Well, it’s important to study what went wrong with every trade you take. And also what went correct with every trade irrespective of the trade made profit or loss. This will give you an idea of what must be done and what must not be done in the next trade. That way with time you become a better trader.
However if you see closely at least 10% of the trades you take must be ignored. Why? Because they were pure speculative trades. Speculative trades are trades that you took just like that because “you thought so”.
NOTE: I am totally ignoring the trades you take in your account given by tip providers, brokers or your friends/relatives. They do not qualify for anything.
Ignoring such trades that are pure speculative will save a lot of time.
Just do not ignore the market risk and position sizing – risk management is paramount and it should be the first consideration in any trade. So if you took a big trade with a lot of money – then you must not ignore this.
Here are the reasons why you must ignore speculative trading:
1. They were speculative – this equals buying a lottery. Like its foolish to study whether you will get the winning prize as per numbers in the lottery similarly its foolish to study speculative trades whether they made money or not.
2. You took them out of gut feeling. You cannot and should not study gut feeling. There was no plan and you did a mistake, or, you made money which was a fluke. This does not need a study.
3. The process was bad. You took market orders. Professional traders never take market orders. They take limit orders. This gives them an edge over other traders and they get better results.
NOTE: If you are the one who takes speculative trades – you are throwing your money in the drain. If speculative trades made money 99% of the traders would have made a lot of money in stock markets. However, the story is exactly the opposite. 99% of traders lose money.
Its recommended to keep a plan in place and then trade according to that plan. Take at least 10 trades according to that plan and study them. These 10 trades taken with a plan will give you a good idea of what went wrong and right and what can be done in future to improve. However, if you study trades taken in gut feeling you are wasting your time and energy and money too.
You must have a system in place. You should know what strategy you are going to use. You must know your position sizing and you must know how much you will lose in the trade if something goes wrong or the trade does not go according to your plan.
You should be focusing more on the process of the trade and not the individual outcomes as they can be a fluke.
I have seen this with many traders who call me and tell their story. Most of the start with I have made huge losses. My first question to them is this – did you ever plan your trade like why are you taking this trade, how much you are willing to lose in this trade, why you took the biggest loss-making trade with multiple lots etc?
The answer I get is – Sir it was my Bad Luck.
Bad Luck is a good answer if you bought a lottery not if you traded and made a loss.
You should focus on the process, not in the outcome. It’s the process that you should study. The process will eventually lead you into making profits. If you focus on the outcome of any one particular trade then you will be getting into a zone where you will not understand anything. Its the process that makes you a good trader not the outcome.
If you improve the process of trading – your outcome will improve automatically.
If you’re using the right tactics to enter positions, risk management, position-sizing, trade plan – most of the times you will see positive results.
You can do my monthly income course to learn trade plan and make a monthly income without stress.
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Dilip Shaw, Founder
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