As a trader, you are dealing with the unknown every day; you have to accept the randomness of your results and you have no control over the way price moves – no matter how hard you try. Additionally, many traders think its “unfair” when you are up against the large hedge funds, billion dollar banks and sophisticated prop firms.
But are you really that helpless? Is the advantage that those established market participants have so huge that retail traders have no chance in this business?
The following 5 points attribute to your trading edge significantly and by fully understanding what they mean, you can potentially make better trading decisions. As a trader, you have to be in control at all times, take full responsibility and act on your ideas with confidence.
The things that are in your control
#1 When you trade
This is the greatest advantage retail traders have; you don’t have to do anything until you are 100% comfortable about entering a trade. If you don’t see the highest probability setup, you can just wait. Cherry-picking and only investing your money when you really see your edge is the greatest thing traders can use to their advantage.
You “have to save your bullets” for those moments when everything aligns. You can also use our checklist to help you stay out of trades where you don’t have an edge.
#2 You control your downside
This second point is unique in trading. Before you enter the trade, you can decide about the worst-case scenario* and you can determine the point at which you want to exit your trade. Controlling the risk is an advantage that can’t be talked about enough.
Although you can’t control the upside, pre-defining your worst case loss is what eliminates a lot of uncertainty in trading. Although trading bears risks, there is a huge difference to reckless trading.
#3 When you had enough
Once you are in a trade, you are still in control. If you are in a losing position and it looks as if price will go to your stop loss, you can cut the trade and limit the loss. And if you are in a profitable trade but the market signals that it won’t go much further, you can exit and realize the profit.
A trader has to remain in control at all times. If you don’t like what the market is doing, get out and save your money for the next trading opportunity.
#4 Your feelings about the outcome
Most traders beat themselves up over losses and believe that it’s their fault and that their method is not working. The professional trader understands that losses are inevitable and that he can’t avoid them. At the same time, he does not feel bad about losses – as long as he did not make any mistakes – and does not lose his temper. Feeling indifferent towards wins and losses guarantees that your trading decisions are not influenced by emotions.
The process-oriented mindset helps traders evaluate their performance not based on the outcome alone but how he made his decision. A loss is not always a bad thing if you have shown discipline and executed your trade well. On the other hand, not every winner is something to be proud of; especially if it was the result of luck and bad execution.
#5 Your learning progress and your attitude
How do you see trading and approach it? Is it a hobby and an evening activity? Do you just spend a few hours every night trying to grind out a few points here and there and change your system every few days after losing some more?
Or are you a serious trader who follows a professional routine? Do you log trades, do you work on your edge, tweak parameters step by step, make little steady improvements and slowly build your trading account?
Trading is a skill that is developed through practice and honing your skills. Making steady improvements over time will lead to better results. You control your approach and you are responsible for your learning progress.
The things you are not in control of
Once the trader understands that there is much more that he can control, than things he can’t control, he can approach trading from a new level of confidence.
#1 You can’t control price movement
Unless you are a billion Dollar market participant or a central bank, you have no influence over the price movements. You just have to accept that it is out of your control. Worrying or lamenting about “unfair” or “unpredictable” price movements will change nothing and it only puts you in a dangerous state of mind. The trader who can’t stop complaining feels helpless and can’t perform at his best level.
#2 The Outcome
This is a consequence of the previous point. If you can’t control price movements, you obviously can’t control the outcome. Accepting that even the best setups will fail over and over again is the key to long-term success. However, as we have explained above, even though you can’t control the exact outcome, you have control over how much you are willing lose, when to trade and when to exit a position.
Conclusion – trade from a state of absolute control
Most traders are not aware of how much control they actually have as a trader. Feeling helpless often leads to a lack of responsibility and trading without confidence which then keeps traders from growing. It is important to understand the degree to which you influence your trading performance and then act accordingly within that state of mind.
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. The risk of loss in trading commodity interests can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The placement of contingent orders by you or broker, or trading advisor, such as a “stop-loss” or “stop-limit” order, will not necessarily limit your losses to the intended amounts, since market conditions may make it impossible to execute such orders.