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Step 3: Build experience with a new set of positive concepts

This is a series. Read the previous articles before continuing.

It’s time now to solidify a strong and productive foundation by means of continuous positive reinforcement. Through my own experiment with cleaning the slate and starting over, I developed a number of concepts to the above steps. These are all built on one another—improving in one area will have a positive impact on another area. Coincidentally, they all begin with the letter “C”, which might help the reader to remember them. (I call them my “Golden C’s” of trading).   

Clear the clutter:

When I began trading, I thought more was better: more monitors, more indicators, more news, more experts, yet I couldn’t make all that stuff work together to find a trade entry. It became clear to me that this was just information, noise even, and not knowledge. By reading this article, you are gaining information in which to make decisions. But true knowledge comes with time, practice, dedication, and conditioning.

Confluence:

Once I cleared my trading charts, I needed to add indicators based only on the most relevant information. It was not necessary to have four lagging price-based indicators, for example. By cleverly designing indicators that are based on the different sources of information available, I was able to generate clearer signals and easier setups.

Consistency:

Now that I could identify high probability setups, I was able to win consistently. With consistency anything is possible; as the trading account grows, it’s just a matter of adding on more contracts. For me, it’s important to have a steady month-to-month income that I can count on rather than large fluctuations one way or the other.

Conditioning:

As I became more consistent, I became conditioned to doing the same positive things over and over to the point where desired behaviors became the norm. This is the process of rewiring our brains to think differently. It involves reinforcing desired behaviors, eliminating undesired behaviors, and removing impulsivity. The first practical tip I can give to strengthen this step would be to approach trading the same way that a professional athlete approaches his profession. Competition is only a small percentage of the time and effort that an athlete actually devotes to his profession. As traders, the act of placing trades should only be a small fraction of the time and effort that we put into becoming successful traders. We must do after-hours practice and review until we get to the point that qualifying and taking the highest probability trades becomes second nature to us.

Confidence:

With consistency and conditioning, your confidence will naturally grow. We often hear that trading requires a great deal of discipline, but once you put in the work necessary to progress to this level, you’ll find that you’re actually trading without discipline. How is that? Discipline is only necessary if we’re inclined to break the rules. But once we have reinforced the positive behaviors to the point that they are automatic, then discipline is no longer necessary because the urge to break the rules has disappeared. This is what many refer to as “Trading Without Emotions.

With confidence in yourself and your system, you will find that a number of the typical anxiety triggers in trading fade away. For example, you won’t stress trying to create a trade out of boredom or desperation just to make something happen. You won’t trade with fear when you click the button. You will trade with the best information you have available at the time, and if something bad does occur, you won’t have regrets. You will wait for an optimal setup and when it comes, you’ll be ready to push the button (no paralysis). And if the setups don’t come, you will be patient because you know they will be back soon enough. You also accept the results of each trade, good or bad, because when you have an edge, you know that in the long run, you will be successful.

Capital preservation:

At this point, we need to make sure that we preserve our capital. Keep your money out of the markets as much as possible; if the markets aren’t trending the way you trade, then stay out. Of course, stop trading when you reach your goal for the day, and practice or study thereafter.

We’ve all mastered much more complicated things than day trading. What makes trading particularly challenging is that in order to be successful at it, we have to become students of ourselves and our own behavior. Of course, that’s a life-long process and Rome wasn’t built in a day. But the good news is, in terms of day trading, if we consciously work to correct our faulty assumptions, and reinforce positive behaviors, then we can create a solid foundation on which to build a successful trading career.