During choppy markets like the one we’re experiencing now, trading can be tough. After all, stocks are experiencing a ton of back and forth action after each news headline pertaining to trade talks hits the wire.
For some traders, the goal is to be at break-even and not lose too much during this tough stretch.
Now, if this isn’t your market then you should sit on the sidelines…
If the typical strategies or holding periods aren’t working then you need to assess your results and see where the holes in your game are (and fix them)
For example, I’m hearing some traders are getting stopped out of their positions because they are setting targets too high. In other words, stocks aren’t trending so well, so you need to take profits quicker.
Another thing I’m noticing is that traders have not adjusted their sizing. For example, you should scale your positions smaller to take into account the added volatility in the market. With less shares you have more margin for error or wiggle room.
Now, you learn this type of knowledge on your own, and pay your tuition to the market… or you can get on the fast track like these traders did:
(Will you be number four? Join me this Thursday live for the launch of Freedom Trader)
That said, I like to share with you five tips and habits that have helped me go on to become a millionaire trader. I know once you start making these changes you’ll start to get positive results too. Read on for my trading tips for success.
Five Trading Tips for Success
You probably already know… there’s a steep learning curve when you’re learning how to trade. Now, I knew how hard it was when I first started… over the years, I’ve developed my own trading process and figured out some trading tips that could put you on the pathway to trading success.
That said, let’s take a look at the 5 trading secrets I wish I knew before I started.
1) Check Your Ego at the Door
A lot of beginner traders struggle with being stubborn. They’ll buy a stock thinking their thesis is spot on… only for the stock to go against them… then they think, “Oh this stock is cheap at these levels… I’m going to buy more to get a better dollar cost average.”
Thereafter, they’re in a large position, and it becomes extremely difficult to manage. Finally, when the stock falls even further, they get to their pain point… and end up taking a large loss.
One of the main reasons that many beginners take large losses from the start is when they don’t check their ego at the door.
Now, this doesn’t just happen to beginners… it also happens with experienced traders.
For example, late last year, I was riding high and crushing the markets… I decided to start trading options – thinking whatever I did was right.
You see, I was trying to be a jack of all trades… I wanted to make money in all markets, not just the stock market. However, I took a loss and told myself I would stop trading options.
Shortly after, I started to ride high again – sticking to what has been working for me… and I achieved better success when I stopped thinking whatever I did was going to make money.
That said, I bounced back from that loss, checked my ego at the door, and now I’m up over $300K this year.
Now, another secret I wish I knew about was preparation.
You might think all you need to do is get up in the morning… create a watchlist… and trade anywhere between 9:30 AM to 4:00 PM to become a trading success.
Well, it’s not like that.
Yes, having a watchlist is important… however, there are other factors that area just as important. For example, sleep is important to your trading success.
Have you ever woken up feeling foggy and found it hard to focus and pay attention?
Well, it was probably because you didn’t get a good night’s sleep.
Now, there have been studies linking sleep to mental performance.
According to the National Sleep Foundation, getting a good night’s rest helps us think clearly, remember information, as well as make crucial decisions – three things you need to become a better trader.
You see, when you don’t get enough sleep, your reaction time is slowed, you’ll have a hard time figuring out whether you should take a trade or not… and you’ll have trouble coming up with new trade ideas.
That said, sleep plays a crucial part when you’re trading.
Additionally, regular exercise also can improve your mental performance. According to Harvard Health, exercise helps us with our memory and thinking… and it improves our sleep, reduces stress and performance anxiety.
So when you have your health in check, you become more prepared for trading.
Lastly, keeping a journal can boost your trading performance.
For example, in your trading journal, you could include things like:
- Your sleep patterns. You can write down how many hours you slept and whether a lack of sleep is hurting your trading.
- Exercise. Did you exercise today? If so, how was your trading performance.
- Number of stocks traded and daily profit and loss (PnL).
Now, after the trading day… it’s probably not a good idea to shut it down and forget about all your trades.
You see, if you don’t write out how you did on your trades… you’re not going to know what’s working for you and what’s not… you can keep it simple with your trading journal. Here are some things you should include:
- Stock symbol trade, number of shares, PnL for the trade.
- Thesis. What were the reasons you got into the trade? Did you use a specific pattern, was there a catalyst you liked, or another type of analysis that you did?
- Entry, stop loss, target, and exit price.
- A chart of the price action.
- Date and time you entered the trade.
- Number of shares.
- Did you stick to your plan? Now, when you’re trading, you should have a plan before you buy a stock.
Your plan should include your thesis, entry price, stop-loss price, and target price. If you stuck to your plan, but lost a bit of money… that’s okay. As long as you remained disciplined and didn’t go off script, it’s a learning lesson.
Those are the barebones for a trading journal, feel free to add anything else to it that you think can help you better track your performance. Once you’ve had some trades logged… you can figure out what’s working for you.
For example, if chart patterns have been working for you… you know to focus on those. On the other hand, if news-event plays haven’t been working out well… then you know you should cut those to minimize any damage that could be done to your account.
Now, having a trading journal allowed me to figure out other trading secrets, like having a profit target and a stop loss.
3) Have Exit Strategies
Let’s assume you’ve found some signals to get you in to a stock… you might think the trade is pretty much in the bag… and you’ll take profits when you feel like it.
Now, I can’t tell you how many times I’ve seen trades buy stocks… see some profits… hold on for a bigger move… only to let the trade go against them and turn a winner into a loser. That usually happens when you don’t have a profit target.
You see, when you don’t have an exit in mind… that means you don’t really have a trading plan… and when you see profits, naturally, you’ll get a bit greedy and hold on to long.
That’s why I like to set my profit targets anywhere between 5 to 20%… and I’ll usually look at the charts to tell me when I should start getting out of my trades.
For example, here’s a look at how I found my target in my $9,300 winner in VERI last week (the same day I got back from vacation).
Check out the daily chart above. Now, I bought VERI because it was at an area of value, had a catalyst, and a bullish chart pattern.
Notice the green horizontal line above?
I didn’t just randomly pick that as my target. You see, that’s actually an area of resistance. In other words, VERI had a tough time breaking above that level multiple times before. That means there are traders looking to sell their shares around there or short the stock. That said, that’s a good area to take profits.
Not only should you have a profit target in mind… you should also have stop losses in case the stock goes against you.
With the VERI trade, it was pretty simple. I bought the stock after it broke above the blue horizontal line at $7.39. If the stock got back below the blue horizontal line… well, I would’ve stopped out somewhere below $7… that means the pattern failed, and the stock could reverse.
Here’s a look at an alert I sent out to clients – letting them know where to look to enter and stop out.
When you have stop losses and profit targets in place, you don’t have to worry as much… and you have a plan in place, which should improve your discipline.
Now, when you’re trading stocks, you shouldn’t base your decision on one factor.
4) Have More Than One Reason to Trade a Stock
A lot traders just starting out just find one reason to be in a stock… it might be one catalyst or just one pattern… however, when you’re trading stocks, the more reasons you have to trade it… the higher your chances of success.
For example, I focus on patterns, value, and catalysts.
Basically, I look for a pattern I like to trade, find an area of value to buy the stock… and have a catalyst.
Now, you can read more about how I use patterns, value and catalyst to trade stocks here – it works in both large caps and small caps.
Now, if you look at the VERI trade from earlier, I had three reasons to get in (in no particular order):
1) The ascending triangle pattern was forming in VERI. This is a bullish chart pattern, so I wanted to be long.
2) There was an area of value (the blue horizontal line). When a stock is forming an ascending triangle, if it gets above that line… chances are it’s going higher… so it’s a good spot to be long.
3) The company reported strong earnings the week before I got in.
Keep in mind, you could have more than three reasons to get into a stock… but a good rule of thumb is to only trade when you have more than one reason to get into a stock… because if your thesis fails, the whole trade just falls apart.
Last, but not least… I found out less is more.
5) Less is More
I get it… trading is exciting… and you want to get into as much trades as possible because you’re probably thinking, “The more I trade… the more money I make.” Then, you might start trying out new strategies – taking focus away from what’s been working for you.
Remember earlier, when I talked about options trading?
Well, had I just stuck to what I knew… it would’ve saved me money. Not only did I take a loss… I also paid a hefty opportunity cost.
You see, I was focused on options, rather than finding stocks with my favorite patterns, areas of value, and catalysts – which I probably would’ve made money on.
I’m not saying you shouldn’t try new strategies… you should maintain your focus and time on your money-making strategies… and only dedicate a portion of that time learning the strategy – trying out with trades with small trading size.
Again, more trades doesn’t equal more money.
You see, when you trade a lot of stocks… you’re actually overtrading, and those commission fees add up. Find too many attractive trades isn’t a bad problem to have. However, when you’re too active it could damage your portfolio.
Basically, when you have too many stocks in your trading portfolio… you’re exposing yourself to a lot of risks. For example, you’re exposing yourself to market-related risks like U.S – China trade war headlines.
Not only that you’re susceptible to company-related risks, like analyst upgrades and downgrades. So the more stocks you have in your portfolio, the greater your risks. That said, stay disciplined and focus on a handful of trades, as well as your bread-and-butter setups.
Great teaching moment thanks
Thank you Jason! I continue to learn from you! I’ve been able to recover most of what I lost making 3 basic mistakes; chasing, putting in too much of my small portfolio by buying down on a losing stock, and not following my instincts. I’m still baby spankin’ new! I love your service and will continue winning!
Your holistic approach to this is appealing.