Steps to Becoming a Profitable Trader as Quickly and Efficiently as Possible – TradeThatSwing

This is a roadmap to becoming a profitable trader. Follow these steps to avoid wasting time and bouncing around from idea to idea. We start with a basic strategy idea we like, then build off it. We MAKE it profitable by following the steps outlined.

There are loads of successful traders and they each trade slightly differently than anyone else. What does that tell you? It means you can take an idea, make it your own (matching it with who you are and how you want to trade), and make it profitable. Build something you believe in.

Your idea can be based on my strategy ideas, someone else’s, or it can be an idea you came up with it.

Either way, here’s how to turn it into profits quickly and efficiently.

1. Focus on One Idea or Strategy

Focus on one specific idea.

An idea is not “price action” or “technical analysis”. That is too broad.

But you could start with the idea of day trading an 8 and 21-period moving average crossover.

Or MACD signal crossovers on a 1-minute chart.

Or the rounded top or bottom or pattern, or triangles, or Keltner channel bounces off the center line in strong trends.

Basically, you need an idea and a time frame (1-minute chart, daily chart, etc).

I would also include when you will be taking/placing trades (time of day) to further enhance consistency.

It doesn’t need to be perfect (yet). Just start with an idea YOU like.

Then you’re going to improve it using the steps below.

That’s the secret sauce. We dig in and become an expert in that idea.

If it takes the average trader 6 months or more just to master one bread-and-butter strategy, focusing all their attention on it, it’s no wonder people spend YEARS trying all sorts of different things but never getting any good at them. If you try to learn 5 strategies at once, you likely just expanded the time it takes to be successful into multiple years. If you try to learn everything about technical analysis, you will spend years.

Dedicate 6 months to ONE idea that interests you. As long as it takes to get profitable with it.

This doesn’t mean you mindlessly follow a strategy that isn’t working! The exact opposite. In the steps below you will learn how to make ideas profitable. So your strategy is not static. You’re refining it and making it better.

2. Define the Strategy

Since you have your idea, you already know the basic concept of the strategy. If you don’t have a strategy yet, that’s where a bit of research comes in: finding something you like the idea of. There are loads of free strategy articles on this site, in the courses offered, and from other sources such as books, Youtube, etc.

Whatever strategy you decide on, it needs to include these key components:

  • A trade setup. The trade setup is what needs to happen for us to even consider a trade. It could be a specific chart pattern, moving average crossover, price action signal, etc.
  • Where, when, and why we enter
    • A trade trigger is a precise event that tells us to get into the trade. When the “trigger” event occurs, it turns a possible trade setup into an actual trade.
  • Where, when, and why we exit profitable trades
  • Where, when, and why we exit losing trades
  • If and how we trail a stop loss

We can always refine the basics of a strategy. Actually, that’s the whole point of this roadmap: to take a strategy and make it profitable for ourselves. That means improving it over time as we see better ways of going things.

But for now, define the basic criteria for the strategy (above) and make sure you can identify the trade setups you’ll be trading. This is the strategy you’re going to give your full attention to.

When you start trading it, you may notice some holes or questions that pop up. Note them, and work on filling in those holes by studying your charts for the answer.

I lay out my Day Trading rules and strategies for trading the forex in the EURUSD Day Trading Course.

3. Establish Risk Management Rules

You have your strategy defined. The strategy is how we trade the market.

But we also need to manage our account while doing that. No strategy wins all the time, so we need to control our risk.

There are a number of ways that I control risk:

  • A stop loss on each trade. Not all strategy trades will be winners, so we need to get out when the trade doesn’t go our way. You should have defined where the stop loss is placed in Step 2.
  • Define the % of the account we can risk on a single trade. I use 1%. When starting out you may wish to start at 0.2% or 0.5%, for example.
  • Once we know how much of our account we’re willing to risk, and our stop loss, we can calculate our position size.
  • Establish loss limits: For day trading, I don’t let myself lose more than 3% per day. You may choose a different number. If I lose that amount, I’m done for the day. You may also choose to limit how much you can lose in a week before stopping until the next week. Swing traders may wish to do the same thing, limiting how much they can lose in a week or a month.
  • Establish rules around news/earnings. When I’m day trading, I don’t hold positions through high-impact news events. When I’m swing trading stocks, I don’t hold trades through earnings. These events can cause sharp price moves, resulting in losses much larger than expected (stop loss gets us out at a worse-than-expected price). Therefore, I exit my trades prior to these events, regardless of the strategy. You may wish to incorporate something similar, if applicable.

4. Find the Conditions When the Strategy Works and When It Doesn’t

The simplest way to improve is to notice the conditions when a strategy works and when it doesn’t.

When people learn of a strategy, they’re often so keen to implement it that any time they see a trade setup they take it.

Most strategies don’t work well in all market conditions. Many losing trades could be avoided by simply avoiding poor conditions for that strategy.

Whether I’m day trading or swing trading, I need lots of movement, where the price is moving at least enough to reach my profit targets with relative ease. If the price is chopping around in a small range, that is not the environment for me. I need to wait until the movement gets bigger. Only AFTER movement expands can I start implementing my strategy again.

I lay out when I trade and when I don’t in Trading Rules for When to Trade.

So in addition to the strategy parameters in Step 2 and 3, also add in:

  • When and why you won’t take the entry signals the strategy gives you!

This step can take some time to figure out.

Review YOUR own trades and notice when you tend to lose and win. Are there conditions that are more common with your losers? Are there conditions that are more common with your winners?

If you’re trading a strategy that capitalizes on trends, but most of your losses occur in choppy or ranging price action, you know what you have to watch out for! Study the chart and see how you can identify these types of areas before they cause too much damage, and once you have identified them, you can avoid this type of price action with your strategy.

The flip side of this is defining what conditions work well for the strategy, and when those conditions are ideal, making sure to take the strategy entry signals.

I lay out my Swing Trading rules and strategies for trading the stocks in the Complete Method Stock Swing Trading Course.

5. Refine Steps 2 to 4

You’ve defined your strategy, risk management rules, and the conditions you will and won’t trade in.

At this point, you can start real-time testing either in a demo account or a live account.

The real-time trading of the strategy will likely reveal things that could be improved.

Don’t change the whole strategy, but you may notice that you could make more money by avoiding certain types of trades (possibly related to market condition, near news, or some other specific conditions that affects how the strategy performs).

Your stop loss could potentially be smaller if the price rarely gets near it. Or if you’re constantly getting stopped out before the move you’re trying to capture happens, look at how you could improve your entry timing? You’re a bit early, how could enter slightly later and still get in for the big move?

Possibly you’re exiting trades too early. On average you could make much more than you’re currently making. How can you squeeze more out of your trades? Higher reward:risk? Trailing stop loss instead of target?

Study your trades and charts for the answer.

Your trades and the price action around them are all right there to be learned from.

6. Work on Mistakes & Trading Psychology

By this point, your strategy is working well. It makes money…if you could only follow it.

The above steps work on making sure the strategy works. But a great strategy means nothing if we, personally, can’t implement it.

Our focus now turns inward.

When you are trading, note when you make a mistake. Better yet, keep a journal with your trading mistakes, or email yourself every time you make a mistake.

How well you trade your strategy is called efficiency. If you follow your strategy perfectly, you’re at 100% efficiency. If your results vary drastically from what the strategy produces (if traded per the rules) then your efficiency is very low.

We typically won’t be able to trade our strategy perfectly all the time, but we want to be near 80%. You could also think of it this way: if trading the strategy perfectly produced 30% in profits this month, you should have made 24% or more. 30% is ideal. 20% or lower, in this case, means there’s work to be done; you’re leaving a lot on the table to due to mistakes.

Compare your results to the strategy results. If the strategy should have made 90%, compare your results to that. if the strategy made 8%, compare your results to that.

Correcting mistakes is the easiest way to make more money. You have already done the work! The strategy works! You just need to get better at following it. Reducing mistakes does that.

Part of working on mistakes is also working on our psychology.

Sometimes we know what we’re supposed to do but our impulsive, anxious, arrogant, perfectionist (etc, etc) aspects get in the way.

I don’t try to shut these things out. I work with them to turn them into strengths or minimize their destructive tendencies.

A Parts Negotiation is one way to accomplish this. This process quiets the mental voices or impulses that are causing the trading mistakes.

I also really like Identity Work. This process is about changing how we view ourselves and our trading, so we don’t need “will power” (which often fails us when we need it most) to overcome our struggles.

While I’m trading, I also like to talk through the price action that’s occurring. This includes what needs to happen for me to get into a trade, and what I’ll do once I’m in a trade. Basically, I’m thinking multiple moves ahead, so no matter what the market does I feel prepared with what I’ll do. I call this Scenario Planning and it can be very useful for helping to mitigate mistakes.

This is your strategy, your trading, and your money, so use what works for YOU. You’re becoming the expert in your own method, which means you get to decide what tools stay (help) or go (don’t help you)

Steps to Becoming a Profitable Trader – Tying it Together

Keep it simple and focused on one trading idea.

Get better and better at that idea. Keep refining and building your confidence in the method.

We gain confidence by seeing something work and being able to implement it. And that’s what all these steps are about.

Don’t be concerned about being an expert in the general area of “trading” or “technical analysis”. Generalists generally don’t make money.

Zero in, and become an expert at “trading moving average crossovers in high momentum stocks on the 5-minute chart in the first hour of the trading day.” That’s your area of expertise where you have found ways to make money.

Over time, you can add additional strategies, by going through the same process with them.

I trade many different strategies very well, but I started out developing one at a time and getting good at it. Learn one first, that’s your bread and butter. Once you have that, then start developing your other ideas.

Many new traders make the mistake of looking at experienced traders and thinking “They know everything…I need to know everything”. It can look like that in hindsight, but most successful traders started out with one idea and build on it. If they started out with lots of ideas and tried to refine all of them, then it likely took them a long time to be successful.

With this type of zeroing-in approach, it is possible to be successful within six to 12 months of starting the process. Deviate from this process and the journey could take years. There are people who have been trying to trade for 20 years, and have never had success because they keep changing what they’re doing. As long as that continues, success will continue to elude them.

At some point, you need to stick with an idea long enough to get good at it.

If you want to trade for a living, zero in and become an expert in YOUR idea. Do that, and you’ll have developed a process that you can rely on for life. Even if the strategy stops working, you’ll know how to develop a new idea. And having done it before, you’ll likely be able to develop new profitable strategies very quickly. This ability is your competitive advantage.

All a bit overwhelming? I’m here to help. Join me for Group Sessions 3x per week.
Ask questions and get guidance and advice.
Or join to help you stay on track and get better at implementing your strategy.

By Cory Mitchell, CMT

Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.

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