If you can relate to any of these 7 points, then there are signs that you are addicted to trading or in the process of getting addicted.
7. You can't stay away from watching the charts.
6. You want to trade daily when the markets are ON.
5. You tend to overtrade or revenge trade often.
4. You keep worrying about your overnight positions.
3. Your mood changes based on the profit/loss you made that day.
2. You keep watching every new YouTube video on your feed related to trading.
1. You keep jumping from markets like Cash / Options / Forex / US / Commodity etc., without being profitable in any of them.
As a trader, you need to develop a few habits that can help treat trading as a proper system and not an addiction.
You may follow these seven habits, which can help t build a sustainable trading system:
1. Know about the markets that you trade:
Many traders trade almost the same as gambling; they try to play a different game if something is not making money.
Understand that you need not know about multiple markets to profit from trading; I know many traders who only trade in Nifty & Bank Nifty profitably and never get into other segments/markets.
Initially, it might exist for you to try different markets, but make sure you pick the one that suits your risk profile and schedule.
It's not wrong to explore multiple markets, but you need to learn about a particular market/segment and give it time and effort to apply the knowledge in live markets.
Say a beginner trader started with Intraday Index Options Trading; after a few days of making losses, he tried to get into Commodity trading. Suddenly he wants to try crypto just because he saw some YouTube video.
This type of behaviour will never work in trading. Be good at one thing and see if you can generate a decent ROI before moving your capital to another segment/market.
2. Develop a practical trading plan.
If you fail to plan, you are planning to fail ~ Benjamin Franklin
Developing a trading plan and updating it constantly is key to success for any trader. You never get better if you do not know what you are doing.
- Listing down the strategies that you need to apply in particular markets. The strategies must include entry & exit plans.
- Defining your position size, risk per trade, risk per day, per week and month etc.
- Maintaining a record/journal where you make a note of what is not working out consistently and what type of mistakes you are making.
- Review the above record/journal to update the trading plan accordingly; try working on your mistakes.
- Your journal must also help you calculate the average risk-reward ratio, win rate and ROI.
- Your trading plan must also define when you should not take the trades.
3. Respect 2 M's
When you do not respect the Market - you tend to do revenge trading
When you do not respect the Money - you tend to do over trading
So you must start respecting both M's - Market & Money
4. Avoid boredom & random Trades.
One boredom or random trade is enough to put you into a loop of taking more and more random trades, thereby creating a habit of over-trading or revenge trading.
Sometimes markets might not be good enough to take any trades but jumping into random trades just because you got used to it.
Break that chain
Trade only when there are entry opportunities; when there is nothing, learn to stay idle.
Learning when not to take trades is one of the most underrated skills you must master.
5. Take enough breaks from trading
I usually take a week off from trading at least once a quarter and travel.
During those breaks, it's a complete disconnect from the markets; I will not have any open positions except for a few positional setups with GTT orders.
I don't open charts or broker apps after market hours.
Apart from these breaks, I keep trading from vacation for a few Hrs a day when I travel somewhere.
I also take a few days off from trading when I get continuous losses. During these breaks I usually reflect on the reasons for making losses, try to reflect on them, and learn more concepts if needed.
Breaks help to bounce back better.
Continuous trading is no guarantee to make better returns. Learn to take enough rest as and when needed.
6. Start Investing
Often it's a good idea to transfer some of your trading profits to long-term assets like Mutual Funds, ETFs, and Debt Funds, where the funds are reasonably less risky than trading and can do wonders through compounding effects.
When you keep re-investing your profits, there are chances that you might risk more and also tend to overtrade because of the Mental Accounting Bias concept ( explained in detail in the previous week's newsletter)
7. Indulge in non-screen activities.
Try to do more activities which do not involve phone/desktop/any screen like:
- Working out
- Reading books
- Watching aquarium (I have one at my home, and I love watching them)
- Playing outdoor games
- Long drives
- Yoga / Meditation
- Spending time with family
- Whatever else you feel like doing
These habits will help you disconnect from constantly looking at the charts all the time.
Follow these 7 habits and see how well these help you not to get addicted to trading and start building a sustainable trading system.
Feel free to reply back to this email to help me understand how these newsletters are helping you :)
Also when you are ready to level up your trading skills and learn more advanced trading concepts & strategies at your own pace, you can always check out these.
Until next time,
~ Arun Bau
