Mental Capital

Mental capital is not only a finite resource; it is constantly depleting and non-regenerative. You are allocated a certain amount at the start of each day, dependent on how rested you are, or how you’re feeling emotionally because of outside factors or drama, etc. From the moment you turn the charts on, it is depleting. Even more so if you’re in a trade, and exponentially faster if you’re sitting in drawdown. I’m very mindful of this and very aware that it affects overall performance. Keeping my trading sessions shorter, rather than longer, helps keep everything I do not only consistent, but sustainable as well.

Managing Expectations

The idea of a daily profit target is very popular among traders, but I find it to be acutely detrimental to having true, long term edge. To have a daily profit target is, in some ways, subconsciously applying expectations onto the market. Nobody should expect anything out of the market on a day-to-day basis. Some days, your edge will be present; some days you won’t be able to see the forest from the trees — and if you choose to interact, you will be running your money through a shredder.

Managing Potential Outcomes

I make sure that these are the only possible outcomes for each of my trades:

• Small loss

• Scratch/breakeven

• Decent profits

• Sizable profits

Any exposure to outsized losses is never worth it, no matter the setup or the potential reward. We must understand and accept the reality that we have absolutely no control over the market, nor does it care what we think it should do. The only thing we have control over is our exposure to risk — what we’re willing to let the market take from us if we’re wrong on the trade idea. Too many traders get stuck in the perpetual boom-bust cycle because they solely focus on trying to make money, when they should be focusing on how to keep money.

Going Broke Taking Profits

Contrary to the popular adage: “you can’t go broke taking profits,” you can absolutely go broke taking profits. In this game, one needs to have a long time horizon when it comes to letting their edge play out. By taking profits too early, just because profits are on the table, you are effectively stealing from your future self. Follow your trade plan and always understand that you will incur losses along the way that your winners should be able to cover in multiples. Do not cheat your future self — you’re playing the long game.

If a trade setup/opportunity comes with an additional downside outcome, I will simply let it go by without me. I have absolutely no interest in any trade that presents the possibility of a larger-than-small loss. These would be considered expensive tickets and my process has no room for those kinds of trades, nor do I care for them. The market is constantly spitting out opportunities — some much better than the last. Do right by yourself and play it smart — play with an edge.

Patience Is A Luxury

Our most underrated edge as retail traders is that nobody standing over our shoulder, demanding a certain amount of profit within a certain timeframe — so what’s the hurry? We have the freedom to operate without any outside influence based on certain expectations. They are all our own — they are nobody else’s benchmark. We can wait around and stay flat and calculated for as long as we want. This is a severely underused luxury. Why not take full advantage of this?

Final Thoughts

As you’ve gone through this playbook, I hope that you’ve been able to gain some useful insights. Always remember that, although certain approaches work well for some traders, it doesn’t necessarily mean that they will work well for you. It is a long, grueling path of self-discovery that requires learning, applying, adaptation and overall patience with yourself. Give yourself the room to grow, give yourself the time to learn, and most importantly, give yourself the patience in understanding that mistakes and pain are, by far, the biggest components of lesson-learning in this business.