If you’ve experienced frustration after a string of small wins and small losses…
Or, if you’ve slowly grown an account over time…
Only to see months of hard work destroyed by one bad trade…
Here’s some GREAT news for you.
First, understand that you are not alone.
Trading can be frustrating (ESPECIALLY in the beginning).
It might even seem like nothing is moving the needle and your account is flat (or choppy like a boring stock).
Even worse, there’s SO much BS on social media that you might’ve been led to believe that trading is easy.
Or that “win equals a good trade, loss equals a bad trade” is a useful metric (it’s NOT).
Let’s put that idea to rest NOW so you can get on with becoming a successful trader…
Shift Your Mindset To the Profit and Loss Quadrant
One thing I want you to understand is that you can trade scary and volatile stocks (and do VERY well).
You could also trade more aggressively and you might make more. But you’re also going to lose more.
Which is why I trade cowardly.
It’s not just about how much money you can make, it’s how much you can keep, okay?
With that in mind, here’s a mindset shift that can help you understand how to actually move the needle on your account…
The P&L quadrant is a simple way of looking at the monetary output of your trades…
The first two quadrants are where most of your trades should be.
P&L Quadrants 1 and 2: Small Gains and Small Losses
If you look at my trades, I have some losses. And I mistime some trades. But it’s not the end of the world.
Why?
Because I might have a 1%, 3%, or 6% gain followed by 1%, 2%, or 4% losses.
For example, check out these two trades from Monday (July 6)…
Source: Profitl.ly
When combined, my KIDZ trade and LHSW trade were basically a scratch.
None of these small wins or losses affects my account much because small losses cancel out the small wins (and vice versa).
For me, these small wins and losses are part of trading scared.
But every now and then, even if you’re trading cowardly, you’ll get a trade that lands in…
P&L Quadrant 3: Bigger Wins
Your wins don’t even need to be huge to start adding up.
For example, last week, I locked in 10% on SKYQ and 14% on VTAK.
Source: Profit.ly
As long as your losses are small, even singles add up.
Sometimes you get a 15% or 25% win. Occasionally, you get 30%-40% win.
Of course, past performance doesn’t indicate future results.
But, it’s those 15%, 25%, and 30% wins that really add up.
So, for me, it’s all about small wins or small losses (basically scratches). Or, when things go right, a bigger win.
Of course, the key is to avoid…
P&L Quadrant 4: Big Losses
This is SUPER important.
I do not want to risk a big loss. Why? Because big losses wipe out the big wins (AND they mess with your confidence).
Then, instead of just trading scared, you risk getting paralyzed into not partaking in potential trades.
One way I avoid taking big losses is to accept that even though the volatile stocks we trade sometimes make big moves, I’m never going to make 300% or 500% on any of these plays.
On the rare occasion I make anything even close to 100% on a trade, I’m as excited as I am grateful for the opportunity.
Learn the Big Picture
The most important step to becoming a 7-figure trader is the beginning.
First, you have to learn the patterns. You have to learn how to execute a trade, the different order types, and discover what works best for you.
As you track your progress, keep the P&L Quadrant in mind. Those small wins and losses are part of the process.
Using the P&L quadrant idea is a great way to understand how to control your losses while partaking and growing both your knowledge and trading accounts.
You still have to focus on refining your process (and staying disciplined).
But if you can learn to take this big picture view of profit and loss, I believe it will help you over time.
If you have any questions, email me at [email protected].
Cheers,
Tim SykesEditor, Tim Sykes Daily
