A mistake that most traders make is this…
If you want to be a profitable trader, then you must find a high winning rate trading strategy.
So you learn everything about trading, including chart patterns, price action, Fibonacci ratios, RSI, MACD, etc. because the more you learn, the better you become!
Well, that usually backfires.
Because the more you learn, the more you’ll doubt yourself due to conflicting information.
So now the question is…
How do you be the top 5% of traders when almost everyone fails?
(Hint: You got to do the things that 95% of traders don’t.)
The one thing you must have if you want to be a winning trader
Here’s a clue:
- It’s not technical analysis
- It’s not price action trading
- It’s not trading psychology
Your trading strategy must have an edge in the markets.
You’re probably wondering:
“What does this mean?”
Well, here’s an example:
Let’s say I make a coin-toss bet with you.
- Every time the coin comes up heads, you win $2.
- Every time the coin comes up tails, I lose $1.
In the long-run, who will win?
You, of course!
Because you have an edge over me.
And this is the same for trading!
You must have an edge in the markets because without it, nothing else matters.
“But how do I find an edge in the markets?”
The easiest way is to leverage the work of other traders, so you don’t have to reinvent the wheel.
So, go and read trading books that contain trading systems with backtested results.
(Based on my experience, these trading systems have a good chance of working in the live markets.)
Then, take the concepts of these trading systems and validate it on your own so you know whether it works, or not.
Anyway, if you want to learn more, then go download The Essential Guide to Systems Trading (free).
I’ll walk you through the entire process step-by-step so you can quickly find an edge in the markets.
Don’t be fooled by this trading law…
Here’s a process that most traders go through…
- Learn a new trading strategy to trade the markets
- When the trading strategy stops working, try something new
- When something “new” stops working, try something else
- Rinse repeat over again
Now, what’s wrong with it?
Well, if you abandon your trading strategy after a few losses, then it’s like saying a coin is fake when it comes up 5 heads in a row.
That’s silly, right?
You know that in the short-run, a coin could come up heads (or tails) multiple times in a row.
But if you toss the coin 1,000 times, then you’re likely to get closer to 50% heads and 50% tails.
Now this concept is the same as trading.
In the short-run, your trading results are random. But in the long-run, it’ll align towards your system’s expectancy.
So, don’t abandon your trading strategy after a few losses.
Instead, give your trading strategy time to play out its edge (at least 100 trades or more) before concluding whether it works, or not.
Or else, you’re just getting fooled by the law of large numbers—you’ve been warned.
How to improve your trading results even if you have tried everything else and failed
You might have tried things like chart patterns, trading indicators, price action, etc. and still not find any trading success.
Why is that?
Because in trading, less is more.
This means if you’re not getting the results you want, then take a step back and declutter—not add more.
So let me introduce to you, the DERR method…
(You’re about to discover the process which separates the pros from the wannabes. So, pay close attention.)
#1: Develop a trading plan
A trading plan is a set of rules to guide your trading so you can trade objectively and get consistent results.
To develop one, it must answer these 7 questions…
- What is your trading timeframe?
- Which markets are you trading?
- How much are you risking on each trade?
- What are the conditions of your trading setup?
- How will you enter your trade?
- Where is your stop loss?
- Where is your profit target?
#2: Execute trades according to your trading plan
Once you’ve developed your trading plan, then execute your trades according to the rules in your trading plan—and nothing else.
Also, you cannot change your trading plan after a few losing trades even though you might be tempted to do so.
Because in the short run, your trading results are random. And in the long run, it’ll be closer towards its expected value.
This means you need a minimum of 100 trades, before coming up with a conclusion whether your trading plan works, or not.
Recall the law of large numbers?
#3: Record your trades
Then, you want to record down your trades.
After all, how can you improve if don’t know what you’ve been doing?
So here are the metrics you must record:
Setup – Type of your trading setup
Market – Market you traded
Entry price – Price you entered
Stop loss – Price level of your stop loss
Exit price – Price you exited
P&L – Your gain/loss on the trade
Also, you must screen capture your charts.
This means when you enter a trade, screenshot the chart that highlights your entry point and stop loss.
After the trade is over, screenshot the chart and mark out your exit level.
#4: Review your trades
If you’ve followed steps #1 to #3, then this is where the magic happens!
- Look at your trading journal and identify your most profitable trading setup—and trade more of it
- Identify the trading setup that cost you money—and avoid trading it
- Tweak your trading plan according to your findings
- Repeat steps #2 to #4 again
And there you have it!
This is the secret sauce which separates professional traders from losing traders.
If you want more details, then check out How to Be a Profitable Trader within The Next 180 Days.
Opinions are useless. Here’s why…
I’m sure you can agree with me when I say…
There’s a lot of noise out there.
Just join any trading group and you’ll have a ton of traders sharing their opinions, analysis, trading ideas, etc. with the public.
But here’s the thing:
If you follow the opinion of other traders, you’ll have no idea what their trading plan is.
You won’t know when they’ll exit their losers, when they’ll take profits, how much to buy/sell, whether their trading strategy has an edge in the markets, etc.
Follow the DERR method I share earlier.
This is a proven framework that works and it doesn’t require you to listen to opinions, analysis, or any noise out there.
All you need to do is follow it with utmost discipline and let your results speak for itself.
You’re always a student of the markets
Here’s my story…
I started with price action trading in my early years of trading. I dived deep into topics like candlestick patterns, support & resistance, chart patterns, etc.
After I had a firm grasp of price action trading, I wondered to myself…
“How do hedge funds and institutions trade the markets?”
This brought me to the world of Trend Following—how billion-dollar hedge funds profit in bull & bear markets.
At this point, I realized Trend Following is only one type of systematic trading strategies.
As I dug deeper, I discovered more trading systems that could profit in different market conditions—which incentivized me to build my own trading systems.
The best part?
I’m still learning every day even though I’ve been trading for more than a decade now.
So my point is this…
As a professional trader, you will always be a student of the markets.
Because there are new trading strategies to learn, emotional demons to conquer, and market changes to adapt to.
The day you stop learning is the day you start failing—don’t let that happen to you.
Have realistic expectations
Most people don’t have a realistic expectation of trading.
They assume they could take a weekend course, master a few charts patterns, and then start generating an income from the markets.
But here’s the truth:
Trading requires a professional skillset just like doctors, engineers, lawyers, etc.
You don’t graduate from medical school after a weekend course or become an engineer by learning a few mathematical formulas.
There’s a steep learning curve involved and you need time to gain proficiency (at least a few years or more).
And it’s the same for trading.
You don’t become a trader just by memorizing a few patterns, setups, etc.
Yes, you could make money from clicking the mouse but, there’s more to it that goes on behind the scenes (like developing your edge, risk management, position-sizing, etc.).
So, give yourself time to learn how to trade.
Don’t look for short-cuts. Don’t try to get rich quick. And don’t think you could quit your job soon.
Trading isn’t your only source of income
After years of studying successful traders, here’s what I’ve realized…
Most of them have multiple sources of income.
Because if trading is your only source of income, you will have the need to make money every month.
This causes you to make poor trading decisions like widening your stop loss, averaging into losers, trading too large, etc.
And that’s why many professional traders do not rely on trading as their only source of income.
Don’t believe me? Let me prove it to you…
Ed Seykota, a Market Wizard, has a trading tribe that costs $99/month.
Mark Minervini, a Stock Market Wizard, offers a master trader program that costs $5000.
Most hedge funds (even the best ones) charge a management fee every year—even if it’s a losing year.
To put things in perspective, if you run a billion-dollar hedge fund and take a 1% management fee, it means you get $10m a year—guaranteed.
As you can see, professional traders and hedge funds structure their trading in a way that it’s not their only source of income.
But wait, that’s not all because…
If you have multiple sources of income, then you can use the “extra” money you’ve got to increase the size of your trading account.
Because with a larger account size, you can make more money from trading.
Here’s an example, let’s say your average return is about 20% a year.
- On a $1,000 account, you’ll make about $200 per year
- On a $100,000 account, you’ll make about $20,000 per year
- On a $1m account, you’ll make about $200,000 per year
See my point?
If you want to be in the top 5% of traders, then you must do things differently from the 95% of traders.
Here’s what you must do:
- Trade with a strategy that gives you an edge in the markets
- Understand the law of large numbers and that your trading results are random in the short-run
- Embrace the DERR method to improve your trading results
- Don’t follow news, opinions, or analysis—those are noise and it’s best to ignore them
- You’re always a student of the markets, keep your fire burning and never stop learning
- Have realistic expectations, you’re not going to get rich after taking a weekend trading course
- Have multiple sources of income so it’s easier on your trading psychology and you can quickly scale up your trading account
Now here’s what I’d like to know…
What are you doing right now so you can be in the top 5% of traders?
The biggest reason why retail traders fail is not because of poor money management, lack of discipline, or even a lousy trading method. Put simply, the biggest reason people fail at trading is that they get into it without a plan. But if you really want to earn via trading then Day Trading is the best option.
Great article, touched on many points that I learned through experiences along the way. I’ve seen the herd, simply buying into names they hear from within the noise, if retail consists predominantly of these kind of gamble punters, then no surprise why the success rate is only 5%. I’ve been there too in my initial years, but it is a lesson you must learn and outgrow.
Thank you for sharing, Jeff!
Im really struggling right now I’ve only a very small account 200 AUD I started well got account up to 240 but now it’s at 175 and I’m scratching my head thinking wtf is going on I’ve been trading for 7 years now and wow I can read a chart like a book but trade it haha nope. I keep doubting what I’m doing I keep telling myself and my wife oh I’ve worked it out now and this time is different but no it’s always the same. I just can’t do this lol I go long in a trade and I’m smashed so I think we’ll we must be going short.. and I’m smashed lol…. I feel like I’m just throwing trades at anything and hoping I make a win. What’s going on here with my trading. I like to follow liquidity and price action so I look at daily charts 1h charts and 15m down to 1m where I scalp. Something big is missing within my trading and I may have already figured out what it is but be stuffed if I can make it work.
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