six ways to more profit as a trader

stop adding to losing positions

It is just bad practice and here’s why. Losing trades are losers for a reason. You either timed your trade incorrectly, your levels were not as solid as you thought, or you are just simply on the wrong side of the probability curve this time around. Honor your stops and move on. The only reason you are adding to a loser is because you cannot accept the fact that you are wrong in your trade idea. You’re hoping it can retrace back to some arbitrary break even level which means nothing to the markets.  Cut it and wait for a new setup. The only caveat to this is if your plan from the start is to enter with half or quarter size position with the intention of adding to it if it moves against you. This is not a standard trading style of mine but I will do it occasionally if I like the price I am getting but I do not like the timing. So in other words if I think I am going to have to sit through some choppy basing action before it resolves in my direction I may plan to enter a piece and then add once I get more info from the market. Once I have a full position, a stop loss is in and the games are over.

manage your trades on ONE time frame

Take for example a stock trending higher all day. It is entirely possible for the 30, 15, 5, and 1 minute charts to all be in bullish formation making higher highs and higher lows. Let’s say you buy a pullback on a 1 minute chart expecting the stock to return to new highs. But instead let’s assume the stock continues to move against you [because that never happens]. Instead of honoring the stop on the 1 minute timeframe you expand out to a 5 minute chart and think, ah well it is still bullish here, lets hang in there. Next thing you know you are using a 30 minute chart staring at a position that has moved 5 times the amount you had originally planned to risk. Whichever the timeframe you planned the trade on needs to remain the timeframe you manage it on.

know WHY you took a trade in the first place

Ever been in a trade much longer than originally anticipated only to find yourself losing sight of the reasons you entered the trade in the first place? For example if you like to trade breakouts and you jump in on a breakout expansion bar only to find the next few candles stubbornly move sideways and retrace a bit instead of blasting higher you may just find yourself sticking around in the trade. If your setup was based on a fast precise move that should have taken off then you need to ask yourself if the original trade idea still exists. If it doesn’t, raise your stops, reduce your position, or just get out. Some people may argue if your stop has not been hit then do not over manage it. I absolutely agree. But for time sensitive setups I have found its better to exit and just re-enter on a more precise setup.

stick with winning trades

Often a very difficult task for traders, sticking with winners can really make the difference between good and great results. Knowing when there is ‘more’ in a trade is so important and it’s nothing that can be easily described or taught. A lot of this depends on your trading strategy and trade setups, but recognizing when to take a profit and run and when to hang around is a skill all traders need to develop. It depends on timeframe, time of day, ranges, volatility, market indices, news events, and the list just goes on. Nothing is more frustrating to me than picking out a beautiful entry price, closing the position for a quick scalp, and then watching the market continues to trend on and on in the same direction.

trade less

Simple and effective. There have been countless trades I look back on and think to myself, why? Forget about the ‘B’ setups and focus on the ‘As’. Stop taking long trades based only on relative strength while the market is in a trend down day just dumping lower. Instead wait for times when the market is ripping higher and your relative outperformer is leading the market higher. If you average 10 trades a day, drop it to 7. Pretend you have a maximum amount of trades available per day and really honor that number in order to keep yourself more selective.

avoid trades on a 1 minute timeframe [or equivalent]

This may be an easy one for some of you, especially if you are not a short term trader. If you are not an intraday trader then think of this in respect to whatever timeframe is ‘fast’ for you. Not only does the 1 minute chart contain a lot of noise it can also suck a lot of mental energy out of you constantly monitoring such a fast chart. I like the 1 minute chart for execution. For example if I identify a possible long setup on a 15 minute chart I will zoom down to a 1 minute chart to get a closer look at what’s really going on in order to validate my thesis and refine my entry. Executing a larger timeframe idea is fine, but what I want to eliminate is forming trade setups on the 1 minute. Repeatedly buying apple looking for a dollar as my target with a 50 cent stop, can drain you mentally and just whipsaw you out of too many trades.

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Evan Medeiros

Evan is the founder of the Trade Risk. With 20+ years of coding experience and a B.S. in computer science, Evan brings a systematic discipline to investing in the stock market.

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1 Comment

  1. Lian on 2:02 pm July 5, 2013 at 2:02 pm

    Recognizing myself a bit, thank you very much for sharing your experience!

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