If you are bad at trading, try not to take shit trades
I posted this on Twitter yesterday.
if you are bad at trading, try not to take shit trades
— Adam (@abetrade) December 21, 2021
A random brain fart at 1:30 AM in the attempt of being funny, which people also took it that way.
But is it just a joke?
If there were a way to eliminate “shit” from your trades, it would eventually lead to much better trading results, right?
It is true, and I will explore more about the topic in this article.
Bringing the system to the chaos
Trading as most other things that you are doing at home by yourself can very easily to a lack of discipline and a variety of mistakes due to many different things.
It does not matter how you approach it, and you can day trade futures, focus on buying and holding spot using fundamental analysis, different options strategies and so on.
Your trading then can be fully directional, systematic or you can use algorithms to execute trades.
The point is that you will have a chance to execute “shit” trades in every system.
These are the trades that you know you shouldn’t be taking, but you still do it.
You trade your favourite futures market on a dull day, and as it is your time to leave the screens, you just take this one trade for the sake of it; this trade, of course, ends up being a loser, and you leave your screens in a bad mood.
You build an algo, and although results are great, they are not that great; you were expecting, so you over-fit a few things to make it better; algo starts working well at first, but your overfitting will catch you up later, and you end up losing money.
You found a good setup on a stock that fits your strategy, but earnings are coming later in a week, so it is smarter for your system to wait until volatility settles; you become greedy and take trade into earnings anyway, which becomes a loser.
You see someone talking about this new amazing coin on Twitter, you start to feel FOMO and just ape in without doing any due diligence and taking your rules and system into consideration, you end up buying the top and serve as exit liquidity for those who shilled it to you on Twitter.
There are endless reasons why trade won’t work out, and of course, you cannot win every trade you take, but building a strong trading system and, most importantly, sticking to it will lead to much better results.
If you follow me for some time, you know that I mostly stick to day trading, so the rest of this article will be focused on this topic, but I am sure you can pick some useful tips even if you focus on something else.
There are essentially three things that will help you not take shit trades.
A trading plan is one of the most important things to have, yet I doubt most people actually have one.
A trading plan should contain everything you do, from what markets you trade, what risk management you use, your complete strategy, times of trading and so on.
This way, you have one go-to place that summarizes your whole trading approach, and if you include screenshots with trade examples, it will be very easy for you to drill these trades into your memory.
Things that you should consider putting into your Trading Plan:
- Your goals to achieving in trading
- Your monthly/quarterly/yearly % gain goals
- Description of your trading system
- Instruments you trade
- Times of the day you focus on analysis and trading
- A full breakdown of your trading strategy
- Overview of your risk management
- Overview of your trade management that tells you what to do once you are in the trade
Journaling your trades will end up being your best friend in not taking shit trades.
It will be highly dependant on your trading style, and you might have to get a bit creative about your journaling process. Still, the bottom line is that writing down your trading ideas, attaching screenshots to them and tracking different strategies separately to see how they perform will be only helpful.
For the most discretionary technical strategies, you want to keep track of things such as.
- Entry, Stop-loss, Take Profit price
- Type of setup
- Time being in the trade
- Maximum Adverse Excursion – furthest trade went against you
- Maximum Favorable Excursion – furthest trade went in your favour
- Screenshot of your trade
- Time of the day you entered the position
- Day of entry
- Market you traded
Things might get a little complicated for those who decide to the scalp and take a handful of trades every day.
In that case, you might want to journal your performance as a whole day rather than breaking down 30 separate trades.
Some journals will automatically track your trades via API in crypto, which can be very useful; more about those in this article.
If you are playing a long term investment game, you might not care much about technical things, so writing a fundamental thesis for your investment would be much better.
The bottom line is that having a spreadsheet where all your trades are stored is extremely helpful.
What always helped me during the drawdown periods was going back to my journal, going through previously taken trades, and looking at their screenshots.
Not only it is a good refresher of patterns in the market to look at, but it also gives you the confidence to continue executing.
Staying on a right track
Journaling and having a trading plan is great, but we all know how easy it is just to get caught up in the moment when markets are moving.
This is why having something right by your side that keeps you on track is always helpful.
Having a simple mind-map of your trading strategy is always a great help.
Especially if you are using simple technical trading, which I know most of you do, putting this thing together will only take you 1-2 hours.
This has been created via Lucid.app.
If you are trading multiple instruments, writing short notes of key levels and your trading ideas for a given instrument will help you not lose track of what is going on.
Another is a Demon Finder shared by Tom Dante a few years ago.
This simple excel tracks the most common mistakes traders make when they trade.
Every time you break the rules, you will hit one point; once the sheet is full, you stop trading and look at your mistakes.
The demon finder pic.twitter.com/2cZkiGs1gW
— Tom Dante (@Trader_Dante) March 22, 2016
Everyone takes a shit trade from time to time; it’s okay.
But since the mistakes we make an easily identifiable, you can start to get rid of them one by one by building a solid framework around your trading.
Be creative and adjust things based on your trading style and personal preference.
At the end of the day, there is no right or wrong way to trade.
Once you do that, you will start to see improvements very quickly.