In my opinion, there are three things you need to master if you want to become a great trader.
You need to be okay with losing and accepting loss.
You need to be okay with leaving points in the market.
Flipping the Switch.
That's it. Nothing else. Anyone with a rudimentary knowledge of price action can read a chart. You can see the obvious patterns, the Hammers, the Shooting Stars, the Inverted Hammers and so on. The Double Tops and Double Bottoms. You can mark out areas of Support and Resistance. It doesn't need to be complicated, and it's not, unless you choose to make it so. The absolute hardest part in trading, or what I believe is the absolute hardest part, is dealing with loss. Not just 'realised' loss, but that 'if only' stuff. The points 'left in' the market. The unrealised loss. What do I mean by 'unrealised loss?'
It's simply the points you could've had. You know those trades. Some of them still haunt you now. Those trades that when it was moving nicely in your favour, you moved your stop up like a good disciplined trader, only for the market to then suddenly retrace to just below your new stop, closing your trade, and then BOOM, off it goes again, only this time it's going without you. Or, similarly to this, you're in a trade, it's showing a good profit, you move your stop to breakeven and decide to let it run. But then again, suddenly, the momentum slows and it begins to move against you. You hold fast because that is what a good trader would do (that's not sarcasm, I geniunely believe that good traders hold trades when those who are weaker would snap close them to relieve the discomfort - I know because that used to be me), but it comes closer and closer and you can see the unrealised profit evaporating until, bink, it clips your stop and you're out for nothing. Nada. You sat holding the trade all that time for nowt (Northern British dialect for bugger all!). If only you'd closed it at...(insert random numbers....) you could've had...(insert random numbers again)...points! This is unrealised loss.
The definition of unrealised is not effected, accomplished, or fulfilled. Paper points. These hurt. Trust me I know because I've had and still have, quite a lot of them. In fact only yesterday I could've closed a trade for +5 (not a lot but having held the trade for an hour in trading range it's better than nowt), but instead, I held firm and it stopped me out for -23. That's a 28 point loss, technically, as far as I'm concerned. That hurts. But, I am okay with it. I accept it. It's trading. I made what I thought was the right decision 'in the moment' and it went against me. You have to realise that the 'hurt' only comes once hindsight is applied. When you review your trading each day (you do review your trading each day, right?) you cannot judge the decisions you made with the application of hindsight otherwise it will poison you mentally. It will rot your mindset like a disease. However, you can use hindsight and apply it to learning of course, but never use it and apply it to judgement. I learned from this trade that in a range bound market I am either going to be more inclined to move my stop to breakeven sooner, or, I will close the trade when it is at the extremes of the range and accept whatever I make, and more importantly, I will accept whatever happens afterwards. I will accept the unrealised.
The sooner you can realise and accept that in trading there is no room for the phrase ' if only...', the better. Accepting this as a 'belief' in your trading will free you so much from being results oriented and into being process oriented. This in turn will free your ability to trade way beyond what you may have thought you were capable of.
Loss is sadly part of life, and trading is no different. Loss ought not to define us as people, nor define us as traders.
So that essentially covers 1 &2 but what about number 3. Flipping the Switch?
As I've said everytime I mention that phrase, and will continue to do so, it originates from an amazing trader called Tom Hougaard and in particular his book 'Best Loser Wins'. If you want to become a better trader then in my opinion this is mandatory reading. The book is not a book about Technical Analysis, but about Mindset analysis. It focuses on dealing with an accepting loss. So what is meant exactly by Flippping the Switch? In simple terms it refers to the action of immediately taking a trade in the opposite direction to the one you've just been stopped out of, the second you're stopped out. Sounds easy right? That's what you'd think anyway, but you try it when you've just held a trade for 45 minutes that was in profit, only not quite enough, and then it turned against you and you're stopped out for minus 30 points. It takes a considerable amount of mental flexibility beacuse it goes against every fibre of your 'normal' being. Your brain has just taken a loss and now you want it to acctively, immediately, take another trade in the opposite direction? What the hell are you thinking? But that's just it. That is essentially the overiding message of the entire book. It even says so on the front cover. 'Why normal thinking never wins the trading game.'
I remember the first time I did it I was so proud of myself I sent him a message in his Telegram group! I can't recall what the outcome of the trade was but it felt amazing to be able to do it. I was a scared little bunny when I first started trading. Five points of profit and I'd be screaming inside to 'close the trade!' Getting stopped out of a trade and immediately entering another trade in the opposite direction was completely alien and totally crazy to me back then. But now? Now as soon as I enter a trade I am already asking myself - 'Would I Flip the Switch' if I get stopped out or would I wait? If so where will my stop be? This way I already have a plan should the trade go against me. Essentially I'm one step ahead and I've primed myself to act should the need arise. Now I find that flipping the switch is just as easy as taking the initial trade. I do have a personal caveat though with regards to a flip the switch trade, and that is, for me at least, I don't consider it a trade trade. It is a mitigate loss trade. By this I mean that as soon as it is 8-9 points in profit my stop is moved to break even. Then, say I lost 23 points on the initial trade and then flipped the switch, if the market looks like the momentum may be stalling and I am currently 18 points in profit, I will either elect to close the trade there and then thus reducing my original loss to only 5 points, or I'll move my stop into profit, say by 13 or 14 points and then let things play out from there. That way if it does pullback, I've mitigated my original loss which was my goal in the first place.
So there you have it. The three things I consider to be most important to master if you want what we all want from this game.
Remember, trading is not about you vs the market, it's about you vs you. It's not about being able to take a trade, but being able to take a loss. And another loss. And another loss. It's about being okay with not being perfect and missing moves and missing points. It's about mental fortitude but also mental flexibililty.
It's about being able to not just 'Flip the Switch' but about being able to flip yourself and your way of thinking.
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