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Trading for a Living Part 3 – Making Consistent Profits

Making Consistent Profits.

In this article I would like to discuss why people do not make consistent profits and how to solve these problems.

The key to “making consistent profits” is in the phrase itself. In order to make consistent profits YOU have to be consistent in your trading. It does not help at all if you only take two out of eight trades a day from one strategy. In order for you to make consistent profits you will need to take every trade the strategy suggests to receive what the strategy has to offer.

Now I understand that not everyone has time during the day to trade this intensely. If this is the case set aside a few hours a day that you will spend trading and stick to those hours. Do a proper backtest on the strategy and see what the market has to offer within the time frame you will be trading. Then make a trading plan to follow accordingly. However, it all comes down to being disciplined.

One of the biggest problems that causes people to not consistently make profits is because they are to focused on making money rather than trading. Something that Warren and Patrick told me when I was still learning how to trade was, “learn how to trade well and the money will follow”. I find most people that start their trading journey have this idea of being rich in a few months and that is their focus. I usually find them disappointed and frustrated when week three comes around and they are nowhere near close to being rich yet. This comes from focusing on the need for money rather than the need to trade well.

Not trading is also a huge part of making consistent profits. When you know when not to trade you will not lose money because of a lousy trade. Therefore you will be closer to the goal. The strategy you trade will obviously work better in certain market conditions than in others. When you identify these market conditions you will reduce lousy losing trades and in doing so increase overall profits.

Now that we understand why people do not make consistent profits let’s take a look at how we can begin maintaining a regular income.

 The first thing I would do is to set a realistic goal for your account size AND your trading experience. A good example of an unrealistic goal is to try and turn an R100 account into an R1000 account within one month. It is almost a given that you won’t succeed as it is guaranteed that you will be constantly stressed because you will either not have enough time or you will burn out trying to trade too much or you will have to take on too much risk for your account size. I think an important key to making consistent profits is to work out your risk to every trade you make.

To begin understanding how to work out your risk, you need to know how much money you are willing to lose and how much is that of your account as a percentage. As a rule, we use 2% risk per trade. By keeping this constant, you will find your account growing exponentially and this will make your targets easier to reach. By using this method let’s see what a realistic approach would be.

Trying to make an R1000 in a month with an R1000 account is far more realistic. In this case, you will need to make an R50 profit consistently every day. I would like to use a simple example and note this is just an example and not a trading system, plan, or strategy, where a strategy makes 100 points with a trade on the ALSI with a stop loss of 50points. In this case, I will risk 2% of my account with every trade which in the beginning is R20. That means R20/50points gives me an initial position size of R0.4. Now for every trade, I win or lose I will adjust my position size so that I still only risk 2% of my account size. By trading it this way I would have to make 18 winning trades to reach my R1000 in the month, assuming I had no stops. If the strategy had a 77% hit rate that month it would have taken me 27 trades to make my R1000 profit. Now if your goal is to make R1000 a month and you repeat this process it will take you 21 trades to make another R1000 and so it becomes easier to reach your R1000 goal every month by trading the strategy consistently and having a fixed stop of 2%.

If you follow these simple guidelines you will be able to make consistent profits within a realistic timeframe. In short: Focus on the trading, not the money. Be disciplined with your trading. Do a proper backtest to see if the strategy will give you what you want or if you have to trade more strategies at the same time. 

Create a trading plan. Follow the plan and trade.

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