How To Become a Consistently Profitable Trader

“Risk comes from not knowing what you’re doing.” - Warren Buffett

Introduction:

Are you tired of inconsistent trading results and looking to become a consistently profitable trader? If so, you're not alone: Many traders struggle to consistently turn a profit, but it is possible with the right mindset, strategy, and discipline. These tips should help you on your journey to consistent profitability.

Five tips for reaching and retaining consistent profitability

1. Develop a trading plan and stick to it. A trading plan should outline your goals, risk management techniques, and the specific rules you will follow when entering and exiting trades. It is crucial to have a plan and stick to it - this can help you stay disciplined and avoid emotional decision making. (A tip: Frame your trading plan and put it where you're trading. This should help you remember what you should be doing.)

2. Manage your risk. Risk management is key for consistent profitability. This includes setting stop-loss orders to minimize potential losses and not risking more than a small percentage of your account on any single trade. (A simple test: can your account and psyche stand 10 losses in a row at your current risk size? How about 15? How many winners would you need to recover from that?)

3. Focus on the long-term. It's easy to get caught up in the excitement of short-term trades, but it's important to remember that the long-term is what truly determines your success as a trader (or investor). Don't get caught up in trying to hit home runs with every trade, as this can lead to excessive risk-taking and ultimately, losses. Take this into account also when you're writing your trading plan!

4. Continuously educate yourself. The world of trading is constantly evolving, and it's important to stay up to date on market news, trends, and analysis. Consider reading books, taking online courses, or joining a trading community to continually improve your knowledge and skills… and consider carefully: for years, the internet has been full of trading gurus who may or may not be worth following. Whatever you learn should be investigated before it's implemented. (Read: back-testing is key.)

5. Stay disciplined and avoid emotional decision making. Emotions can be a trader's worst enemy, as they can lead to rash decision making and deviations from your trading plan. It's important to remain disciplined and stick to your plan, even in the face of tempting but potentially harmful trades.

By following these five tips, we believe that you should be able to improve your chances of becoming a consistently profitable trader. For most folks, becoming a profitable trader takes a lot of time time and discipline, but with hard work and dedication, it should be possible to achieve consistent success in the markets. (Not everybody will, but we believe that everybody could if they followed a rigorous process of finding an approach that works for them, then testing it on a demo account to verify they can execute their system without real risk, then moving to verifying they can trade it for real using small real bets, and finally taking it from there once they have seen, they can make a consistent profit even when the psychology of risking real capital is in play.)

For more details on each five steps, please keep reading!

1. Develop a trading plan a stick to it

One of the most important things you can do to become a consistently profitable trader is to develop a trading plan and stick to it. A trading plan is a document that outlines your goals as a trader, your risk management techniques, and the specific rules you will follow when entering and exiting trades.

Your trading plan should include details such as:

• Your overall trading strategy and approach

• The markets and instruments you will trade

• The time frames you will focus on

• Your risk management techniques, such as position sizing and stop-loss orders

• Your entry and exit criteria for trades*

• Your performance review and improvement process

* In addition to simply deciding that "here are my entry and exit criteria", whether it's based on a book you read, a course you took, or simply extensive staring at charts and figuring out "oh man, it looks like this would work...", any serious trader should back test their strategy.

If you would like to piggy-bag from one cool strategy we have back tested and used ourselves to grow a small $6.5k account by over 80% in under 3 months during July - September 2022, click here to learn more. We're also happy to share our back testing data with you.

Having a trading plan in place helps you stay focused and disciplined, as it gives you a clear set of guidelines to follow. It also helps you avoid making emotional, impulsive decisions, as you can refer to your plan to stay on track.

It's important to regularly review and update your trading plan as you gain more experience and insights. However, it's equally important to stick to your plan once you have it in place. This can be difficult at times, especially when you see an opportunity that seems too good to pass up. However, deviating from your plan can lead to inconsistent results and ultimately, losses.

In summary, developing a trading plan and sticking to it is crucial for consistent profitability. It helps you stay focused, disciplined, and avoids emotional decision making. Take the time to carefully consider and plan out your approach to trading, and make sure to review and update it regularly.

2. Manage your risk

Risk management is a crucial aspect of trading and is essential for consistent profitability. It involves techniques that help you minimize potential losses and protect your capital. Here are a few key ways to manage your risk as a trader:

• Set stop-loss orders: A stop-loss order is an order that automatically closes your trade at a predetermined price, designed to limit your potential loss on a trade. By setting stop-loss orders, you can minimize the potential damage from a trade that goes against you.

• Manage your position sizing: Position sizing refers to the amount of capital you allocate to each trade. By properly sizing your positions, you can control your potential losses and ensure that one bad trade doesn't ruin your entire account.

• Don't risk more than you can afford to lose: It's important to remember that trading carries inherent risks, and you should never risk more than you can afford to lose. Determine an amount that you are comfortable risking and stick to it.

By implementing risk management techniques such as these, you can protect your capital and increase your chances of reaching consistent profitability. Remember, managing risk is crucial to the long-term success of any trader.

3. Focus on the long term

It's easy to get caught up in the excitement of short-term trades, but it's important to remember that the long-term is what truly determines your success as a trader: it's not how the next 10 trades perform - it's much more about how your next 100 - 1000 trades perform, and ultimately, how well you do over the next decade or a few. Unless your trading plan based on a strategy you have back tested relies on this, don't try to hit home runs with every trade. This often leads to excessive risk-taking and ultimately, losses that spin out of control.

Consistency and return on risk are key to long-term profitability. Eventually, all a trader needs to do, is to make sure their win rate is and stays at a good level (such as 75% or higher win rate) and both their risk to reward ratio (in the trade planning phase) and their realized average win size vs average loss size is under control.

When these ratios produce a strong return, the rest is up to relentless execution of the plan, monitoring that the plan still gives expected strong ratios year after year, and letting time and frequency take care of the growth.

4. Continuously educate yourself

The world of trading is constantly evolving, and it's important to stay up to date on market news, trends, and analysis. As a trader, it's your responsibility to continuously educate yourself and improve your knowledge and skills. There are many ways to do this, such as:

• Expand your knowledge by reading trading books and articles (like this one), or taking online courses, watching webinars, or going to live summits and other events to gain new insights, or to simply reinforce previously learned knowledge

• Improve your strengths and improve your weaknesses. Know what they are, where you are now and where you would want to be. Find information, mentors or whatever you need to improve the areas that would create the biggest impact right now.

• Joining a trading community: Joining a trading community, whether online or in-person, can be a great way to connect with other traders and learn from their experiences. You can ask questions, share insights, and learn from the successes and mistakes of others. (Be careful or even picky when selecting the community, however!)

When you learn something new and think that it makes sense to incorporate that into your trading plan… think again. Something that works in somebody else's context may not work in yours, a technical analysis approach that works on S&P500 may not work for Ethereum, and somebody's method of managing their trade risk and account risk may not work well when combined with your trading approach.

The only way to know is to go through a rigorous testing and approval process: discover, prove with data, prove on a demo account, prove on a live account. When I have a method that works for me, I certainly don't want to mess it up randomly by changing it without making sure that change is an improvement. I believe you should not either!

5. Stay disciplined and avoid emotional decision making

Emotions can be a trader's worst enemy, as they can lead to rash decision making and deviations from your trading plan. It's important to remain disciplined and stick to your plan, even in the face of tempting but potentially harmful trades.

One way to avoid emotional decision making is to have a clear set of rules outlined in your trading plan. By following these rules and sticking to your plan, you can avoid letting your emotions influence your trades.

If you know how to write code, you could build tools (indicators) that help you with your decision making. The trading strategy we mentioned earlier uses custom-made tools that we've built for the task. These tools highlight moments when we should make key decisions and allow us to set alerts so we can take a look at what is going on when it is time to make those key decisions. If you would like to know how the system works, click here and watch the video on the page. :)

It's also important to be aware of your emotional triggers and how they might affect your trading. For example, do you tend to make impulsive trades when you're feeling anxious or stressed? By identifying your emotional triggers, you can take steps to mitigate their impact on your trading.

One way to do this is to use techniques such as meditation or deep breathing to calm yourself before making a trade. You can also try using a trading journal to reflect on your trades and identify any emotional patterns that might be affecting your decision making.

By staying disciplined and avoiding emotional decision making, you can increase your chances of consistent profitability. Remember, trading is a mental game, and it's important to stay in control of your emotions in order to make sound, rational decisions.

Summary

Becoming a consistently profitable trader requires the right mindset, strategy, and discipline.

To improve your chances of success, it is important to develop a trading plan and stick to it. In addition, our recommendation is to continuously educate yourself to strengthen both your current strengths and weaknesses as a trader.

We believe that following these tips can help you build a solid foundation for long-term profitability in the markets, and help you develop a system that allows you to retain and improve your edge, making you win more and win more often today as well as decades from now.