The art of becoming a good trader is the ability to trade consistently and profitably. Many traders focus too much time on chart patterns and research and miss the bigger picture of creating a consistent trading ritual.
What is a good trading ritual? It’s one that helps you clear out the noise of the market and talking heads. That way, you find mistakes quickly and areas in which you need to improve. By repeating your process over and over again you will be able to find more trades, be right more often, manage your risk easier, and be an all around better trader.
If you want to learn to create a successful trading ritual, here is an outline of a process that was taught to me one of my trading mentors and it still works to this day.
Step 1: Get Into The Right Mind Frame
The first thing you should do before you place a trade is get in the right frame of mind. I do this by asking myself what is my top goal for the day. I get very specific and that’s the secret to getting in the right frame of mind.
Here is an example: I am going to be $800 today by risking $5,000. My trade loss will not exceed $1,200 and I will exit when I reach $800 in profit.
By doing this I automatically start feeling more determined and confident. I know why I am doing something. If you don’t understand why you’re doing something, you will end up forcing a trade or not trading at all and missing an opportunity.
Step 2: Get Your Bearings
I need to know what’s happening from a 30,000 foot view to a 200 foot view and everything in-between before I place a trade. I start by looking at the global news and any information affecting the markets and the economy. I am searching for major events that could disrupt my style of trading. If I find something big and I don’t understand its implications, I either do more research or I don’t trade.
I take this approach and continuously narrow it down from a global macro perspective down to the the specific stocks and options I am trading that day. The whole time I am getting my bearings I am looking for signs that either help with my convictions about the market or hurt it.
Getting your bearings can really help you with not getting into bad trades. If you skip this part you might miss something simple that could cause you to lose money.
Step 3: Manage Your Trades
The next thing I do is look at my current positions and ask myself whether I would place the exact trade again today.
If the answer is yes, then I consider adding to my position. If no, then I need to get out.
I go through both the technical and fundamental information regarding my trades and make adjustments to those first before I search for a new trade.
Step 4: Search For a New Trade
Because I have my one goal for the day, searching for a new trade is a little easier. I usually find something when I am managing my existing trades or finding my bearings. I usually go back to a chart or article I found and start building my trade idea.
I break my trading into the following buckets:
- Directional Trades without leverage (Trends)
- Directional Trades with leverage (Trends)
- It’s not going there trades (options oriented)
- Gaps and Breakouts
- Time trades (options oriented)
- Pre-move bets and Flyers
- Core Portfolio Positions (longer term investments
Once I found a trade that I like, I start to build my trade log. A trading log is massively important to building a long term profitable trading business. It’s the equivalent to tracking cash flow in your business. Without knowing why you got into a trade and what you are going to do, you are flying blindly. So, build out your trade on paper and set your parameters based on your goals.
Step 5: Execute (Make Money)
You are in the right mind frame if yo’re gotten this far. Now you are ready to place a trade!
This process my sounds like common sense or overkill depending on your personal trading style. However, like having a consistent approach. Much like how your golf swing can help with consistent ball striking, a proper trade setup can lead to a more consistent and profitable trading career with less headaches and more wins.
I would love to know your pre-trading rituals and hear how you approach the markets daily. Leave a comment below or email me directly at firstname.lastname@example.org.