3 Trading Hacks for Comfortable and Successful Trading

We all want a good, quick trading hack to improve our profitability, right? Trading is a tough gig at the best of times because there are so many unknowns.

What will the market do?

What type of strategy should I trade?

How much of my money is at risk?

One thing we’ve learned in over 30-years of trading is avoiding these questions (and many, many more) isn’t going to help you get the life you deserve.

If you want to have a comfortable trading journey and build toward a secure retirement. You need to address these uncertainties and come up with a plan that gets you on track and keeps you there.

Here are 3 hacks to consider:

(1) Acknowledge your beliefs.

Beliefs encompass all aspects of the markets. Its participants. How to extract profit and how to go about the trading or investing process. It is imperative that your chosen strategy is aligned with your beliefs. Otherwise it becomes extremely difficult to execute during times of uncertainty or to stay with it under duress.

For example, consider a trader that absolutely insists that stop losses are imperative for success and that every strategy should use a stop loss.

Maybe.

However, certain strategies, such as mean reversion strategies, are shown to perform better without a stop loss.

Regardless of how profitable the mean reversion strategy may be, this conundrum causes anxiety. As soon as doubt enters the mind of the trader he or she will most likely override the system or stand aside and in turn dilute performance.

(2) Determine your objectives.

Whilst profit tends to be the sole driver for many, objectives need to encompass many other dimensions, such as your personal risk tolerance and your lifestyle factors. You may have found the Holy Grail system that generates a 70% annual return. But if it comes with a 50% drawdown and you can only stomach a 10% decline in your capital, then the wanted end result, the 70%, is meaningless. Chances are you’ll never travel the journey to achieve it.

The same is true if you have a busy family life and business career. Having a scalping system that requires you to sit in front of a screen for 15-hours a day is probably not a realistic end game.

Your objectives must be broader than just profitability. Indeed, there is much research to suggest extremely successful traders view profits as a by-product and not the main goal. Many successful traders are passionate about the markets and it’s that passion, not the want of profits, that enable them to succeed.

(3) Understand your edge.

Your edge, or expectancy as it’s known, is the mathematical driver of your profits. If you don’t know what your edge is, then you probably don’t have one and could be running on blind luck.

Within any market environment profitability comes down to one of two distinct characteristics; an entry edge or a money management edge.

An entry edge is where there is some higher than random probability that a pattern or setup will result in a profit. An example is the Warren Buffett value investing tagline. Good quality companies will tend to trade at a price near their valuation most of the time. However, during times of panic or poor investor sentiment those companies can trade well below their respective valuation levels and it’s during this price weakness that value investors can exploit an entry edge.

A money management edge on the other hand is where stop losses are used to induce a positive expectancy. The setup tends to be more random, but by limiting losses the win/loss ratio increases to a point where profits can be generated. This style of trading is shunned by the academic community as there is no predictive outcome. Technical analysis for example, gets unjustified condemnation because patterns tend to be random and discretionary. But this doesn’t mean they can’t be used to generate a profit. The use of technical analysis, or some other non-predictive measure, is beneficial as it allows the user to be comfortable in entering and exiting the market and provides clarity in risk management.

Want to take the next step?

An easy way to advance your success is to design, build and test your own strategy from the ground up.

The Trading System Mentor Course gives you a proven framework to work through the important decisions you’ll need to make, based on historical data, robust processes, stress testing and our own experience trading markets for decades.

P.S. – the Trading System Mentor Course requires a minimum trading capital of $100,000. If you don’t think you are ready to take this step, then perhaps our Beginners Guide to Building Trading Systems might be for you.