Once the novice trader has proven his or her competence in basic trading, he or she has started down the path to trading success. Day trading skills are important to assimilate in a timely manner and hone with a solid dose of demo account trading, followed by live trading on the contract they have chosen. In the day trading world though, chart reading skills and trading experience are only one part of the equation for success. The next component in a successful traders skill set is the ability to manage trades.

Have you ever taken a trade and been positive, absolutely sure, the trade was a winning trade?

I have. From time to time I still find myself absolutely sure that a particular set up will result in a winning trade. Unfortunately, this thinking is a cancer that must be set into remission. Above all, there are no absolutes in the world of trading. Nothing is guaranteed to happen. There is randomness in the market that precludes absolutes. Whichever pricing theory you subscribe to, there can be no argument that a certain random component is ever present in trading. This can be a tough pill to swallow, and can lead new traders to failure.

Since we know there is a random component of the market and there are no absolutes in pricing theory, a trader is forced into a difficult and vexing mindset.

Why?

It is important to understand how to trade, but it is even more important to understand how to trade consistently. You may be having a fine day trading, and one for trading decision can set your account back significantly. In trading, consistency is everything. I think it’s important to understand that consistency does not mean that every trade you take will be a winner. Probability dictates that there will be losing trades. Consistency should be construed to mean that you are consistent in the manner in which you make decisions about trades. Once you have settled upon any profitable trading system, there is no room for improvisation.

One of the toughest and most common mistakes traders make is to become convinced they are in a winning trade. Traders do unusual things when they become convinced they are right. Unfortunately, the market is always right. When a trader finds himself or herself on the losing side of a trade they are wrong, and the proof is clear; they lost money on the trade. I should point out that it’s okay to lose money on trades, its part of day trading. But when a trader starts altering their system to accommodate a position they have fallen in love with, they lose perspective on the market, on their system, and their trading account. The end result of an attachment to a certain trade or a certain set up is inconsistent trading. When you trading inconsistently you will lose money; that is certain.

You have to stick to your guns. Good traders insert stops based upon the amount of risk they are willing to take before they enter a trade. Moving stops downward or upward to accommodate a losing trade increases your risk exposure. Even worse, it just doesn’t make sense. Why would a competent trader, a rational trader, make a losing trade even worse? The answer is a simple one; they are convinced that they were right when they took the trade and are unable to accept the notion that the trade is not a good one. So they move their stops a little lower to give the trade “some breathing room.”This is always a bad idea, and has its roots in an attachment, an emotional attachment, to an idea that is not rooted in reality. No trader knows what the market will do, and the very notion that a trader is convinced that a trade will reverse and his or her direction is folly.

I had the even observed traders adding contracts to a losing position, they double down, because they are absolutely convinced they are right and adding contracts will greatly increase their profits. Even worse, once and a while the market does turn and the self-fulfilling prophecy of falling in love with the position is reinforced. When this behavior becomes habit, the trader will eventually succumb to the probability of the market, and the result will be a premature departure from the trading business.

You can’t fall in love with a position under any circumstances; take your losses at or before your preset risk tolerance. Never increase your risk tolerance by expanding your stop loss zone. Finally, never, never add contracts to a losing position.