The Illusion of the “Perfect Routine” and Trading Psychology
I always thought that if I did the million-dollar morning routine, take ice bath, meditate, and practice mindfulness, my trading psychology will be fixed.
Whenever I see price is moving in my favour, I shifted my stop loss to secure profits. It’s fine right? It’s never wrong to secure real profits rather than letting it be an unrealized gain. I see the price took me out as my stop loss is too tight. The price went higher and higher without me. If only I had followed my trading plan which is to do nothing until price has shown bullish impulse.
When I see that price made an impulsive move in my favour, I will wait a little while longer to secure my profits. I know my trading plan is telling me to close the position now. But let’s see if we can milk some more profits from the market. As the dipped, I promise to close my position at my original take profit price. Price continued to dip and take me out at breakeven.
Whenever I see price is approaching my stop loss, I extended my stop loss and pray hard that price will not take my position out. It’s fine right? As long as I close it at breakeven when price comes back. I waited and waited, and watched the price goes lower and lower, with my unrealized loss getting bigger and bigger. From a originally planned $100 loss, it became a $1,200 loss. It was supposed to be a 1% loss, but it turns out to be a 12% loss on my $10,000 account. I remembered it was a $Invesco QQQ(QQQ)$ trade.
“There must be something wrong with my trading psychology.” I thought to myself. So off I went to YouTube, X, Tiktok and Instagram to look at psychology posts and videos. I gave myself mental pleasure by ensuring that I will follow my system. Then the cycle repeat itself.
Core Trading Problems That Sabotage Your Success
There are a few problems that we face as a trader.
Greed, the innate emotion that all of us have. When I waited for a while to close my position, I have already secured a hefty profit which will be realized if I followed my trading plan. However, due to greed and thinking that this trade will be the homerun trade, I let greed took over my thinking. Eventually I ended up with nothing, forgoing all my profits because I think that price will continue going in my favour.
Fear, another innate emotion that haunts all of us. Trading live means we do not know what price will do in the future. Our next trade can be a big win, small win, breakeven, small loss, or a normal loss. If you took a big loss, then you have a position sizing issue. We fear that if this is really the homerun trade, and if you followed your trading plan, you will miss out on the potential 10% extra profits. But think again, how often do this kind of runs happen?
Failure to understand these problems will have a lot of consequences to your trading career. Even with a solid trading strategy with a positive expected value, you will not actualize these results you got from your backtest. You can have an average expected return of 4% per trade, but if you don’t follow your trading system, your results will be randomized. This will make you go in a loop like this: “Backtest a new trading strategy -> Got hopeful results -> Trade live -> Don’t follow trading plan -> Watch even more trading psychology videos -> Switch to a new strategy”. The cycle will continue and you will waste precious money and time.
You want to achieve financial freedom and success through trading, right? Why would you want to waste precious money and time doing the same thing over and over again?
Why a Backtested Strategy Can Make or Break Your Trading
Yes it takes discipline to follow your trading system. But do you know what else is needed? A solid fool-proof backtest result. Have a set of backtested data ready. Have that set of data be so good that you will look like a fool for not following that trading system. If the trading system can make you 100% profits consistently every month, will you not follow your trading rules? I’m exaggerating here of course, it’s hard to achieve 100% profits consistently every month. But I’m showing you how it’s dumb of you not to follow your trading rules if it has already proven you will be profitable just by executing your trading strategy and following your trading rules. By having the set of backtested data, you are also able to estimate how your drawdown curve will look like. If it shows you on average you will experience a 6% drawdown, then if you’re at 3% drawdown, why would you be afraid of taking trades?
If you’ve been following me on my journey, you would have seen my progression. I’ve manage to break free of my unprofitable self to a consistent profitable trader now. How? Just by having a solid trading strategy with more than 1000 backtested data points. It’s simple, but not easy. Do you even keep a record of your backtested data? Do you know your average drawdown %? Probably not. I have an excel sheet made just for recording your backtested data.
Remember, trading is not easy, but the process is simple. Stay consistent and trade safe.
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