How do the world’s best traders consistently beat the market?
It can be difficult to identify exactly what skills lead to trading greatness. After all, many different factors go into building a trader’s overall strategy…
But over my 12+ years as a professional trader, I’ve noticed that there are certain steps most great traders take in common. And better yet, they’re not that complicated.
This seems to good to be true, yet it is…
Today, we’ll dive deep into these three steps and I’ll explain how you can look to use them in your own game plan.
By applying these principles, you can potentially enhance your trading skills, navigate the market more effectively, and increase your chances of achieving long-term success.
Keep reading and I’ll show you…
Be Careful with Position Sizing
World-class traders know when to be conservative and when to get aggressive. And they do this with their position sizing.
If you’re feeling mentally uncomfortable in a trade … it’s probably time to lower the size of your positions.
In a market this fragile, you need to limit your risk by taking fairly small position sizes. This is how you’ll get accustomed to price movements and grow your small account gradually.
I notice this myself. If I oversize my positions, it can be really difficult to hold the trade through crazy volatility.
That’s why I’ve been trading smaller this year. Position size can have a huge effect on your mindset.
When in doubt … size down. Hit single after single after single. Celebrate your consistency.
REMEMBER: It’s much easier psychologically to add to a winner than to trim a loser.
Starting with small positions allows you to learn the setups that work for you. And it can help you gain confidence.
That said, you’ll eventually have to learn to scale and increase your position sizes.
When you’re ready, you must take advantage of five-star setups to grow your account with larger positions.
This is where a lot of traders get stuck — they don’t scale correctly.
Whether it’s a multi-day breakout in a hot sector or buying weekly put options on a first red day, you have to get more aggressive on patterns that have incredible risk/reward or you’ll never grow your account significantly.
So … start small, then scale up to get aggressive on perfect patterns. That’s the key to sizing like a pro.
Learn from Your Losses
As a trader, you have to accept the fact that there will be times in your career when you’re just completely wrong about a setup.
All the technicals can look perfect, the fundamentals can be sound … and you can still be dead wrong about the timing and direction of the stock.
And when you’re wrong in the stock market, that usually means losing some money. It’s an unavoidable part of the game.
Even the best setups won’t work every time. Sometimes you’ll buy a failed breakout or failed breakdown, other times an unpredictable headline will reverse the direction of the stock you’re trading.
Take me as an example…
By all measurable metrics, I’m a very successful trader. But I still make hugely regrettable trades from time to time and lose money.
When that happens, stay disciplined and cut your losses immediately. Then, do some serious self-reflection about what you could’ve done better.
Any time I find myself regretting a trade, I ask myself the following questions…
- What valuable lessons can I take away from this loss?
- What steps can I take to improve my trading moving forward?
- How will I avoid making the same mistakes in the future? (More on this later…)
Start taking accountability for the losses you take and I promise you’ll be a better trader for it.
And speaking of losses, the best traders tend to weaponize them as inspiration for improvement…
Identify (and Eliminate) Your Trading Mistakes
If I had to pick one trait that separates the incredible traders I know (like Tim Sykes or Jenny Smith) from the 90% of traders that lose — it would be their ability to accurately identify the mistakes they make.
This goes hand-in-hand with learning from your losses. As traders, we need to be constantly evaluating our performance.
Think about top-tier athletes…
Do you think Michael Jordan reached the career heights he did by lazily phoning it in? Of course not!
He practiced constantly, both on and off the court. Not only that, he was always trying to analyze and improve his game — even when he was the best in the world.
The best traders I know have a similar work ethic, forward drive, and ability to self-reflect…
They’re not afraid to look back at rough patches in their trading and fix the problems that led to losses.
And by doing so, they can work toward identifying their mistakes and eliminating them for good.
On the other hand, I’ve seen other traders string a few wins together and get complacent. They thought they were hot stuff after a lucky streak and didn’t self-evaluate.
Spoiler alert: They went back to their day jobs!
Don’t be like these guys. Stay humble and always look for weak points in your trading that you can potentially improve upon.
The best traders I know have a deep understanding of the significance of position sizing, the art of learning from losses, and the process of identifying and eliminating trading mistakes.
They know when to size down, when to get aggressive, and how to self-evaluate their performance for maximum impact.
I want you to start applying these ideas to your own strategy and mindset. If you do, you might find yourself three steps closer to trading greatness.