A transaction is a business, and it should and must be conducted in a business manner. In my opinion, there is only one way for a trader to succeed, and there are various ways to fail. There is much more to learn in trading than trading strategies. Of course, there are more chances of winning if you have a trading strategy. But trading strategy alone does not make you a successful trader. What you need is a trading framework and step-by-step practical experience on the way to trading.
Before trading, you first need to get a good education. Education can be divided into two parts:
1. How to read the market
2. Transaction process
It is very important to know how to read the market correctly, once you learn this, you will be able to distinguish the good trading opportunities in the market. Only when you see a good trading opportunity, can you establish a trading strategy to help you really take advantage of this trading opportunity to make a profit. If you only learn trading strategies, then your vision is limited. It's like learning a musical instrument by learning a piece of music. If you don't know how to read sheet music, your knowledge of musical instruments will be very limited.
My first trading education was not correct, let me explain. I started trading for a proprietary trading firm nearly a decade ago, using firm funds. So I went to take the Series 7 exam and learned a set of insider trading methods. I then successfully passed the series 7 exams and completed the in-house training, and then I got a trading account with a position limit of $500,000. The trading methods we learned at the time were all based on listening to tapes and studying the New York Stock Exchange (NYSE) data. The biggest disadvantage of this method is that it cannot stand the test of time. It was useful at first, until one day the NYSE became complicated and some of its former experts were replaced by computers. This is why it is so important to learn a method that will not be obsolete by time. I then had to start over.
Another required factor is a good trading plan. You might as well not trade without a trading plan. If you can't strictly execute your trading plan, you might as well not trade. This is the "principle". Without a trading plan, there can be no principles, because the definition of a principle is the ability to execute the plan. I have trained many traders, and the first question I usually ask is "Do you have a trading plan?" If the trader answers yes (which is rare), my second question is "Do you have a Execute the trade according to the trading plan?" But usually the answer to both questions is no. So the training starts here. Without a trading plan, it is almost impossible to be successful. So why trade without a plan?
When you get a good education, you already know how to read the market. You also write down a good trading plan. But other than that, you still have a lot to prepare before trading. All things add up to form a frame. As long as you have a sound framework, you can start trading.
The other things that make up the framework are:
1. Trading plan
2. Transaction records
3. Transaction Log
Here I just briefly summarize the transaction process without going into too many details. Then talk about the importance of the trading journal.
The daily transaction process generally looks like this:
1. Write down entry timing in your trading journal
2. Get ready to start trading
3. Analyze the market and look for trading opportunities
4. Wait for the market to present the trading opportunity you planned
5. Transaction
6. Take a picture of the admission situation
7. Write down the entry in the trading journal
8. Trade according to your trading plan
9. Take pictures of the situation after the transaction
10. Take a picture of what happens next
11. Open the transaction in the transaction log
12. Write down the entry in the trading journal
Following this trading process, you can learn all kinds of useful information about yourself as a trader, and you can also know whether your trading plan is useful. Likewise, you can learn how to use the data you gather during the trading process to help you become a better trader. You need to know how to evaluate your trading performance and results. If you keep these trading sessions in mind, the market will be your best teacher and it will teach you everything you need to know.
Now, I want to talk about the importance of keeping a trading journal. You can even use the trading journal as your mental journal. A trading journal is used to record and track your thought patterns and feelings during the trading process. I think it's best to show the power of a trading journal with a few different scenarios where it can highlight things that are not working for your trading success.
scene one
You trade exactly according to your plan, and you wait patiently for your chance to write it down. But the trade suddenly goes against you, and you close out the trade early. Then, to your surprise, the market starts moving again and does exactly what you had planned, and you're not on the trading floor at this time. When you evaluate the trade, just look at the trading journal to see what you were thinking and why you didn't follow the trading plan. You may clearly see that because you are worried that the transaction will be unfavorable to you, since you have lost $300, you definitely don’t want to continue to lose $500, so you choose to close the transaction.
Without a trading journal, you evaluate trades knowing you are not following the rules and closing trades prematurely. The problem is, you still don't know what made you decide to go against your trading principles. But with a trading journal, you can clearly see that you are afraid of losing too much. So you start to know that you need to overcome this fear in order to have successful trading. It is not enough to vaguely believe that you are simply not following your principles. You have to find the root of the problem in order to find a solution.
This is also the homework that a trader with a goal should do. Before I start training clients, I ask them to first understand themselves as much as possible. They must discover their own strengths and weaknesses, and find problems that they were not aware of before. Becoming a successful trader also helps you become a better human being. Trading is like a mirror, it will reflect everything about you. This is the power of the transaction journal.
scene two
You've been sitting in front of your computer for 4 hours just waiting for your trading opportunity. You think that you can master the trading principles, and even write down this thought in the trading journal. Suddenly the market kicks in and you immediately buy long. But soon, the market goes the other way, you lose $500, and you are taking risk on every trade. You stare at your computer screen in disbelief. The market is even going for the worse. You have lost $1,000 and choose to close the trade. But the market started to rebound again. It exceeds your entry price and keeps going higher. You could have made $2,000 in profit! You feel angry and puzzled. As you reflect on the trade, you realize that you did not meet the entry requirements.
This doesn't even fit into your trading plan. You can't follow the principles very well, but what exactly caused it? You look at your trading journal and realize that you did follow principles in the first place. You wait 4 hours with nothing to do. That's great, but after that? You see the market start to go up and you feel like you might be missing out on a good opportunity, so without any stop loss, trading target or plan, you get in. Evaluating the trade further, you find that you end up exiting exactly where you planned to enter.
You no longer consider timing your planned entry for fear of losing more. You now see why you broke your trading principles. You are worried about missing a favorable plan, and this mentality makes you enter the market unprepared. So you learn the lesson that a little more patience and waiting for the right moment can make a profitable trade.
The main problem is that we may know what are the problems that need to be solved in order to be a successful trader. But it's just "know what". To solve the problem, we need to find the "why". We need to understand why we make actions that are not conducive to trading. At this time, the transaction log can help us drill down to the problem. Once we have the information and data recorded in the trading journal, we can start to solve our own problems and start to take the next step in the direction of consistently profitable traders.
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