How To Trade Effortlessly And Still Make Lots Of Money
Assuming you are a pilot of an airplane. The control tower has given you the green light to take off. You revved up the throttle and start piling down the runway. Now if you reached the end of the runway and you suddenly pull back your throttle, what will happen? Will your plane take off? No.
And for those who managed to take off but pull back their throttle before reaching the cruising altitude of 35,000, what then will happen?
However, once you’ve reached the cruising altitude maintaining your throttle, you will realize that things become more relaxed and easy. As in anything you learn, including trading, you must put in the initial commitment and effort. Once you have revved up to a certain point at say 35,000 feet cruising altitude, you will no longer require a lot of energy. Trading is similar and you must strive to reach the “cruising” stage where you can trade effortlessly and still make lots of money.
To put you in good shape so that you can trade effortlessly and still make lots of money, here is a routine that you can follow.
1. Daily Self-Analysis
You are the most important element in trading. Spend some time to analyze yourself before you trade. Stressors or any form of distraction can affect your trading, for example, lack of sleep, fatigue, cold and such. Your capability of decision making reduces if you are not in a good shape, mentally or physically.
Ask yourself “How Do I Feel Today?”, “Do you feel good, average or poor?”
This has some correlation to your results and if you maintain a journal over time, you will realized that every time you feel good, your trade turns up better because your decision making ability goes up.
So if you feel lousy, do not trade!
2. Mental Rehearsal
Do a mental rehearsal and pre-plan how you will carry out your trading so that the actual tasks become automatic. For example, mentally rehearse how you will execute a stop loss or how to take profits.
Doing a dry-run will allow you to anticipate problems and avoid making mistakes such as forgetting to put a stop loss and not calculating your position sizing. Also when you are doing this mental rehearsal you are also applying what you have learnt and the more you apply the better you will get.
3. Develop Low-risk Trades
As traders, we want to look for simple trades and not challenges. If you are looking for challenges, you would be better off trying bungee jumping!
Find trades where the risk is overwhelmingly in your favour and ensure that all “stars” are aligned for you - Market, Sector and Company before you make a move.
Avoid the opinions of others while you are developing your low-risk trade. For example, you have done your homework but your friend or your neighbour comes along with a “hot tip”, make sure you verify the tip with your system. As Napolean Hill says, “Opinion is the cheapest commodity on earth”
Approach your trade like how a cheetah goes after its prey. You will notice that the cheetah always go after small prey instead of elephants or buffalos. The cheetah can easily outrun any animal but it will always preserve its energy to go after easy prey. The objective is to make money in the market, not to be a hero!
Profits are increased by removing higher risk trades. If there are no candidates, there is nothing wrong to stay out of the market and preserve your capital.
4. Stalking The Market
This is a challenge for most traders especially those who trade short-term. A lot of traders want to buy the stocks immediately after doing their market analysis.
Instead, do not act immediately after your market analysis but “stalk” the market and wait until the odds are in your favour. Look at your setup and aim at your target before you fire. Be patient and wait for the market to “come to you” and not “chase the market”. A good tip is to set your alerts and not think about the markets to avoid making hasty decisions.
“It’s not the thinking that makes the money;
it’s the sitting.” - Jesse Livermore
5. Action – pull the trigger
In the previous phase, we have to be patient and be laid-back but in the action phase, you must come alive!
Action must be executed with speed, boldness and courage. It is not uncommon that some traders have cold feet and fail to take action.
Action must be strong and intense, especially for short term trading. Action involves commitment and when a trader thinks about consequences at the time of action, he is likely to hesitate.
The reason why some fail to pull the trigger is because they think of too many things or are distracted. If you are one of those that find it hard to act, do your mental rehearsals before you trade. This will help you gain more confidence and assurance to pull the trigger.
Close monitoring is required when you first enter a trade. When the market has moved in your favour, you can step back and do an overview monitoring and not get too attached to avoid getting too anxious resulting in hasty decisions.
However, if there is a sudden move in the price range such as gap or thrusts, switch back to close monitoring because action of some sort might soon be necessary. If a stock goes into parabolic trend, follow it closely and tighten your stop loss. In some cases, there may not be a chance to do overview monitoring because a stock runs up quickly after breakout and ends abruptly.
7. Abort / Take Profit
Plan your risk control beforehand and know where your stop loss is to abort if necessary. Now this phase is not only about aborting but also taking profits under the appropriate conditions.
Remember the golden rule :
Cut your losses short, Let your profits run.
The greater the profit is, the greater the temptation to take profit. It is normal as profit increases, your heart will beat faster! To make it easier for your heart, it is sometimes better to take partial profits.
8. Daily Review
At the end of the trading day, determine whether you have made any mistakes.
Remember, a mistake has nothing to do with losses. If you follow your rules and cut loss, it is not a mistake.
The worst thing is if you make money by making a mistake because eventually you will return it back to the markets by continuing to make mistakes. Other mistakes are like taking quick profits.
A trading mistake means not following one’s trading rules and one’s plan of action. Review and consider the options available when the mistake was made by going back to the decision point of the mistake. Evaluate what were the options available at that time and what decision you should have made. Should you encounter a similar situation in future, you will automatically know what to do.
If you follow this routine regularly and persist on following the rules of your trading plan, you are well on your way to make good trading a part of you and when that happens, you can trade effortlessly and still makes lots of money.