What Does It Mean To Be A Consistent Trader?
We can’t control how much profit the market gives us, what we can control is only how consistent our actions are. Such consistent actions would produce as consistent a gain as possible given the varying market conditions.
It’s been said, so many times, so many ways, but here it is again, you need Discipline to follow your method.
All methods of trading have their weak spots in the market. Trend trading naturally won’t work as well in range bound markets. Range trading won’t work as well in trendy markets.
Support and resistance doesn’t work so well in thin liquidity markets where levels tend to get crossed more easily. So no matter what your edge is in the markets, there will be a spot in the market which your strategy won’t perform so well in. That’s where the other aspects of trading come in to help you minimize damage from the losses.
So what isn’t a consistent trader?
I won’t tell you that in order to label yourself a consistently profitable trader, you need to produce 10% every single month for a year.
It really doesn’t work that way.
During market conditions which aren’t right for your method, it’s unlikely that you would be making 10%. If you managed followed your method and stuck to your rules without doing any YOLO trading, consider that month well handled and give yourself a pat on the back.
Giving yourself such fixed expectations like “10% a month” regardless of market conditions or personal circumstances, will increase the level of stress you experience. As a new trader trying to figure things out, you certainly don’t need the additional stress and distractions. Just focus on building the right habits first.
There’s nothing wrong with having monthly or quarterly or yearly targets. But set something which you believe is realistic for your trading method and understand that just because you don’t reach the target for any particular month, doesn’t mean you’re suddenly not a “consistently profitable trader”.
A Better Way To View Consistency
Take measure of how well you do in the varying market conditions. If you see that the market has been suitable for your methods, but your trades have not netted you much profit, then you need to take a closer look during your trading reviews. You should review your trades on a daily, weekly or monthly basis, depending on your frequency of trades.
Here are a few things to look out for in every trade when you do your trade reviews.
#1 Were Your Entries Based On A Consistent Criteria?
You can ensure this by writing out your entry criteria. Then before entering the trade, run through the criteria to make sure this setup fits. This is the trading checklist which most people will have.
Most trading styles except scalping, will allow you enough time to run through your checklist before entering your orders. If you use limit orders then even better. If you use market orders, be more prepared prior to sitting down for your trading session.
With practice, you can run through every point on your list by memory.
#2 Did You Manage Each Trade In The Same Way?
Taking partial profits or tightening stop-losses or exiting your trade altogether. You should have some rules for how to go about implementing each of these steps for every trade.
For example, one useful rule I have for trades which I do, is a time stop. If the trade doesn’t move within this time limit, I assume that the momentum (a criteria to my entry) has faded, hence the trade is no longer valid.
So it only makes sense that I exit the trade or reduce size since my edge is no longer present.
#3 Was Your Risk Consistent?
It helps to set a fixed risk for every trade you take. Usually this will be a percentage of your capital.
Each trades will have different distances where you should place your stop-loss. Therefore sizing your trade slightly differently to suit each trade will be required.
You could choose to use a fixed stoploss for every trade as a personal preference, but be aware that in this way, you won’t be taking full advantage of setups with better risk/rewards as they share the same position size as trades with mediocre risk/rewards.
Since you won’t know the outcome of your trades before entry, this way makes it fair to all your winning and losing trades. This method was popularized by Van Tharp in his book, “Trade your way to financial freedom”. In the book, he describes various ways to manage your risk or improve upon what you are currently doing.
Don’t just be your worst critic, be your best friend as well.
When we do trade reviews and self-reflect, we can be harsh on ourselves. That’s fine, because in order to reach a higher level of competency, we need to demand more of ourselves.
But since we are just human afterall, it’s understandable that once in a while, we might lose control and for whatever reason break our rules. We might enter a trade on a wimp or start shifting our stoplosses.
If we go out of line, it’s important we recognise this as soon as possible and get back on track. There is usually an emotional reason that we “Rebel” or do something impulsive. The causes could be external or internal. Nevertheless, such things happen, and that’s when we need to be our best friend as well.
It’s important to limit the damage of such occurrences by sticking to our risk management. We can fumble on our entries and exits and trade management, but we MUST always have control of our risk. Make it a habit to always enter a stoploss for every single trade.
Even more importantly, we need to recognize that we are human, forgive ourselves, then move on.
One thing you can do, is to have a way to release stress. Either by doing sports, painting, spending time with your pets or even just meditation.
How Do You Become Consistent In Trading?
Here are a few things you can do right now to immediately increase your consistency.
- Write out your trading beliefs which guide your analysis to derive a long or short bias on your setups.
- Write out your trading setup.
- Write out your trigger.
- Write out your trade management rules.
- Write out your risk parameters.
This is essentially your Trading Plan.
Read your Trading Plan every single day before you start trading.
Starting tomorrow, you will feel in control of your trading and more confident of your trades.
Within a month, you will see a vast improvement in your consistency. Assuming you have a profitable method and strategy, you will start to see profits.