Trading in many ways is just like public speaking.
Many years ago I was recruited by a company to address a large assembly hall in Cincinnati, Ohio. I’ve always had a terrible fear of public speaking, and the prospect of getting up in front of 2,000 salespeople who were talkers by trade absolutely terrified me.
I turned to my father for advice and he said what he always said when I was growing up, whether I was worried about a school play, a classroom presentation, or a summer job interview:
“What are you going to do about it? Sit on your hands in fear until the day arrives, go in and wing it? Or are you going to prepare it well in advance so that you’re confident to stand in front of them? The way I see it you always have two choices: act or react.”
I knew what he meant and I got to work. I drafted up a speech and practiced it over many days to work out all the kinks.
The prep work paid off: my address was a smashing success, the company landed their contract, and it earned me additional speaking engagements for which I was paid handsomely.
I often ask myself, what made that event so successful when I had so much fear earlier?
Looking back, I realized my success was due to having followed a specific, structured routine. A routine which I could make into a generic system to follow whenever I feared public speaking. That’s exactly what I’ve done for every single speech since then.
Not only that, I applied the exact same system to my trading. Because let’s face it – trading can be a very fearful experience.
If you’ve been actively trading with a live account, you know what I mean. You’ve likely already hit that losing streak which shakes your confidence and causes you to think twice about making another trade. And if you haven’t yet made a trade and don’t feel particularly fearful, well, you should be. The markets take no prisoners. They can and have wiped out entire family fortunes in a matter of seconds.
Here is where some fatherly advice kicks in. You can either ‘wing it’ or you can approach it in a systematic way and consequently control your fear at the same time.
So I want to take a moment to show you exactly how to control fear by developing your own trading system.
The Components of a Trading System
There are as many trading systems as there are traders. But while the specifics of one system may differ greatly from another, all trading systems are built from the same five general components:
- A trading plan is what provides an overview of your entire trading system. It also contains elements found nowhere else, like your self-assessment of what motivates you as a trader, as well as your general attitude about risk and how you plan to manage your trading account.
- A trading strategy is an actionable set of rules you abide by while trading. Here is where you detail your entry and exit conditions, as well as specify how you will maintain your open positions. It should be written so clearly and exactly that any two people reading it would execute trades in an identical fashion. This is to encourage consistent trading.
- Trading resources are the means through which you conduct your trades. Every trader needs a broker, for instance. But there are many other resources to consider. Everything from where you will get your market data, to how you will maintain your watch lists and log your trades. One resource often overlooked is how you plan to educate yourself about trading.
- Backtesting and paper trading are two ways to test your trading system. Testing is important, since you want to ensure it’s as profitable as possible before you let it loose on the live markets. Today you can automate much of this testing. But many professional traders still prefer to test by hand. Whichever method you choose, make sure you have a documented record of these tests. By occasionally referring back to them, you can improve your trading.
- Live trading is listed as a separate component because it is its own beast. While it is the culminating point to all your efforts to develop a profitable trading system, you learn things by actually trading that you learn nowhere else. If you actively feed this knowledge back into the other four components, your overall trading is sure to improve.
You should ideally develop these components as fully as possible before you make your first trade. Doing so is the equivalent of writing and rehearsing a speech you are slotted to give in a few weeks time. But the difference is that while you are likely to deliver that speech only once, the work you do to prepare for the markets never ends.
Because the markets are always in a state of flux. Everyone knows that the markets move in great bull and bear cycles. But there are many other market conditions that could cause you to go back and reassess your trading system. You can prepare for a few of these. But never all of them since no one can predict what the future has in store.
How Journaling helps you control fear.
The Trading Consistently Journal steps you through the process of defining and developing your trading system in vivid detail.
You see, most traders assume they just need to think about their entry and exit strategies with a little bit of money management and that’s it. So they jump on trading websites and just keep looking for new strategies. If their current strategy has a few failed trades in a row, they scrap the strategy entirely and move on even if, statistically speaking, that could have been a profitable strategy in the long run which was experiencing short term drawdown.
They rarely, if ever, write down their trading plan and they almost never consider all the other aspects involved such as developing a routine to trading.
That’s where by using the templates of the Trading Consistently Journal traders are able to consider all aspects of their strategy in written form. These templates are fully editable, you can easily customize them to suit your needs. In this way you reduce the time it takes to get your own personalized trading system up and running while ensuring that you are trading your strategy in a consistent manner.
But the greatest benefit no doubt comes once you begin applying your strategy consistently while journaling. By viewing your Trading Consistently Journal before entering each and every trade you can be sure you’ve followed a routine to your trading. You then are simply following your trading plan as opposed to losing money jumping from one strategy to another.
Not only is this emotionally easier, it’s also better for your bank account. Put simply – it’s stress free trading.
Obviously we recommend that you demo trade your strategy and journal well before you start with a live account. But once you verify your strategy’s profitability and begin to use live money, it’s essential that you remain consistent. Because if you trade inconsistently and without routine, your emotions can quickly spin out of control and cost you and your trading account significantly.
This is just one of the many ways the Trading Consistently Journal can reduce the burden of having to keep your trading system viable in ever-changing market conditions. And as any trader will tell you, keeping your trading journal to determine the viability of your trading system is one of the keys to consistent profitability.
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