This is a Guest Post by @LoneStockTrader which was posted originally here: “Stop Focusing On The Money” and is reposted here with permission.
I think I can affirm quite confidently that we all started trading for the money.
We all had this idea that unlike most regular jobs, trading is a way for us to reach the kind of monetary figure we’ve always dreamed of, and the freedom that comes with it.
Then, we naturally keep on focusing on the money as we trade.
“Do not count your wins as they come because if you lose them it will hurt“
“New Trader, Rich Trader”, Steve Burns
Why should we stop focusing on the money?
The issue is that the money is the result. And focusing on the result when executing our trading plan has no benefits. It actually makes it much harder to reach the desired result.
This is very much counter intuitive and definitely one of the reason that makes trading so difficult.
Successful trading is just following the rules set forth by our trading strategy, trade after trade after trade…
Having a trading plan means that we know exactly when to enter, the position size, and when to exit.
Focusing on the money will make it very difficult to follow our trading plan:
– If you need to generate money quickly, you are more likely try to enter trades when there is no real signal telling you to take the trade
– If you need a certain amount of money, you are likely to want to stay too long in a trade even if a sell signal occurs
– If you watch exactly how much money you’ve made on a trade, you are likely to exit a trade too soon by fear of losing the paper profit you have so far
– If you watch how much money you’re losing on a trade, you may want to not cut your losses and stay in losing trade, moving or even removing your stop loss
– If you lose a specific amount of money on a trade, you are more prone to take the dreaded “revenge trade” in order to try and take your money back from the market. It usually doesn’t end well…
So focusing on the money creates fear and greed.
On top of that, focusing on the money is focusing on something we have no control over.
So what should we focus on?
We now know that we should stop focusing on the money as it can be very detrimental to our trading. So what should we focus on?
The only variable we can have control over is ourselves.
Only we can make us follow our plan to the letter – which in turn will result in long term profits – which will allow us to eventually reach our monetary goals.
This is why the most successful traders often say that we should only focus on becoming the best trader we can be.
“The greatest success came when I finally decided to forget about the money and concentrate on being the best trader I could be. Then the money followed“
– “Trade Like A Market Wizard” – Mark Minervini
So basically, we should focus solely on executing our plan perfectly.
Executing our plan perfectly means to buy only at the exact moment our system generates a buy signal, buy the exact amount specified by our strategy, and only exit when our plan tells us too, without any second thoughts.
While trading, we should just forget about the money.
The Shift
From that point on, there should be a total shift of perspective regarding what a good trade and a bad trade are.
A good trade stops being a trade we made money on.
A good trade now becomes a trade executed perfectly according to our trading plan regardless of whether or not we made money on that trade. A bad trade is a trade where we did not respect our trading plan, regardless of whether we lost money on that trade.
Because we know that anyway, the market will eventually take back any money we made out of a “bad trade”.
We should pat ourselves on the back when we execute a trade perfectly, regardless of the outcome. And we should punish ourselves when we did not follow our plan, regardless of the outcome.
By adopting this perspective, all of a sudden, we are in control again. We don’t depend on the something we do not have any power over: the market. The market has lost its control over us and we are in charge.
So stop focusing on the money, and the money WILL follow.
For more posts and information you can follow him on twitter at @LoneStockTrader and you can check out his website LoneStockTrader.com.