8 Things You Can Do Right Now to Improve Your Trading

At Traderade, we're committed to providing real-time educational materials and information to help retail traders navigate the markets. No matter where you are in your trading journey, there's always opportunity for improvement. Here's 8 things you can do right now to help become a better trader:

1. Specialize

Newer traders/investors often enter the markets as a wanderer, enticed by many different opportunities. Truthfully, there’s endless ways to participate in financial markets with countless trading vehicles and it’s often challenging to find something that’s “right” for you. Nonetheless, specializes in something is critically important and a commonality amongst successful traders…they found a niche and mastered it. Wandering is natural for retail, but if you want to take your trading journey to the next level you’ll want to specialize.

Examples of Specialization include (but not limited to):

  • Equities

  • Options & other Derivatives

  • Foreign Exchange

  • Bonds

  • Futures (Indices & Commodities)

  • Arbitrage

  • Spread Trading

  • Catalyst Trading

  • Short Selling

  • Value Investing

  • Sector Trading (e.g. Biotech, Emerging Markets, Energy, etc.)

  • Penny Stocks

  • Crypto Currencies

  • Volatility Trading

Not only are there countless things to specialize in, there’s also different timeframes to master, from day trading to swing trading and investing. The sooner you can figure out something to specialize in the more likely you are to be able to implement a strategy that matches your risk tolerance and your market.

Tips for Specializing:

  • Know your product/trading vehicle inside and out (e.g. fees, contract terms, roll-over dates, major catalysts, settlement terms, etc.)

  • Know your competition (i.e. who are you primarily trading against?)

  • Know the within-sector competition (e.g. competing companies)

  • Know average daily/weekly/monthly ranges (i.e. be able to identify movement as normal or atypical)

  • Know the tax implications involved for whatever/however you’re trading

2. Understand That It’s ALL Gambling

That’s right…all of it. It doesn’t matter if you’re a day trader, swing trader, or long-term investor, anytime you put your money at risk while you’re not in full control of the outcome you’re gambling. Yes, even Warren Buffett is gambling. That doesn’t mean you can’t gamble with an edge, you absolutely can; however, you need to know explicitly what that edge is before entering the markets (more on that later).

You’re probably thinking “How does this help me be a better retail trader?” Allow me to explain:

Would you take a significant portion of your net worth to a casino?

The answer should be no (if not you likely have a gambling problem and should seek help).

Most people who visit casinos only bring money they can actually afford to lose. You should treat trading the exact same way. No single win or loss in the markets should change your life. If it did, you either 1) got extremely lucky or 2) took irresponsible risk. A trading loss should be an annoyance, not a life altering event.

I’ve talked with countless other retail traders who have unfortunately not accepted the fact that trading/investing truly is gambling, meaning they are often intelligent people who’ve read lots of books and done their homework before entering the market. They understood a company’s balance sheet inside and out, they knew what the company is “worth,” and they bought at a good price…yet time and time again they lose money on their positions. Why? Truthfully, there could be many reasons why, but my point is someone with the mindset that it’s all gambling is less likely to take the loss personally or revenge trade. It doesn’t matter how prepared you are or how strong your thesis is, sometimes we still lose because the market is not rational and your competition has a much larger influence on price than you do as a retail speculator. Your trading will generally improve if you embrace your place on the financial “food chain” and understand that losses are not to be taken personally. The best we can do is stick to our strategies and do our homework. The right mindset is crucial to sustainable trading. Getting upset about losses will likely have a negative impact your future trading decisions…or even worse: You’ll develop a permanent bias. As mentioned earlier, if you treat trading as gambling then your risk per trade should be reasonable enough that it won’t negatively impact your life; therefore, getting upset about losing while you’re gambling in the markets is more irrational than the markets themselves!

"No single win or loss in the markets should change your life."

3. Take Profits

Building off the previous point, if we aren't to beat ourselves up over losses then we shouldn’t think we’re geniuses when we win. There’s absolutely an element of luck involved in every trade…the only people that deny it are slaves to their ego. One of the biggest mistakes I see retail traders make is not taking some “chips off the table” when they win. It’s absolutely painful to see people make fantastic trades then proceed to give it all back.

Now, I want to be very careful here and make sure you understand my reasoning because this is a tricky subject. There’s an old adage “Nobody went broke taking profit”…actually you absolutely can if your Risk/Reward Ratio is way out of whack, so I want to make sure you understand the point I’m trying to make:

If a stock/option/futures contract has moved in your favor way more than normal, TAKE SOME PROFITS.

Remember the first tip about specializing where I said “Know the average ranges”? That part is important. If you’ve done your research and you understand a particular equity’s historical volatility or average ranges, then you can make wiser decisions about when to pay yourself. If I’m swing trading ES Futures and I know the average low-to-high upswing is 2.4%, then it doesn’t really make sense to take profit if I’m up 0.1% but initially risked 0.5% on the trade via a stoploss, does it? No, that Risk/Reward makes no sense and it ignores historical data. Learn what is “normal” and what is not, and pay yourself if you’re up an abnormal amount.

A classic example of this common retail mistake is the recent GameStop (GME) boom and bust. Many traders made incredible, life-changing trades yet watched as the stock proceeded to crash back down to reality. This was especially painful to watch because the initial thesis for the trade was solid yet it was ignored when the trade should have been over. GameStop was criminally undervalued prior to its historic rise, then traders watched it soar way past anything remotely resembling “fair” value; therefore, any logical trader should ask themselves “Why keep holding the stock if the thesis played out perfectly and the trade is over?”

You shouldn’t!

Never get married to a stock or a trade, they’ll always break your heart. TAKE PROFITS.

"Learn what is 'normal' and what is not, and pay yourself if you’re up an abnormal amount."

4. Determine Your Goals Before You Enter the Market

If you’re already trading and you’re not sure what your trading goals are, take some time to really think about it. I’m serious…really think about it and write it down.

You might be wondering, “How would that make me a better trader?” That’s a valid question. One of the biggest mistakes I see other retail traders make is overtrading. I think it’s an oversimplification to claim that people overtrade because they are either greedy or revenge trading—I don’t think it’s that black & white. I think one of the main reasons people overtrade is they have absolutely no idea what success looks like…they don’t know when to quit because they don’t know what their goals are.

In the process of defining your goals, be realistic about what success in trading looks like for you. Then figure out how you’re going to measure it. Any worthwhile goal should be measurable.

Let me expand on why this is important. Let’s say you have the work/life flexibility to do some day trading, and let’s say you’re thinking “Success to me would be to make an extra $100 per day, but lose no more than $50.” Great, we’ve got a basic measurable goal. Now what happens? Unfortunately it’s very common for things to play out like one of these 2 scenarios:

Scenario 1: You have a solid morning of trading MES, you’re up $200 on a nice 40pt Opening Range breakout. Awesome!

  • What you should do: Walk away! You doubled your daily goal, great job! Now go about your day with a smile on your face, looking forward to tomorrow’s trading session.

  • What you do instead: Spend the rest of the day overtrading, thinking “Well I’m technically $100 over my goal, so I have some extra money to play around with” (Hint: That's the wrong way of looking at things). Then you slowly lose a few points here and a few points there, until you’re red for the day and beyond angry with the market, when you should be angry with yourself.

Scenario 2: You have a rough morning trading MES, you’re down $60 on a couple of stop outs.

  • What you should do: Walk away, you hit your loss limit and it’s time to reset and study what went wrong, analyzing your trade entries, timing, and exits.

  • What you do instead: “I can make that back, it’s only $60. The market will turn my way soon.” You dig yourself into a deeper hole, clearly out of sync with the market that day, but you’re too emotionally invested in the loss that you’re not thinking straight enough to realize you need to STOP trading.

Have goals and stick to them!

For clarity, knowing what your goals are applies to more than just daily/weekly/monthly profit targets and loss limits, you also need to be realistic about what kind of trader you are and stick to that as well.

  • Are you a retail speculator that likes to trade with “fun money” because you enjoy it?