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Trading To Win

Trading slumps happen - even to the best of traders. Ultimately, what differentiates the great traders from the pack is their ability to prevent a small losing streak from turning into a multi-week or multi-month drawdown. By nipping a trading slump in the bud, successful traders are able to quickly regroup, refocus and zero in on new winning trades.

With the hope of becoming the best traders we can be, the team at JBH Capital has spent the past few years studying the “Trading to Win” psychological approach to the markets, taught by Dr. Ari Kiev. A world-renowned psychiatrist and author, Dr. Kiev is widely-regarded as one of the top trading coaches working in the field today, whose work has enabled traders and hedge-fund managers to greatly enhance their trading performance.

We have encapsulated some of Dr. Kiev’s most valuable teachings into this three-step process below. As with most things in life and the markets, if you implement each step and not just the ones you like, we think your mental approach to trading will be vastly improved, and soon after, your P&L as well.

1.       STOP, REVIEW, & REVISE

·         Take some time off. A day or two will usually suffice. By viewing the market through an objective lens that is not obscured by live positions, you will be able to “mentally refresh” quickly from a few tough days of trading.

·         Review all your bad trades. Sure, it’s no fun to revisit your misdeeds in the markets, but by doing so, you can analyze where you went wrong and, in turn, reinforce your discipline. Ignoring your mistakes is perilous to your profit-potential and only increases the odds of then committing them again.

·         Change up your routine. We all get into ruts. By performing different tasks – i.e. researching new sectors or learning a new stochastic indicator – and shaking up your typical trading day, you may be pleasantly surprised by the fresh insight it brings.

·         Analyze the mindset you were in during your recent market difficulties. Were exterior forces in your life causing you anxiety? If not, try and analyze what may have then prompted those poor trades. Perhaps you were positioned in an underperforming sector? Did you buy a laggard stock instead of the leaders in a strong group? 

When you “Stop, Review and Revise,” you are taking the necessary steps to prevent a few careless trading days from turning into a trading debacle. These are only the first steps, however. The next two phases are equally, if not more important, to turning your trading around.

2.       MENTAL PREP IS AN ESSENTIAL STEP

·         Set goals. Once again, SET GOALS. Without a specific outline of what you want to accomplish, you will be hard-pressed to achieve anything. Before you begin to trade again, you should set short, intermediate, and long-term objectives. Once these goals are established, you can then set about devising an appropriate trading plan, complete with a model of the requisite work for attaining your targets. 

·         Create a winning mindset. Without a positive and winning mindset in place, traders will be challenged from the onset when they resume their trading. Through centering processes such as visualization and meditation, traders can turn a negative mindset into a positive one. 

·         Revisit your best trades, remembering what went right with them and how they felt. By focusing on past winners, traders can then re-create these winning feelings for future trades, a process that will allow them to quickly recognize a new winner and ferret out losing trades with more precision.

·         Review trading statistics from the past. Analyze where the majority of your profits and losses originate from and why. Are certain sectors and stocks responsible for the majority of your P&L? Can you increase your holdings in the stronger names and scale down in those names that are not working? 

By setting goals for yourself, establishing a winning mindset, revisiting your best trades, and reviewing your trading statistics, you should be mentally prepared to return to the markets.

3.       BACK TO THE BOURSES

·         Stress-management is essential as you resume your trading. Have a plan for how you will handle losing trades when they occur, because they will. Super-traders are consistently working on their self awareness, a process that helps to lessen stress. 

·         Begin with smaller allocations, tighter stop-losses, and fewer positions. With less money at stake, you can focus on the mechanics of your trading which will help you return to confident form with greater speed. Confidence is essential to trading. Without it, traders quickly revert back to destructive habits and impulsive trades.

·         Review your trades after each day, especially on the days where you adhered to your discipline methodically and all went as it should. Careful analysis at the end of each trading day will allow you to maintain objectivity and a certain level of humility necessary for keeping winning streaks alive.

·         As you return to “the zone”, it is vital that you scale up into your highest-conviction ideas. Most super-traders realize 80-90% of their profits on just 3-5% of their trades. As such, traders need to emulate these high-conviction tactics, once their trading is back on track.

By following the steps outlined in the three sections above, you should be able to side-step major losing streaks quickly and ultimately increase your odds for profits and long-term trading success.

Special thanks to Dr. Kiev for all his efforts on the psychological side of trading. Dr. Kiev’s work was instrumental in formulating section two, “Mental Prep Is An Essential Step,” of our trading slump recovery-plan. 

Disclosure: We have no relationship with Dr. Kiev. No other necessary disclosures to make.