7 practical ways to break a negative cycle

As a trader, it’s not uncommon to feel frustrated with a lack of progress … to feel like our trading is going nowhere … or that we’re stuck in a dead end.

Sometimes, this is because we’re practicing negative behaviours, that are causing problems in our trading.

And sometimes, it’s just because we’ve bought into the hype of “get rich quick” merchants, who tell us that we can all be millionaires in time for Christmas. And when that doesn’t happen – we think we must be doing something wrong.

Today I’d like to look at 7 simple fixes to identify where negative cycles of behaviour could be letting you down (so we can fix them), and also to focus on the positive stuff that you’re getting right.

1. Gather information  

Okay, it’s been a little while since I banged on about this one … This is the single most important tool for ANY trader. It has the power to turn bad trading strategies into good ones. It has the power to snap you out of bad behaviour. And will continue to make you a better trader year on year.

I’m talking about keeping a trading journal.

If you’re not currently keeping one, there’s absolutely no excuse. It doesn’t need to be overly complex. In fact, you can even download the free Trader’s Bulletin Excel spreadsheet version on our website (just click here).

By keeping a trading journal, you can track exactly how you’re doing (instead of how you think or feel that you’re doing). You can pinpoint which trades are letting you down, and which are your best trades. By running through the results in your journal regularly, you can spot patterns that will improve your success rate.

For example, you might notice that your trades between 7am and 8am are producing the majority of your profits … Or that those with a wider range have a worse success rate … Or that one instrument is significantly outperforming others …

You can then take this information to test out variations on your strategy.

This is how winning strategies are built – and how they maintain their edge.

This process needn’t be daunting – just take a look at the Trader’s Bulletin trading journal, and you’ll see how quickly and simply you can get started.

2. Too little profits? 

Are you making money? Are you losing money? Or are you standing still? These should be easy questions to answer (especially if you have your trading journal to hand!)

I often hear from traders who are lamenting that they’ve only made £200 in the last 6 months. I then ask them what their fund size is, only to find that they are trading with £2,000. That’s a 10% gain in 6 months. By any standards, this is a respectable result (and has beaten most hedge-fund managers).

Admittedly, £200 isn’t going to have a big effect on your Ferrari fund. But that’s the whole issue with trading – it’s not about counting the profits you’ve made in your first 6 months – instead, it’s about building on that foundation to create serious long-term gains.

Compare this to how most of us pay off our mortgages. In the first year of a £100,000 mortgage, spread over 25 years, despite the large payments to the bank each month, you’ve probably only actually paid off about £1,500 or £2,000 of that loan. It seems like a paltry sum. But over the long term, keeping up the exact same repayments will achieve the goal, and you’ll be paying off a bigger and bigger proportion of your debt each year.

So, even if you’re only making a little money in the markets, you shouldn’t be down on your trading. Instead, you should congratulate yourself, because you’re doing far better than most.

3. Standing still? 

But what if you’re not making money? What if you feel like you’re treading water – making a few pounds, only to give it back a few trades later?

The first thing to do is to congratulate yourself for holding on to your capital – this is no small feat. And, if you’re doing that, then you’re very close to achieving profitability.

To make money from the markets, you don’t need to be winning 3 times as much as you’re giving back – you only need a tiny edge over the market to achieve long-term success.

This feeling of treading water is often a sign that you’re overtrading. Take a look at your trading journal (yes, that again!) and try to pin down which are your weakest trades, and consider how you can filter this out of your strategy.

Perhaps there’s an instrument that’s dragging down your performance. Perhaps you’re trading around key data releases, when you shouldn’t be.

4. Dealing with losses? 

Now, I’ll deal with the third scenario – that you’re not making money … you’re not even standing still … in fact, you’re losing money hand over fist.

First off, if your trading account has drawn down to a level that’s causing you serious anxiety, the first thing to do is: stop live trading.

Don’t throw out your trading strategy outright, though – simply switch into demo mode. This will give you the time to analyse what is going wrong, or whether this is just a sticky patch – without the stress of watching your fund disappear.

Very often in this kind of scenario, traders will dismiss their trading strategy, casting onto the “failed” pile. However, I firmly believe that most systems can be turned from zero to hero simply by adding a few tweaks to your entry and exit criteria.

Again, this is where your trading journal will be essential in mapping out what’s working, and what isn’t.

5. Don’t be driven by fear 

Fear of failure is another catalyst for much negative behaviour in traders. Some traders are paralysed into inactivity by fear … some refuse to accept a loss (leaving huge losing trades “hanging” on their open positions, in the hope that one day the market will come back) … and some will take bigger and bigger risks to recoup losses.

The tough part is recognizing that there’s a problem there. “Fear” traders tend to be in denial!

If you suspect that fear might be driving your trading decisions, the good news is that the solution is a simple one. Simply reduce your risk on each trade. If you’re risking 2% of your fund on each trade – cut this back to just 1%. The effect this simple change will have on your stress levels can be staggering – suddenly your trading focus will switch to long-term goals, rather than sweating about yesterday’s bum trade!

Now, while I’m on the subject, a little word to the traders who are risking 10% or 20% or “I don’t even know how much” of your pot (yes, you know who you are!). When you’re on a winning run, this might feel fantastic, seeing your fund increase this fast – but, without exception, this kind of risk will cause you to wipe out your fund. There simply isn’t a trading strategy out there that can avoid losses to the degree you require if you’re trading at this level.

And, if you don’t know how much of your pot you’re risking, please don’t just put down a bet of £5 and hope for the best! And if you don’t know your risk – don’t take the trade. It really is simple to calculate the risk on each trade – and the electronic trade journal (yes, that again!) can help you with this.

6. Mind your friendship groups 

Trading is a lonely game, and feeling isolated is no way to help break out of negative patterns of behaviour. However – be careful who you befriend. There are many great communities, where traders can exchange ideas and advice. But there’s also a lot of hype and misinformation.

7. Recognise your real financial power 

It’s all too easy to slip into negative feelings about our trading when we’re going through a rough patch. It can make us blame others for our lack of fortune, or resent others for their good fortune. However, if we stop looking at others and comparing ourselves to them – we can begin to empower ourselves.

The truth is, that the size of your trading fund may be a measure of your wealth right now … but it isn’t the measure of your financial power. Financial power is about a mindset that isn’t knocked back by failures or by the sometimes-overwhelming feeling of having to start at the bottom.

It’s where the most successful people start from.

Trading the financial markets isn’t like winning the lottery – it’s about perseverance towards your long-term goals … it’s about turning small pots into big rewards … and, most importantly, ensuring that you’re still in the game each day. To me, it’s the most rewarding job in the world (and I’m not just talking about the money!)

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