From my readings and learnings and experience of just under 5,000 rookie trades.
The goal is to be consistently profitable day in and day out. If you have a bad day or a bad trade just shake it off and move on to next. Learn for your errors. If you followed your rules you made a good trade no matter the outcome.
There are two main reasons why traders lose money.
- is chasing bad trades, put another way traders don’t close out losers soon enough, there are a few reasons for this but maily pride and greed. you might read up on Mark Douglas Trading in the Zone.
- Bad money management.
Learn to calculate your risk in a trade or use a percent risk tool.
Learn the principles of Ben Franklin’s rule.
Risk Management is key to long term consistently profitable trading.
each of the following is in any given trading day
a. don’t risk more than 5% of your account total on all your trades.
b. don’t risk more than 2% of the account total on any one trade.
c. For each 10K of the account size have a limit of no more than 50 open positions or .5% of any account total. You may blow it all in a day but you will be able to recover.
Another facet is maintain and know your risk to reward ratio, keep a log.
know your win-loss ratio and where you need to be at;
1:1 reward:risk: 1x = (1 - x) --> 2x = 1 --> x = 1/2 (break-even), so therefore a win-rate ≥ 51% would be profitable
2:1 reward:risk: 2x = (1 - x) --> 3x = 1 --> x = 1/3 (break-even), so therefore a win-rate ≥ 34% would be profitable
3:1 reward:risk: 3x = (1 - x) --> 4x = 1 --> x = 1/4 (break-even), so therefore a win-rate ≥ 26% would be profitable
and so forth . . .
Another item to know and track is your edge or expectancy. How much can you expect to make per trade is the total winners less the total losers divided into the amount made for thoses total trades.
Mine is very small I have only be trading for a year and took of 5 months of that on a sabbatical but my edge gets better weekly as I get better: following the above rules and my disciplined trading strategy. Check out a book called the DIsciplined Trader.
As a new trader you may find it almost impossible to have a positive edge. I can tell you for a fact I know many traders with edges over $20, $30 even $40 and more per trade. It took them many years to accomplish this but it is possible.
I hope that isn’t to much to digest all at once. Take it piece by piece like a pie on PI day! and digest it.
Thanks for the opportunity to reply to this seemingly never ending question.