Woman Distraught Over Losing Money in The Stock Market

Traders often blame their losses in trading due to "lack of discipline" and mental breakdowns. The truth is this isn't the actual problem causing you to lose money trading. There are many out there willing to sell their services to help you improve your trading psychology/discipline, these range from books, seminars, and even expensive weekly one-on-one video call sessions. The truth is these products will never help you long-term and are flat-out a waste of money. Many people who sell these products are exploiting inexperienced/naive traders out there.

The real underlying issue of why traders keep losing is because they lack a clear-cut profitable edge. A stock trading edge is defined as a set of consistent decisions (including a trading algorithm) used to buy and sell stocks. Following a profitable system will keep you "disciplined" because it guides all your decisions for you and removes emotions.

The list below is a series of steps on how I use my profitable edge/system to buy and sell stocks (important to note real edges aren't given out to the public as they fear they will no longer be profitable once publicized).
  1. Run proprietary trading algorithm code to generate a stock list for the day. This is typically code used to scan the Market to find stocks that fit technical patterns that can be exploited as an edge. Note, this is basic, if you don't do this you likely don't have a real edge. Getting a daily/weekly stock list from someone else will probably not keep you profitable long-term. Oftentimes times my watchlist will have 0 stocks for months and even years (not kidding).
  2. Filter out your scanned stock list. This involves going through the list generated by step 1 and identifying whether the stock truly fits the desired pattern to exploit for a trade.

  3. Determine the probability that the stock to trade will be a winning trade. The next step is to calculate the odds to see how likely this trade will be profitable (Should be approached exactly like a hand of Texas Hold'em poker). This involves determining how strong the pattern is, what are the market conditions, etc... calculating probability comes with experience, it will be difficult and inaccurate at first. But slowly over time you will get better and will adjust the trading size based on the probability the trade will come out green.
  4. Bound the worst-case scenario of the trade going badly.  No matter how perfect your edge is, you're going to eventually have a trade that goes badly for you. In this case, you need to understand this in every potential trade you make and understand the worst case. For example, if it's an oil-related company or a Chinese company the risk is high and the stock could go to zero (this has happened quite more frequently than many realize). If it's a trade in a large-cap company like Apple or IBM, oftentimes if you are stuck in the stock you'll end up getting paid a dividend while you wait to get out. So buying a Chinese stock versus buying a prominent established technology company have very different worst-case scenarios.
  5. Come up with a buy-and-sell plan.  Before purchasing ALWAYS come up with a trading gameplan of when to buy, and when to sell (including stop losses), this includes deciding whether to buy the stock directly or use options (almost everyone should steer away from options!).
  6. Reassure yourself if this trade goes badly you can afford to lose. Remind yourself again before purchasing the stock that this is a trade that you can afford to lose. Never trade with money you can't afford to lose, it will cause you to make bad decisions. This is why it's dangerous to aim to become a professional trader, it's just too much stress. Always treat it like a hobby until you make retirement-level money.
  7. Decide the size of the position you want to purchase. How much I decide to purchase the stock is usually a factor in the size of my account, the market conditions, my current confidence in your trading, the probability I think this will be a winning trader, etc. Keep in mind that #3 above will have a huge factor in what size you put in.

The list above is meant to help you understand the odds of the trading going well versus going badly and trying to position yourself to consistently make money on your trades and when you don't, to minimize the losses. This is really what it means to be disciplined: following logical steps and completely removing emotions. If you don't have any steps to follow (that actually help make money) then, of course, you will attribute your losses to lack of discipline. Where you constantly fool yourself into thinking all your bad trades are due to a mental breakdown, and all your winning trades are due to your amazing invisible system that's somewhere in your head. The cycle never stops, until your account hits $0.

In summary, trading isn't about the discipline it's about finding a real winning edge that you continually exploit over time to make money. The catch is that finding a real winning edge is almost impossible (no one will sell you a winning edge, it's just not how the world works). Hence 95-99% of traders end up losing in the long term or at the very least never beat a buy-and-hold strategy. Remember, focus on finding a very reliable edge, and if you can't find that quit the Stock Market and save your money, otherwise the Market will get the best of you in the long run. For those who want to create a trading edge, this in-depth article I have written is probably one of the best starting points you ask for.

For those serious traders, looking to make a change, I've written about two trading systems that are a great starting point for becoming profitable: The Elder Impulse System and Trading With Ichimoku Clouds. Be warned though, that you will need to tweak them and put in the time to be profitable.

For those who really want to take their trading to the next level, it's a must to read my tutorial on how to create a winning trading system. Where you can plug in systems like Elder Pulse, and Ichimoku Clouds and see how well they do and how they can be improved upon.