Are you looking to become a better stock trader? Whether you’re swing trading or day trading, learning how to trade stocks isn’t really that difficult on the surface. Develop a system, follow your rules and makes tweaks to improve it along the way. The only problem? Emotions. They get the best of us over and over again. There’s a reason why algorithms don’t struggle as much.
Whether it’s greed when we’ve put together a nice win streak or panic when volatility picks up. We can make all sorts of stupid decisions thanks to our emotions. That’s what makes what could be a simple task of trading into one of the most difficult roles on the planet.
If you’re already going down the options, day or swing trading path though, you know all of this. So here are five tips for becoming a better trader. If you’ve heard some of these before, consider it reinforcement.
#1 Follow Your Trading Rules and Be Disciplined
From a psychological standpoint, it makes sense why traders have so much trouble taking losses. But to survive the swing trading game, taking losses is an essential part of it. Because here’s the simple truth: No one out there is going to bat 1.000. Every system has losers and we need to contain those losers in order to survive.
It doesn’t do any good to follow the rules on your profitable trades if you’re not going to follow the rules on the way down. Being wrong is an ego issue that traders have to get over.
#2 Get on Twitter
Getting on Twitter (NYSE:TWTR) may seem like a weird tip for traders, but it can help tremendously. Find others who trade a similar style to you. Whether it’s swing trading, day trading, options trading, trading FAANG — Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Alphabet (NASDAQ:GOOGL) — forex, futures, etc. It doesn’t matter.
Find traders with similar styles that trade similar time frames. It can help refine your trade system and gives you a glimpse into what others with more experience are seeing at the moment.
The caveat with Twitter? Be careful who you follow. I follow hundreds of finance, stock and business-related people. But my “traders” list (which is right here) consists of less than 10 people. Paying attention to too many people is akin to adding noise and that noise can be overwhelming and hurt your decision making.
It’s one thing to follow different traders with different timeframes for perspective and insight, but just know your timeframe when it comes to execution.
#3 Enjoy the Wins, but Stay Humble
Another seemingly simple piece of advice: humility.
Unfortunately though, like the other pitfalls of swing trading, being humble is usually learned the hard way. When traders are feeling stoked and on a “trading high,” it can become dangerous grounds. Overconfidence comes with a price and the market can be a master manipulator, hitting right where it hurts just when it counts.
Here’s a lesson: Eat a steady course of self-baked humble pie, else let the market serve you its own.
#4 Mindset, Mindset, Mindset!
Trading isn’t a game of physicality, it’s a mental game. It puts traders through a whole host of emotions and each day, they need to come in prepared to make sound decisions.
But sometimes in life, we can’t help but be a mess. Maybe it’s a divorce, a sick family member, losing a loved one or any number of difficult situations. Trading is not everything, particularly compared to the things that are really important. Traders have to recognize these situations and have the willpower to step away if and when needed. Breaks can be refreshing and at times necessary to our success.
Beyond that though, mindset plays a pivotal role. Even if you’re swing trading or options trading, traders need to have the ability to start each day fresh. The gains shouldn’t get them too elated and the losses shouldn’t get them too down. Some emotion is involved, yes. We’re not robots. But having a clear mind each day helps exponentially when it comes to decision making.
For instance, a sound mindset and clear focus prevent traders from becoming overconfident. It also prevents them from revenge trading, i.e. when we have a loser or set of losers and feel “cheated” by the market, we aggressively “revenge trade” to “get our money back.” Often times this leads to more losses or at the very least, reinforces bad habits. We don’t want that in our zen zone of trading. If a trader is getting there, it’s time for a break.
#5 Evaluation Is Key for a Trader
We’ve kept score our whole lives, whether it’s how many points or goals that’s scored in sports, how fast we ran a mile or what grade we got in school. Trading is no different. Ultimately, our gain or loss is the year-end mark, but we can make improvements in the day-to-day.
Study charts after the market is closed and be prepared before the open. Know (to an extent) what different scenarios are likely and how you might react in those cases. Not every plan pans out, but having one is far superior to wandering onto E-Trade or Interactive Brokers at 9:28 a.m. ET and giving it a go.
Log each and every one of your trades. The entry, exit, initial stop-loss, profit/loss, etc. Keep a notes section detailing the trade, why it was entered, what went right/wrong and if there were any lessons involved. Make trading notes on the side of your spreadsheet to emphasize broader themes, rules and ideas.
Go through your notes daily, weekly or monthly, whatever helps the most. But just be sure to go through it. It will help you figure out what you do well and what you do poorly. And thus, you can do more of what’s working and less of what’s not.