit in the market to ever take the topic of risk management seriously. It is only when a catastrophic market event occurs that results in the partial or total destruction of an account that traders begin to truly understand the importance of minimizing risk in the market.
Risk in financial markets comes in many forms. Risk can be viewed in terms of account security risk, market event risk, trade execution risk, computer hardware or software risk, weekend break risk, and many others.
Traders should make a list of all the different types of risk components associated with trading the markets and try to work out each one. This ensures that you are better prepared for unexpected events that could potentially ruin your trading account.
Be prepared to adapt to changing market conditions
The best strategy for stable profits in the forex, futures or stock market will vary depending on the current market environment. Thus, for optimal results, you must use different strategies.
For example, when markets show directional price movement, it would be better to use a trend-following approach. Conversely, when markets exhibit range-bound price behavior, it would make more sense to include a mean reversion approach in that market context.
So, there is no single best strategy suitable for all market conditions. Traders should be able to assess the current market environment and align their trading methodology with these current conditions.
We cannot impose our will on the market. That is, if the markets are trading sideways, we cannot force the market to enter a trending phase. However, what we can do is recognize the current environment and adapt by going to our instruction and finding a compatible strategy that suits the market at that particular moment.
This is something that some traders find difficult to do, primarily because they either consider themselves to be trend traders, countertrend traders, or some other concept related to their trading style. However, the best traders recognize that these are just labels and instead focus their energy on aligning with what the market is doing at the moment. Thus, they can extract the maximum profit from their trading activities.
Final Thoughts
The most consistent market strategy for you will be the one that best suits your personality. Only when you are fully confident in your trading strategy will you be able to survive the inevitable drawdowns that come with trading with any method. And so, first of all, you should take time for your self-esteem so that you can recognize your strengths and weaknesses. This will then help you choose the right type of trading style to be personalized for you.
And remember that your path to becoming a consistently profitable trader has no end goal. When it comes to market speculation, there is always room for improvement. Nobody in this business is perfect and never will be. The best we as traders can hope for is to continually improve and adapt to the market so that we can stay ahead of trends and maintain a level of trading consistency that results in consistent profits in your account.