Professionals don’t count their money while they are working they focus on execution. A surgeon doesn’t look at the clock for how much money they have made, they focus on the surgery, patient, and process. Professional athletes keep their eye on the ball and not the scoreboard when they are on the field of play. Professional traders are no different, they must focus on executing their system not on the money they are making or losing on any one trade or one day.

To make money a trader must first have a strategy with and edge, then they must practice executing it consistently with discipline.

Here are errors that new traders make when they focus on their account balance instead of their process.

  • When a trade goes against them instead of taking their stop loss they want to wait for the trade to get back to even. They hate taking the loss due to an ego problem of always wanting to be right.
  • After a losing trade they then try to take a trade with the position size needed to recover the loss quickly and hope that it will get the money back they lost in the last trade. This can be revenge trading the same chart or another one thinking they must trade harder because they need to immediately recover the last loss, they hate even a small drawdown in trading capital.
  • They don’t take profits while they are there and after a reversal hold on stubbornly not wanting to exit a big winning trade with much less profits that were once available. They feel like a loser so they want the trade to get back to the old price to show they are a winner.
  • Trying to make some profits by overtrading when their are no signals or set ups to trade because the trader feels like they always need to be doing something. They feel the need to make money like it was a job that paid by the hour.
  • Measuring success in terms of the profit and loss and not in terms of following a system with an edge.

Here are some key principles to help turn the focus to operating a trading system versus obsessing over the P&L gyrations.

  1. Understand that all trading systems have ups and downs on their equity curves. No one wins every time, losing traders are a part of doing business. Obsessing over a perfect winning percentage is the path to failure taken by the ego.
  2. Understand your trading system win rate expectancy so losing trades, losing streaks, and drawdowns will not come as a surprise but be expected on the way to long term profits.
  3. A trader must have faith in their strategy and confidence in their ability to execute it so it is not an emotional or ego problem when the losses do occur. Each trade should be just one of the next 100 and have a low emotional impact.
  4. Don’t measure your self worth by the fluctuations of your P&L. Your confidence must come from your own knowledge, experience, backtesting, chart studies, and past successes.
  5. Only look at your P&L as needed, when it’s either time to update weekly or monthly returns or it is a positive experience to help build confidence to carry you through the next losing streak.

A trader must keep their eyes on their trading signals and the charts not their P&L if they want to be a professional.

Trading Psychology
Image by Gino Crescoli from Pixabay