How to find consistency in trading

Do I really have an edge?

So you have started trading. You take a trade here and there, hoping for the best. Maybe you have been trading for years and still have not made it to consistency and still You are losing money. Human mentality is often set for the most optimistic scenarios, how you will lose weight in 3 months or how you will catch one trade that will make it all back and change your trading forever. If You are stuck and have no other plan than just continue what you have been doing, hoping for the best, here is some guidance on how to move to the next level.

Stop losing money first

If you are leaking money for months, your goal and mind set shall be to stop losing money. There will be no magic turnaround from negative to positive numbers, so focus on the next level, which is achieving balance. This is also true if you are experiencing a longer period of no good trade due to mistakes. On the chart, it looks like this. Know where you are at.

If you are losing money with repeating the same style and believing you made no mistakes, obviously you are wrong, and you need to find out the cause.

• Firstly, do proper journaling of your trades, as mentioned in my previous post.

  If you do not know your mistakes and struggles, you cannot improve just by being there every day.

• Let someone else look at your trades

  Get a view from either the superstars of streaming platforms or any other trader view. Even the less experienced trader can teach you to do the things more efficiently, so be open to talk to anyone. If you don’t have a trading buddy, get one soon. Coach even better.

• Study the setup you trade and get inspired from other traders trading the same setup.

  There is a ton of information that you have seen about the setup you trade. And there is another ton which you have not seen yet.

• Don’t be lazy to work on it.

  It will take a lot of work. Rather than staring hours on the market charts or complaining about your miserable results, stare hours at your past trades. You are keeping all the screenshots of your trades at hand, so you can review them quickly, right? You make your trading system efficient.

All the above shall boost the flow of (new) ideas and make you focus on the right thing. If you find out any new mistake you are making, create a new rule for your trade setup.

The most usual mistakes ruining your results:

• not honoring stops

  See how your account would look like without the big draw-downs you made. Now think about how you make yourself to honor the stops. If you are not able to do it mentally, you need a technical solution. Use a trading platform that allows you easily to set hard stops. If you are not a consistently profitable trader, you should be trading with hard stops.

• over trading

  See how your account would look like if you traded less. If you are losing money for some time, it means the more you trade the style, the more you lose until you change the style. Unless you can statistically prove that more trading means more money, you shall avoid it.

• exiting trades too soon

  If you're watching the P&L constantly and take profits quickly thinking “you can’t go broke by taking profits” see how it would be if you held to your intended targets. Changing the plans during the trade is usually contra productive.

• entering too soon

  Every trade has entry rules. They exist for a reason. Only if they are met, you can expect the results and Lambos. If not met, it’s not the setup you want to trade, thus it’s a gamble only.

• too tight stops

  Tighter stops for bigger and quicker winners? Guess what! More stopped trades too.

• hulk days

  You have 5 small green days, and you erase all the profits and more in one day?

  Get a technical solution to stop you when you lose it as mentioned in the previous post. Besides that, work on your tilt causes. Maybe your green days are too small because of the above mistakes too.

Static risk

To find out, if you are having an edge with your strategy, it is important to standardize the input for your statistical data. If you take any random set of 20 of your trades, you shall see some signs of consistency.

If you are taking always 100 shares per trade, or you are taking always risk of 30 cents, you do it wrong too unless you trade the same priced stock every time.

Static risk will show you the truth about your trading. Knowing you risk $20 on each of your trade, you will quickly see how quality trades you took. You can expect every loser to be -20 and every winner +40 or more, depending on your risk to reward ratio for your trade setup. Having predictable winners and losers the expectancy of your setup can be counted, so once you believe your setup works with your head, you get rid of the trading with fear and you become a better trader.

Here is an example of my bad trading and bad journaling in 2018

The inconsistency is obvious. There is a lot of information about the problems I was struggling with at the time, too. Early exits and over trading are visible instantly.

Today the table is different

and its stats are telling me that the setup and rules are generating money

Of course, there is always room for improvement, but remember the goal is to stop losing money first.

So to know where you are at, you need to collect statistically valuable data. The static risk per trade boosts the quality and visibility of your data tremendously.

Find the mistakes to take it to the next level

To know that the setup you trade is working for others is one thing. Your ability to execute it properly is a completely different story. With proper journaling, this is easy to see. Look at your stats of the setup with mistakes and with no mistakes. Let’s see this example of the famous ABCD setup and my stats

The below chart is showing all the trades of this setup since December 2022

Obviously not losing money on it, but it’s nothing breathtaking either.

Now, let’s see what is my theoretical potential on this setup, if I perform it without mistakes. For this, I need to filter out the mistakes and keep only the trades without mistakes in the statistics.

That is twice the money, or to put it differently, I lost 50% of my money due to the mistakes I made on this setup.

The next step is to see what are the most common and the most costly mistakes I need to focus on.

The emotional mistakes start with the 1- prefix for me. Whatever your mistakes will be, you can run the report on those and see if there is one or two particular one to be extra focused on. It’s either the most frequent, or the most costly.

Once you know your weakness, run a report on the mistake over the time or over the set of your trades. See how you do with the mistake over the last 7 days over the last 30 days or over the last 3 months to see your progress.

As an example, let’s see the mistake “Exiting too soon” and its number of occurrences since August 2022 in all of my trades.

The progress is obvious. Since November, I get more awareness to this mistake and was able to make it happen 2 times less.

Be aware, to get rid of any mistakes could take long time, especially if you are stuck in the circle and your mistakes became a bad habit for you. With dedication to hard work, good trading system having useful tools and people around, you can eliminate it and become better trader.