I recently received a phone call from an individual who is in the process of making specific financial and other life decisions. He wanted to talk with me intently about his trading. This person has dabbled in various investments and followed different trading newsletters and other signal services, but he feels ready to go further.

We remarked on the distinction between hope and results as our conversation developed. Over the years, I’ve listened to many traders express their hopes, and in fact, I’m certain that I have done the same. However, the more time that passes, the more resistant I become to using that word. 

Do You Hope or Plan for trading success?

This isn’t because I no longer have hope. Instead, it is because I’ve witnessed countless traders, year after year, create expectations that are more closely aligned with their hopes but are not based on their planning and preparation. In my conversation with this individual, I asserted that the reason I believe the majority of traders fail is, simply put, because they stay in the game based on their hopes, but they don’t plan for success. 

Before I was ever trained in social psychology, my academic discipline was theology. People used to joke that the logic behind my theology was that if I couldn’t trade well, I could at least pray for success. “Livin’ On Prayer” (by Bon Jovi) makes for a great song title, but it is a miserable trading habit. 

However, I realize when I survey traders, as I did a few weeks ago going into the new year, that many express “hope” for a better trading year in 2023, yet, few have planned a way actually to make that happen. The more I consider “hoping” for things to go better, the more I’m convinced it is akin to a gambler’s mentality – the person who becomes so attached to the casino that they convince themselves that their luck is about to turn. 

As traders, somehow, we frequently think that we can press the same buttons on our keyboard in this that didn’t work the year before, but this time our trading luck will suddenly change, and the markets will be more favorable to us. If you remember the movie Titanic, the antagonist says, “A real man makes his own luck.”

What I always ask traders who hope for a better year is, “What have you planned to do differently?” Sadly, I seldom receive a substantial response. So this article is going to treat the tangible aspects of transforming your hope into measurable goals and potential success. 

Don’t Just Dream; Reason

Hopefully, we have all dreamed large at some point, but we also need realistic expectations. It would be an overstatement to say I want to prohibit dreams; however, without reasoning or rationale, dreams come up empty and are ultimately unfulfilling. Therefore, when you want to transform your hopes and aspirations into a realized success, the first thing to do is to make sure you plan with healthy expectations. 

Set firm but realistic goals. Too many traders expect to get rich very quickly or at least be able to successfully trade full-time overnight. This needs to be more practical and attainable. What inevitably occurs with that kind of dreaming is that it makes you impatient and drives your goals outside of the boundaries of reasoned logic.  When that is the case, you will almost always fail to reach those goals. You will blame yourself and view your methods to be a failure. As a result, traders become afraid. 

Meanwhile, it may not have been your methods but your expectations that were unhelpful. The fear of failure is a double-edged sword. For some, it can be tremendously motivating, while for others, it can be psychologically crippling. 

What Stands In Your Way?

Once you have set realistic goals and healthy expectations, it is time to assess the obstacles. Unfortunately, some traders never develop a logically reasoned trading plan, and others who do, don’t always consider how to overcome the barriers to fulfilling that plan. This is where trading stretches and evolves from idealism to practical reflection. For each trader, the conclusions over what stands in their way will be unique.

Some traders will need to invest in further trading education or practice to make progress toward their goals. For others, the obstacles will be a lack of trading equity or time capital. These limitations don’t suddenly disappear; they will need to be addressed for you to reach your trading objectives. Others face psychological and personality considerations; for example, exercising personal disciplines, including patience, or working on managing and controlling emotions. 

Think Long-Term

While you work to turn your hopes and dreams into well-reasoned, obtainable, and planned goals, always keep in mind your long-term objective. Successful trading is more than choosing when to press the correct buttons. It is about a lifestyle of productivity. There’s a long-standing nugget of wisdom that has been expressed in different ways, but the core of it goes something like, “Every bull market creates experts.” The motivation behind the statement is that under certain market conditions, most notably trends, it is easier to trade. 

I have found that some traders learn to trade in extreme bull markets like the U.S. equities futures saw for several years up until recently, and they made a great deal of money for a time but then struggled when “buy the dip” was no longer the instant, no-brainer play. 

I’ve seen traders who made an excellent living for a year, two, three, or more, only to find themselves hitting resistance at a certain point. Some were successful up until the electronic era; however, markets change. For each of us, the longer we trade, the more it is challenging to adapt. Even some of the most well-known traders in the world have had times when they find themselves unable to generate profits. 

In this business, the name of the game is long-term, sustainable success. Therefore, one of the greatest measurements of your trading growth is when your objectives and plans progress from day-to-day survival to considering your progress month-to-month and then eventually year-to-year and beyond. 

In conclusion, this article aims to inspire you to reach beyond just your hopes and dreams, so you can plan for the success you are capable of. Remember what one great trader has said: “If you want to make the money, then do the work!” Don’t sell yourself short; if trading is the path that drives and motivates you, then plan and prepare to make the most of yourself. Until next time, trade well! 

The post Turning Hope Into Trading Success appeared first on Topstep.

I was talking with a trader yesterday who had a disappointing year in 2022. He had planned to make 2023 a significantly more profitable year in terms of money, experience, and improvement. However, very early into the new year, he became highly discouraged and was at the point of throwing up his hands and quitting trading for good.

This trader’s experience is not all that unique. I’m sure we all have been through such a process. Speaking for myself, in what amounts to twenty years of trading, I’ve felt this way countless times.

If this is you, before you let go of your dream, you might want to consider some of the matters addressed in this article before making a final determination. 

Reset Buttons Exist for a Reason

First, not only is there nothing wrong with hitting the reset button, but it is also healthy and beneficial to regulate oneself, take a step back for a season, and have a break. Trading is no exception to this rule. We tend to fill ourselves with so much bias that we develop tunnel vision. We need a way to re-approach our trading mechanisms with fresh eyes. 

There’s nothing wrong with taking a break, which may be the best thing to do before you make matters even worse. However, when you re-approach, ensure you are handling your trading a little differently (at least) and better. The difference between survival and flourishing is the ability to grow continually. Once we give up on growth, we secure our failure. 

Everything Is Cyclical

From the best to the worst of traders, everything tends to run in cycles. I’ve seen some of the best earners have dry seasons and even down years. We try to plan for success and never for failure. The result is that when eventual disappointments do come, we aren’t emotionally and mentally prepared. 

This is why I often say and write to never judge yourself according to your best or worse trading runs, as you are likely to over or underestimate yourself. Instead, measure yourself according to your moving average of daily or weekly profits. Then calculate the standard deviations. When you eventually hit a down cycle, you’ll be able to measure yourself more calmly. 

Don’t Turn Support Into Resistance!

Many of our readers live in the United States, which social anthropologists have demonstrated as the most individualistic culture in history. However, you should always appreciate the value of community, especially your trading community. Finding the right community offers invaluable support (so don’t resist that). 

You’ll know which way works best for you when it comes to connecting with others. Some traders are content just posting comments on a blog like this. Others enjoy a chatroom for no other purpose than the social atmosphere, while still others like to dialogue, and some even gain critical and informative data from these gatherings. 

The point is, don’t live alone under a rock. Every trader I’ve known to do so has ended up failing at this profession. To keep your mind fresh, find friends and communities of traders who can challenge you to be better and support you in times of weakness. 

Know Yourself

Sun Tzu says that the warrior who knows themself and the enemy need not fear the outcome of hundreds of battles. Therefore, it’s imperative in all facets of life (including trading) to be self-aware. This involves critical analysis. In other words, in the same way you examine charts, market data, and news, you should also examine yourself. If you are discouraged, you may wait until you can be more objective and not overly critical. However, ask yourself what’s really going on and what factors are contributing to your disappointment. 

For some traders, the problem may not be immediately connected to the market. There may be other things that are taking your emotional and mental energy or eating at your time capital. Any of this could be a primary cause of why your trading has been unsatisfactory, causing you to think of giving up. If this is you, it may be best to confront these factors before resuming your trading. 

Some traders will blame irrational markets, the algos, HFTs, and market manipulation for their failures. Sure, these may be factors; however, these surrogates are no excuse. Instead, there is always something to pinpoint and improve in your trading. For example, maybe you are in the wrong markets, using unhelpful timeframes, or trading in too low (or high) volatility. Perhaps you are working too many (or too few) markets or using a problematic risk-to-reward mode. Or it could be your system is corrupt, indicators or bad, or it may just be a case of poor discipline. 

Don’t Give Up!

Whatever your trading issue is, there could be a remedy if you consider these steps. The likelihood is this: if you have the true trading persona of motivation and drive, as many entrepreneurial spirits do, then you recognize the tremendous potential benefits of trading. You can earn a living and use your time as you see fit. If that is you, then it maybe hard to give up and walk away; and if you are like me and a host of others, you may have to endure many trials and errors before you find stability. 

However, if you take care of yourself, know yourself, and engage the markets and yourself critically, you can continue to grow in this hobby or vocation. Moreover, the more quickly you can learn from your mistakes, the more your learning curve will flatten.

When Is It Time to actually quit trading?

I can’t give you the previous items to consider without at least acknowledging that trading is not for everyone. You must take care of your financial obligations, as well as your body, mind, and emotions. For some people, trading is just not for them, and it’s OK. We cannot force anyone (including ourselves) to be something we are not.

Lastly, if you are depressed and thinking of quitting, reach out to someone. I’ve recently seen a trader who struggled and made some concerning statements and then just sort of disappeared, leaving others uncertain about that person’s health and overall status. 

Remember, some of life’s biggest triumphs are birthed through great struggle! If you are thinking of quitting, there is probably a reason to reconsider alternatives like the ones I’ve listed above. Let’s encourage each other and contribute to a wonderful trading year. Until next time, trade well!

The post What To Do When You Feel Like Quitting Trading appeared first on Topstep.

If you are successful at almost anything in life, then it’s likely you understand the value of having a routine. I’ve observed countless traders for nearly twenty years, and I have found that those who are the most profitable and stable with their winnings are routine-oriented. This is such a natural part of their behavior that many don’t even consciously make a list; they live and breathe routine. 

This doesn’t reflect poorly on their personality or how engaging they are; it merely means that they take their work seriously. If you are a trader who is looking to go to the next level, one of the factors that you might consider is tightening up your routine. Even a trader with sufficient capital, ample time, and a good system can find their opportunities collapsing around them without a healthy checklist to start their day.

The Healthy Traders Morning Checklist 

From the onset, this advice assumes that you are a trader who starts the day in the morning and begins trading not long after rising from bed. If you are a trader who has a different kind of lifestyle, such as working a normal job then trading in the evenings, or as others I know who work during the night and trade their markets at the regular open, then your situation is a bit more nuanced, so you will have to take the foundation this material provides and adapt it to your circumstances.

Furthermore, every person is unique, with varying strengths and different growing edges. Accordingly, I’m convinced there is no “one size fits all” approach to anything in life, especially trading. So it will be up to you to adapt this data to your specific needs.

Time To Wake Up!

Starting a healthy trading lifestyle means waking up at a reasonable, consistent time each day. This means planning for adequate rest the night before. I’ve frequently found that traders who wake up too late, or who are unregulated with their sleep, often find it hard to generate consistent profits. So your first checklist item begins at wake up.

All Systems are “Go”!

The next thing you might do is check over your computers, various software and trading platforms, internet connection, and whatever relevant wiring you may need for the day. While this is something we usually take for granted, there is nothing worse than being all prepared to trade and finding out your computer has just decided to run an update, your platform has an expired password, a loose wire, or your internet router needs to be reset. 

Finding out about these problems last minute can interrupt a good start to the day, so before anything else, it is good practice to make certain all your systems are functional. 

Get Your Body Moving!

You will be exercising your mind to a significant extent during the trading day, so it’s good to get your body moving first. Studies demonstrate that physical exercise promotes emotional and mental health, which are a critical part of your trading day. Exercise can help you live longer and have a more productive trading career. I’ve found that getting my blood flowing helps keep me patient and rule-based during the trading day. In other words, starting the day with discipline helps keep you on that track throughout the day.

Dress to Impress (Yourself)

Some traders can be successful in pajamas. However, I’ve found that the self-care of grooming and dressing for success helps maintain a certain mindset of taking yourself and your trading seriously. 

What’s For Breakfast?

Diet is a critical component of your day if you are going to function well. A healthy and intentional selection that balances protein, carbs, and sugars will enable you to have the appropriate energy while not suffering from a sugar crash. This will help start your day in the right direction. 

Eating is also a good way to settle down and mentally prepare for what your day will hold. They say not to go grocery shopping while hungry. Well, I say not to select trades while you’re hungry. When your body’s nutritional needs are not balanced, you lack the holistic equilibrium that you need to be at your best.

Do A Mental and Emotional Check-In

You can overlap this part of your routine with exercise or breakfast, or you can make this step completely separate. However, clearing your mind from mental and emotional baggage is a beneficial practice for the beginning of a trading day. 

If something is bothering you and it remains unsorted, that can very much interfere with your trading decisions. However, by centering yourself, being aware of your thoughts and emotions, and considering your state of being, you can settle yourself and be focused and prepared for the mental and emotional weight of the trading day.

When it comes to this part of the routine, some prefer to practice a spiritual exercise, including yoga, meditation, prayer, readings from sacred books, or other potential outlets. Whatever works for you, just make sure to clear your mind from personal distractions and center yourself on the day’s objectives. 

Prep Your Environment

Before you begin to dig into the markets, make sure your environment is set up for success. Whatever you may need to endure the trading session, get it ready, whether that means having water available, music going, trash and clutter removed from your workstation, or whatever else helps you feel organized. Just make sure all this is ready before you start looking closely at the markets.

Check-in With The Market

With these elements of routine putting you in a healthy overall position, you are better equipped to process market analysis. Some things to consider on your pre-trading checklist include how your markets performed while you were asleep during the overnight trade. Was there any catalyst for market behavior since you were last at your desk? 

Furthermore, is there any news on the horizon for your market in the upcoming session? If so, then how might this affect your market and trading? These are pertinent things to look up before your market opens. 

Your Trading Checklist

Before your market opens, your plan should be well-formed if you have considered the factors expressed in this article. Once you are ready, you should consider the following items on your trading checklist:

1. When will I trade? Before the opening bell rings, you should know at what point in the day you may take a trade and at which portions of the day you will not take trades.
2. What is my risk? Again, before the day begins, you should know exactly what your daily risk is and how much you will risk on each trade. If you wait until the market opens to determine these factors, you are likely to make ill-informed decisions.
3. What are my targets? There are certain parameters that can be adjusted in the course of the day based on price action, but still, you should know exactly how you will target your winners before the day opens, whether it be a quiet day or one full of volatility.
4. What atmosphere and price action am I looking for? Your daily checklist should include exactly what you expect to happen during the day. For example, if it is going to be a slow day, then your plan should accommodate that; otherwise, if it will be an eventful day, then your plan should anticipate that accordingly.

Remember, price action may be random, but your trading doesn’t have to be!

In closing, there is much more to successful trading than just a routine. For example, if you have the best routine in the world but lack the trading tools, resources, time, or system analysis, then you are unlikely to succeed. However, a good daily checklist fits like a glove. If you have a good trading system but little to no routine, then you are likely destined for disappointment.

Download Our FREE Trading Checklist!

This is by no means a complete list. Please, by all means, feel comfortable sharing your daily checklist’s elements in our social community. Each trader is different, and their routine should fit their individual needs.

What’s most important is that you do have a routine and a plan. If this article provokes your thought or enables you to engage in consideration over developing your own checklist for healthy trading, then it has served its purpose. 

Get started right now by downloading Topstep’s FREE Trading Checklist! Feel free to print it out and make copies for yourself. The digital version also comes with some excellent trading resources to help you through the process.

Until next time, trade well!

The post The Healthy Traders Morning Checklist appeared first on Topstep.

I was recently invited to give a brief fifteen-minute talk to aspiring traders. As I contemplated the task, I considered what material would be the most time efficient and effective. But, unfortunately, there are no big secrets that can be revealed in just a matter of minutes, so rather than telling them what to do to be successful, I settled on approaching the matter by supplying the “how to” of failure.

Naturally, this title is attention-grabbing, but at first glance, it may cause readers to think that this material is not appropriate or applicable to them. Sure, for the newer, less experienced traders, this article is a wealth of valuable information. However, experienced traders might find themselves challenged as well. As with any data supply, it is up to the receiver to determine how to apply it to their unique situation.

13 Ways To Lose Money In The Financial Markets

So if you’ve ever wondered about the secrets to blowing up a trading account, then continue reading. Maybe you are already incorporating some of this recipe into your current trading habits.

No Trading Plan

Here is a quick way to lose money: start the day without any idea what you are doing. Very few things in life will be successful when you have no plan. A great sports team knows that even if it has some of the most successful athletes on the team, winning still requires preparation and planning, and it often comes down to the coach. Likewise, those who trade without a plan are, in fact, planning for failure. If you have no clear reason why you are entering or exiting trades, then you probably should stop. 

Willingness to Compromise Your Plan

The willingness to compromise or change your trading plan on the fly is another surefire way to deplete your trading account—to have a plan and then ignore or abandon it. If you have a good plan, then your rules are there for a reason. To discard those rules means you are disregarding something valuable. On the other hand, if your plan is not solid, then you are back to step 1 because a lousy plan is equivalent to no plan. 

Volatility (High or Low)

I’ll acknowledge that some traders can do exceptionally well when trading high or low volatility. However, at the same time, I recognize that both environments produce significant amounts of losses for traders. This is especially true for those who don’t have a plan or who compromise their plan. Trading exceptionally high volatility can take your money quickly and disrupt your psychological approach. Likewise, trading low volatility will often cause second-guessing and over-trading. So if you are going to trade these environments, make sure your backtested plan considers the volatility climate. 

Psychological Volatility

This type of volatility is just as dangerous as any market environment—namely, trading when you are experiencing your own mental or emotional volatility. At times, this type of volatility will directly result from your trading when losses cause a psychological disturbance. 

When we trade in a state of alarm, our results are most often going to be disappointing, to say the least. Other times psychological volatility comes from external factors; or, stated otherwise, from things that have nothing to do with the market that comes along and disrupt our emotions or distract our minds. Unfortunately, these aren’t the most viable scenarios for trading success. 

Overtrading

Here is another key way to lock in losses—trading too frequently. I know a trader with a small $10,000 trading account who racked up $500 in commissions and exchange fees on a single day while his numerous trades broke even. The result was an overall depletion of his account value by 5%. Trade smarter, not harder. The fact is, the frequency of your trades decreases your probability of success. 

Too Large of Size

For traders with small accounts, which relates to the vast majority of those in the retail world, it’s especially tough to trade according to their account value rather than their ambitions. If you are trading a relatively large size, you benefit during gains but suffer in times of loss. If you are trading beyond your responsible account size, you are begging for a disaster. 

What’s a good way to allocate your position size? For every trader and strategy with risk parameters, that will be different. However, I’d suggest a fair rule of thumb: you can survive five losses in a row with your normal defined risk and still not be alarmed at your losses. 

Small Gains & Great Risk

This is one that I frequently discuss, in part because I observe traders who employ a method (or lack thereof) that guarantees sustainability problems. Traders, predominantly those who lack confidence, will take very small and quick gains as soon as they have a modest profit. However, when positions go against them, they will talk themselves into holding losers for a much longer duration and price movement. 

In previous articles, I’ve demonstrated how a trader needs to earn at least a factor of 2 for every factor of 1 that they risk. When trading in reverse, risking more than you are gaining, when you go on a five or more trade losing streak, as everyone eventually will, you’ll dig yourself in a hole and likely make other compromises to dig yourself out, which can lead to disaster.

Always Having To Be Correct

Traders tend to be confident and assertive people. After all, how many of us were doubted by family and friends when we chose to pursue this career or hobby? Furthermore, we are taught not to follow the crowd but to go against the grain of sentiment. However, this is a double-edged sword. 

The result of these characteristics is that any of us (some more out of habit) are likely to believe that we know more than our peers and, worse, even more than what price action tells us. This is a surefire way to deplete your account when the market is going one way, and you try to tell the market it’s wrong, insisting on a change of direction. I’ve seen traders blow up accounts with this stubborn arrogance. 

Trade What You Don’t Know

Each market involves all kinds of nuances, and when you trade something you know little to nothing about, there’s a strong chance that you will give money away.

Take, for example, a trader who decided to engage in a specific market, not knowing how illiquid it was at certain times. As a result, they got stuck in a trade in which they had to really “pay up” outside of a normal bid/ask spread in order to exit. They took a severe loss because they were interacting with a market without understanding the nuances.

News Trading

This one piggybacks on the previous item. I believe that traders can successfully trade news-driven events when they are informed about the event and their respective markets. However, for traders who are eager, inexperienced, and uninformed, trading the news will often lead to quick losses, frustration, and a compromise of trading principles. 

Strategy Without Testing

I know a trader who would develop all kinds of systems, some of them with potential. However, he refused to backtest these methods, instead insisting on trying them out in live price action since, according to him, we only know how systems work in the real world. 

The problem is that this trader lost most of his account value trying out systems that needed tweaking. In contrast, some backtesting or simulated trading could have informed him of those imperfections. Simply put, live trading isn’t the time for experimenting. 

Failure to Use Protective Stops

Okay, I’m going to throw this out there, and you can take it however you wish. What occurs is that without a stop, you are prone to compromising your initial risk assessment. As a secondary measure, I knew a trader with a small account who was trading a single contract. Let’s say he had a $5,000 account and traded a single S&P 500 mini (ES). There was an unexpected news event, and the market went crazy, dropping more than 1% in about two minutes. 

Seriously, this move came so unexpectedly. My friend was long the market. It was a slow time of day, so he thought he didn’t need anything other than a manual stop. He lost $1,500 in a minute, or 30% of his account value. To earn that back, he needed to make about 50%. Even if you trade manually, this is something to consider: have an emergency stop. 

Martingale

Last but definitely not least is the practice of “doubling down” on your market positions. From the onset, I must first make a distinction regarding this. Let’s say your normal market position is three units. If you are giving your trade appropriate room, starting with 1 unit, and adding an additional 2 units, then that can be an effective way of defending a trade.

This, however, isn’t what I’m talking about. What I’m referring to is those who employ a strategy assuming the market will revert to its “mean” within reasonable timeframes and then keep adding to a losing trade in order to cost average. This will work in some instances; however, every Martingale trader experiences a time when they are severely stuck, and this is a perfect situation for blowing up an account.

Bake At Your Own Risk

These are thirteen ingredients in the great recipe for losing money. Bake at 350F for 30 minutes, and you’ll be sure to lose money. If this is not what you want to be cooking in your account, then continue reading. 

If you find yourself practicing some of these traits, you might consider that you are on an unstable trajectory, which can lead to significant trading trouble. Now is the time to alter that trajectory and re-route your potential toward success. Over the long term, these traits will eventually bite you hard. Today is an opportunity to identify and implement plans to accommodate the goal of avoiding these trading risks. No matter how successful we are, any of us can benefit from self-analysis. Until next time, trade well!

The post The World’s Greatest Recipe for Losing Money in the Financial Markets appeared first on Topstep.

If you’ve been trading long enough, regardless of how successful or limited your results have been, you likely have encountered some form of a winning streak. 

What you consider a winning streak might be relative. For some, it could be five winning trades in a row, while for others, it might be twenty. For one person, it may be more about a profit streak than how many actual trades have ended consecutively in the green. Of course, we all know that losing streaks are more common and much easier to come by, but if you trade long enough, at some point, you’ll enjoy an unforgettable ride of profits.  

Some of my own winning streaks are pretty memorable. For instance, in 2011, I had more than twenty consecutive trades end in profit. Then there was a time in 2014 when I won 45 out of 50 trades. Those were great feelings, to say the least. 

Even if you’ve just won three or five trades in a row for the first time, we all share a similar feeling when we’re on a winning streak. There is a sense of fulfillment and validation. For many of us, there was always someone who doubted our ability to succeed at trading. Others of us questioned ourselves. A winning streak can make us feel that we’ve moved beyond the beginner stage and are now more experienced. Or, if we were already experienced, the right set of winnings can make us feel that we are now professional.  

Simply put, when this happens, it can feel like we are on top of the world. Then, however, suddenly, the stark reality hits us – if we are on top, there is only one logical direction to go, and that’s downward. 

5 Things To Do When Trading On A Hot Streak

We are all aware of how it goes. Unless we have developed some “super system,” which is a most unlikely circumstance, then eventually, reality will set in, and we will experience losses. In fact, one well-known trader who made a significant amount of earnings and whose experiences were featured in a publication said he frequently met his most considerable losses following his largest gains. 

A winning streak may be random, but what occurs afterward is less so. A psychological effect of winning tends to cause us to turn off our internal risk monitors and make us grow too comfortable. When we indulge in such behavior, disaster often follows. 

The importance of today’s article is to outline the correct and healthy behaviors that should follow a win streak. These are the types of responses that can help us learn how to continue our gains. Most importantly, they are the traits that will permit us to create a cushion against the substantial risks that accompany tremendous gains.  

Below is a list of five things to do when you find yourself on a winning streak. This list is hardly a stand-alone that covers every significant consideration; however, it will at least provide you will some clear direction and good advice that you can develop further. 

Responsibly Handle Size 

I’ve read certain gambling strategies that suggest a person on a winning streak in a casino should be adding to their size to catch momentum. Perhaps some elements are worthy of consideration in that context; however, gambling is not my area of expertise. What I have observed is that traders on a hot streak start thinking about the “what ifs.” What if I had larger size? Then, I would have greater gains. 

One problem with a winning streak is that we begin to feel less vulnerable, and accordingly, our risk management skills become suspect. I would encourage you not to increase your size substantially. 

However, I also see the merits of increasing your risk tolerance, but I advise you to do so in small progressions. I believe the best way to add to your size is in a way that doesn’t necessarily add to your risk. To continue the analogy of casino behavior, when you are on a winning streak, you reach the place where you are effectually playing with house money – in other words, profit. How you handle house money is critical both in trading and gambling.

The casinos realize that gamblers do not tend to be responsible. If they can keep a hot-streaked gambler at a table long enough, eventually, they will not only return the casino’s money but also likely a significant amount more. 

When trading on a win streak, the most responsible way to add to your size is by using your recent earnings to impact your leverage. This way, if you hold fast to the rule by going “all in,” you won’t be adding to your risk. However, if you use all your profit and lose, then the proceeds from your winning streak will be annihilated. So a good rule could be to put away 50% of your winnings from a hot trading streak and then add to your risk with the other half.  

The biggest pitfall to avoid after winning nine trades in a row is to assume you’ve already won on the tenth trade and increase your size to your account maximum. This leads to disaster!

Remember, Nothing Lasts Forever

I once knew a trader on a robust winning streak. It was beautiful to watch from a distance. What became concerning, however, is following two months of stellar gains, he decided to increase his personal spending significantly. Not only that, but these habits and some long-term plans prompted him to accumulate a sizable debt. 

His thinking was that his new trend was going to last forever. Eventually, his account went sideways, with no profit or loss for two months. Normally, this is sustainable; however, he had accumulated so much debt with reckless spending habits that he then had to face the uncomfortable dilemma of rebalancing his budget. 

It may be tempting for us to buy a new car or do any number of things while on a winning streak. However, having been surrounded by professional traders for nearly two decades, I’ve observed that longevity is critical. Anyone can have a nice hot streak. Those traders who have been in the game successfully for the lengthiest durations typically do not reflect their hot streak by altering their lifestyles. 

In other words, I’ve witnessed traders who lived and acted the same way, regardless if they made $10,000 for the month or $250,000 for the month. There was no difference. This is a sign that a trader has what it takes to be a market professional. 

Don’t Let the Blade Go Dull

The most impressive winning streak that I ever saw happened during a holiday week in February of 2016. If I told you the percentage gains of this forex trader in two days’ worth of trading, you would not believe me. We are talking about over 1,000% return when he hit the sweet spot. After the long weekend, we discussed his plan for the next week. I grew concerned when he pretty much assumed he’d echo the same results and approached that week without a real plan, technically or mentally. 

It was striking how quickly he grew complacent and lost his edge because he felt like he didn’t have to scrap and fight for winnings anymore. This was because his account had gone from small to quite respectable enough for full-time trading. However, the concerns I anticipated became apparent in the days to follow. This trader no longer felt a sense of urgency to compete; he was still in some adrenaline-induced rush. It was not until he gave 50% of those gains back to the market over the next two weeks that he sobered up and started sharpening his blade again. 

It’s Time To Study and Plan

Step A: Of all the things one might be prone to do or consider doing during a hot winning streak, studying is probably not the most natural that comes to mind or the most appealing. However, it could be the most important thing you ever do. Sometimes, winning streaks are purely random and coincidental. When you benefit from the luck of the draw, that is fantastic. 

However, by studying your habits, you will be able to consider whether there was anything that you did differently that enabled this winning streak. Furthermore, you should engage in critical analysis of the market(s) you traded to detect if any scenarios were distinct. By doing this, you may be able to detect the factors that generated your win streak.

Step B: There is an additional step to take, and that is to plan for success. If you are able to determine why your winning streak occurred, then I suggest you synthesize this material, create a rule and potentially a system, and see if you can replicate it in your chosen market and possibly other markets.

Again, you cannot program random luck. However, if you can measure tangible differences in yourself or in the markets that enabled your success, then you can make the most of your win streak and maximize further opportunities. 

Enjoy It

Okay, I have articulated all the responsibility that accompanies winning streaks. However, don’t forget this major step: take time, breathe, and absorb the experience. In other words, enjoy the season for the moment. Sure, don’t fall into careless spending habits, but by all means, spend some of your profit! Don’t let your blade go dull, but do take time to relax. Make sure to do your research and preparation, but also plan to have fun.

I hope that you are reading this because you are currently celebrating a hot streak. More importantly, I hope that you incorporate these relevant elements into your plan going forward. Until next time, trade well!

The post 5 Things To Do When Trading On A Hot Streak appeared first on Topstep.

Digging into the recent break in the British Pound and citing a few examples from their own careers trading through stock market crashes, the Topstep coaches are discussing the psychology of fear when taking on highly volatile markets this week.

Funded Trader Shoutout

This week’s Funded Trader Shoutout goes out to John M., who racked up a cool $5,200 trading the E-Mini Nasdaq-100 futures today (Tuesday, September 27, 2022). John put his solid day together with only two trades, which tells us that he’s been practicing patience, waiting for the right setups to appear, and calculating risk like a pro!

FOMO

Whether you’re in or out of the market, fear can create a sense of urgency, especially for those who haven’t traded through periods like this before. When volatility picks up and the daily ranges get wider and wider, the impulse to get involved while the markets are moving can be the deatch blow for an inexperienced trader.

When panic hits the market, it’s difficult to anticipate how long it will take to subside or how far prices will move. The temptation to throw all your rules out the window and jump in during the middle of a move just to “take a shot” can be overwhelming, but these are not the actions of a disciplined trader. 

The old-timers say, “if you weren’t in when the move started, then you missed it.” That statement held true for a long time, and in some circumstances, it still holds true today. But, the markets have changed significantly since the days of the ‘87 crash. Technology has done away with outdated order entry methods and we have access to infinite amounts of data. You can trade the wild swings, but you shouldn’t do so blindly. 

Prepare Accordingly

Have a plan. For example, you might want to consider tightening up your risk parameters and cutting your lot size in half, and know how much of your account value you are willing to risk on each trade. 

Avoid overtrading. When the markets are speeding up, your trading should be slowing down. And if the markets get too thin, then just get out of the way. Take a step back and wait for a better opportunity. And try to remember that timing is everything. You can be right and wrong at the same time in this business, so spend some time looking for the right entry and exit levels.

Sometimes the best offense is a good defense, and always trade for tomorrow.

Trade Well!

The post The Psychology of Fear appeared first on Topstep.

There are a lot of professions out there that rely heavily on team building and collaboration. You might not think trading is one of those professions, but it really is! If you’ve spent any time trading from home, then you know it can get a bit lonely, so this week, the Topstep coaches discuss the value and importance of having a trading buddy to bounce ideas off of and help prepare for the trading day.

The post The Value of a Trading Buddy appeared first on Topstep.

Rock star traders are made, not born. Nobody emerged from their mother’s womb and started generating massive profits in the futures markets three years later. It takes time – trading is complex, and the learning curve can be steep. One might argue that continued success requires lifelong learning because markets are constantly changing.

(Note: this is the fifth in a five-part series. If you missed them, check out Part 1, Part 2, Part 3, and Part 4.)

What might that learning look like? The first step is to learn the ins and outs of the products we trade:

• When are the markets open?
• What is the initial margin requirement?
• How many dollars does one tick represent?
• What is tick size?

Learn What Moves Markets

Understanding basic product specifications are only the beginning of becoming a successful trader. For any market where you hope to trade well, you’ll have to familiarize yourself with the many forces that can affect it.

Tip #1: Know the key dates and catalysts of the products you trade. Economic data, OPEC meetings, earnings reports, inventory data, and crop reports can all move markets, some more than others. So what’s moving your market? You should know these events and their timelines as well as you know your own birthday.

Another consideration: Markets react to new information. When news flow is absent or if important news is pending, trading can turn quiet or choppy.

Explosive moves typically happen around unexpected or surprise events. For example, Crude Oil might drop if inventory data shows a larger-than-expected build. Treasury bonds often fall when economic data is stronger than anticipated.

No Substitute for Practice

The best way to get a feel for a market is to watch over time and practice trading. Check charts over different (monthly, weekly, daily) time frames and watch intraday. Identify spikes and dips that seem out of the ordinary and research past news reports for reasons for unusual moves.

Tip # 2: Concentrate on one market that seems particularly interesting to you or where you might have an advantage before branching out to others. Then practice, stay focused, and give it 110 percent.

Markets can and often do change. Have you heard that before? Many brokerage firms use the phrase in their disclaimers followed by this one: “past performance is no guarantee of future results.” It’s true. Just because a market acted one way in the past doesn’t mean it will in the future. Just because one approach worked in July doesn’t mean it will work again in September.

Yet some things, like the mechanics of how a product trades, are fixed and do not change. In addition, each market has important news catalysts that are often known ahead of time. Knowing these dates can help you avoid opening a new position just before the market makes a big rip in the wrong direction.

That’s where practice trading can help – it’s the only way to get a true sense of how unfolding news events will affect a market and your positions. Always keep learning because products and markets are constantly changing.

The post Stop Gifting Money To The Markets Part 5: Keep Learning appeared first on Topstep.

A Day in the Life of a Prop Trader

Does the perfect trading routine exist? Ask ten traders what they do to start their day, and you’ll likely get ten different answers. In practice, what works for one trader doesn’t necessarily work for others. 

While it is beneficial to listen and learn from the successful traders who have come before us, there’s just no guarantee that their process and methods will bring us the same success. However, there are some things you can do to help you become more consistent in your approach to trading.

This week, the Topstep coaches share their experiences with some of the more common habits prop shop traders adopt early on in their careers and how those practices have benefited them in developing their own routines.

The post A Day in the Life of a Prop Trader appeared first on Topstep.

7 Methods For More Consistent Trading

In a previous article, we highlighted the necessity of consistency while trading. This is one of those areas that we all recognize to be important but often overlook. Rather than examining how we can create constancy, we tend to look for super secret indicators and strategies. 

Last time, we considered the benefits of a stable trading environment. In this article, the conversation moves beyond the “whys” of consistency into the “how” dimension of this key attribute. In other words, if you want to increase consistency, below you will find methods to assist you in the growth process.

As always, you need to read content the same way you analyze the markets – with a critical eye. No content can change your life simply by reading it. However, these reflections serve as a tool that enables you to get started putting in the work toward improving yourself. The intention is for you to treat this article as a conversation partner, engaging with self-understanding and recognizing which portions are necessary for you to adopt and adapt for your own purposes. 

Plan for Consistency

Okay, I’ll start with a softball. Even if you know you want to be consistent, achieving this doesn’t come automatically for most of us. It comes through a process of planning. Suppose you are going to make the most of your potential trading career. In that case, every area of your life and trading must be accounted for and considered in order to generate dependability. It requires putting an infrastructure in place that will keep you on track. Now that we’ve established this, we are ready to move on to the next thing.

Live Consistently

Unfortunately, I’ve met too many traders who thought that even with an inconsistent lifestyle, they could somehow trade consistently. Sadly, this outlook produces predictable disappointment. I’ve had a decade and a half of experience observing traders who performed exceptionally well and also those who frequently encountered failure. I can affirm this: I never saw a regularly profitable trader who did not have a routine. 

One way to begin is by setting parameters to ensure proper sleep. This means going to bed and waking up at consistent times. In addition, this enables you to conduct a healthy pre-trading morning routine of diet, exercise, and preparation for the day. 

Scheduling sleep is but one example of lifestyle consistency. You can also examine the habits you’ve developed in your social life, relationships, and financial habits, and then consider how stability in all these areas will breed further consistency.

One example that comes to mind involves a trader who found value in attending a place of worship each week. In his case, he began to realize that when he missed this time of religious devotion, his trading would be affected later in the week. Now, perhaps this was because of some higher power. However, it’s more likely that it was because he had altered course in a personal area of life that was important to him, which translated to broken consistency in other aspects of his week, including trading. 

This concept can be adapted to various scenarios by each of you according to your life routines.

Prepare for Consistency

Preparation is another crucial habit. One trader told me simply that when he prepared for his day, he was generally profitable, but when he didn’t, his losses mounted. Stability in preparing for a trading day means putting in the necessary time to analyze your charts. For some of you, this may be more involved than for others. However, for those who manually draw trendlines and other notes on your charts, it’s absolutely essential that you make the time to do whatever you do best to start each day. 

Trade the Same Time Frames

I have found that traders who constantly adjust their time frames are not usually successful. Maybe you have not found your ideal time frame, and if that is the case, then your issue is more about system failure. However, for those with a solid system, it is best to learn to trade during the same time frames during the day. 

For example, there is particular behavior in the markets at the session open as opposed to later in the day. When you trade during the same time frames, the market and that specific time of day become a friend. You end up with a better idea of how your market should act within that time period. 

Trade the Same Markets

This idea echoes the sentiment of the previous section. If you shift your concentration among different markets, chances are you lack a consistent system. In that case, your first step is solidifying your system; otherwise, you may regularly encounter disappointment. However, there is another way of looking at this. 

I knew a trader who had a good system. His problem was that he would get bored with his best market(s) and seek to fish around other charts looking for opportunities. In my experience, there is a sharp distinction in the level of success for those who are trading what they know as opposed to what they are not used to. 

Inconsistent trading, as in being in one market one day (or hour) and a different one the next, is an inconsistent attribute that will frequently produce undesirable results. 

Be Consistent With Your Risk (and Reward)

Now, before I dig into this, I’ll preface. You may have a system that calls for a separate risk function from one market variable to the next. In that case, if your system is well defined and tested, I’m not referring to you. Instead, what I am attempting to identify is traders who just decide to randomly “wing it” and elect different risk-to-reward components from one trade to the next. The problem is that this is usually the result of subjective reasoning deriving from emotion rather than from the functionality of market statistics.

Follow Your Rules Consistently

First off, if you don’t have rules, then I’d suggest you ascertain some. However, for those that do, you know it is much more challenging to keep rules than to generate them. Of course, any long-term seasoned, experienced, and successful trader likely knows when to sidestep a rule; but that goes beyond the current discussion. 

Keeping your rules is a much more sustainable and robust approach to trading than deviating from them. I know a seasoned trader who is aware of when to break the rules. However, she is so programmed that she determined some time ago that she’d rather keep the rules and miss out on some quick profits than break the rules at all. 

If you frequently renegotiate your rules, you are unlikely to be successful; just think of all the mental energy that trading takes. Frankly, we don’t need to subject ourselves to the greater level of fatigue that ensues from the process of bending or breaking the rules.

A Final Thought

Long-term successful traders know that critical self-assessments and adaptation are keys to surviving and thriving. The problem is that when you become inconsistent with any of these seven methods, you are presented with a more significant challenge when it comes to self-assessment. For example, it’s much easier to analyze ourselves when we’ve kept our rules than when we’ve broken them or when we’ve traded consistent time frames and markets compared to trading randomly. 

If you want to grow into the kind of trader your potential suggests you should, give yourself a solid basis for feedback—the greater your consistency, the better precision you should have at identifying and remedying your growing edges. 

I’m convinced there is solid gold here for any of us if we take the time to perfect our habits that go behind (and beyond) our specific trades. However, once more, you must take this content and adopt it fluidly according to your own unique personality and methods.

Until next time, trade well!

Up next: How to Create Consistent Profitability in Your Trading

The post 7 Methods For More Consistent Trading appeared first on Topstep.