It is believed by traders world-wide that winning habits are the best things about trading. A nice long series of wins can produce enough profits to change even the most robust lifestyles. Find out how to target and produce winning streaks for binary options trading.
I have had streaks of 14 or more winning trades in a row. When you are in the zone it is the best feeling in the world. It’s like you and the market are 100% connected and the money falls into your account.
You can only get to this mental place if you approach the market with a can do attitude. This does not mean you approach the market with an “I am right” attitude, but you fully accept that you will get whatever the market is willing to provide.
What is winning habit in Binary Options Trading
What is a winning streak and how can you target one, that is, how can you have one on purpose? It seems to me the beauty of a winning streak is that it is a string of wins that goes above and beyond what you would normally expect. All professional traders, whether they are gamblers or legitimate speculators, like to have winning streaks. All professional traders, of both varieties, know that losses are part of the game and even expect them. They know that winning “streaks” are just that, a streak, something to be watched and marveled at but not something to be “expected”. So if this is so, then how can it be that a winning streak can be targeted?
How to Have a Winning habit
What does it take? It takes discipline. You must be able to make rules for yourself, and then be able to follow them. A trader who makes rules and then second guesses him (or her) self, changes the rules or ignores them will not be able to “create” a winning streak. This trader is basically gambling, choosing trades at random and allowing shorter term movements to supersede their longer term analysis. It also takes a strategy. A winning streak can come without a strategy but it would be a completely random and unpredictable streak because there would be no underlying reason for the trades to be profitable. Strategy provides a framework, a skeleton so to speak, for a winning streak to stand on. Once, and until, the first two requirements are mastered a trading system will allow you the freedom, flexibility and SAFETY to keep on trading until you can generate a profitable streak of your own. Trading system uses money management rules like position sizing to guarantee that no one trade can wipe out your account while at the same time allowing your profits to grow as your account grows.
So, my last thoughts on the old winning streak. They are great, they are awesome and they can be targeted, but just not in the way you may have at first thought. You cannot rely on luck or chance to produce a “winning streak” that will help you pay the bills. However, if you work hard and learn about trading, can be disciplined, use strategy and apply a system you can put yourself in position to have a winning streak. Hell, you many even put yourself in position to have a streak of winning streaks. Imagine, being able to consistently produce a dozen or more wins in a row with only one or two losses between. That’s what I call a profitable proposition.
How to grow a winning habit in trading
Letting your winners run is a topic which polarizes traders. There are those that swing for consistency and trade with strict profit targets. These are the traders who likely view letting your winners run as a sure fire way to lose your focus and open yourself up for more risks.
Then there are those traders that think in terms of not worrying to much about any one trade, but has an understanding that over a longer period of time, you only need a few winning trades to make you profitable each year.
Before you move read any further in this article, you need to honestly answer the question of which trader are you?
If you are the trader that likes to trade based on strict profit targets (i.e. up 8%) then letting your winners run will never work for you. The pain of allowing a winning trade to reverse on you will be too traumatizing and will result in you constantly breaking your rules or worst, analysis paralysis.
Now if you are the other trader, that only reacts to what the market presents you, I am going to clearly articulate how you can let your winners run.
You will see there is no magic formula or silver bullet, but it’s more about looking at the market through a slightly different lens. This view of the market will require you to incorporate a number of key concepts, some of which are subjective in nature, in order to make the big gains.
Develop a Winning Attitude
A winning attitude is a must in life if you plan on having any sort of success. If you don’t believe in yourself, then who else will?
For some reason, traders have fooled themselves into thinking that successful trading only boils down to the latest algorithm or technical indicator. This couldn’t be the furthest thing from the truth. When you are trading, you may forget that there are human beings on the other end of the buy or sell transaction. This is a head-to-head competition to see who is right – the bulls or the bears.
Part of the game of trading is not revealing your hand. The smart money will constantly force sharp moves up or down in order to throw off the little guy before the big move.
You are probably asking yourself, “What does a positive attitude have to do with any of this”.
While everyone may have stop loss orders, technical indicators, charts, access to news, etc. there are some traders who are able to translate all of this information into successful trading, a.k.a money.
This success factor my friend begins and ends with a winning attitude. Think about it, when you see your stock have a short hiccup in a current uptrend, is your first reaction to sell to lock in your profits? Or do you move your stop up so quickly that you are basically begging the market maker to trigger your order?
The winning trader will see the same price movement as you; however, he or she will not interpret this information negatively. They will see a slight pullback in an uptrend as healthy price action and will comfortably watch the chart move without a negative emotion in their body.
Their ability to sit through these corrections does not mean they have a lack of money management principles, it just means they believe the market will go in their favor as long as the correction or counter moves do not damage the overall trend.
Do you have a winning attitude when trading or are you thinking the market is out to get you?
If you feel in your heart you lack a winning attitude, I’m telling you right now that you will not be able to let your winners run. You will find some reason to sabotage the trade before you are able to reap the rewards of a well-planned trading strategy.
Generate and screen your ideas regarding profits and losses
Earlier in my trading career I would constantly read about how you must reverse the concept of how your brain processes winning and losing trades in order to become a successful trader.
I remember trying such techniques as looking at my winning trades and saying to myself, stay calm. Or I would say things like, “don’t focus on the money, focus on the chart”.
I of course would end up checking my account balance obsessively and the weight of the profits would force me to close out the position. Early on I had such a hard time making money in the market, that the idea of giving back a decent gain was unfathomable.
Conversely, when I was down on a position, it would not only affect my bank account, but also my mood. I felt like I was being water tortured as I watched what appeared to be a good setup deteriorate right before my eyes.
These negative emotions of being in a position will wear on you the more you watch the position drift away from your entry price in the wrong direction. You have to grow accustomed to thinking in terms of probability. The first thing you need to do is identify your average number of winners and losers. If you don’t know that number, this is probably part of your issue.
Let’s say on average you win 50% of the time. If you have this figured fixed in your head, you will go into each trade knowing you have a 50/50 shot. Now while you always aim to improve your win ratio, this will be your baseline.
How do you think knowing you have a 50/50 shot of putting on a winning trade will impact your view when a trade goes against you?
Right, it will make the fact the trade is not working out feel insignificant. You will no longer be shocked that your trade wasn’t an instant success.
Let me caveat this section of the article, before I move on. Thinking in terms of probabilities helps you realize that every trade will not be a homerun and that you must have realistic expectations in terms of win ratios and potential profit gain. Thinking in this mindset will help prevent you from constantly looking for the next hot indicator which will magically make you profitable on every trade.
What you should not do is go into each trade with a losing attitude. Meaning you say to yourself, “well here goes another trade where I only have a 50% chance of winning. Let me just put this trade on and close my eyes”.
Wrong! You place the trade without any fear or reservation and over time you will improve as you learn what makes you tick. As you are tracking your performance, you will notice that this win ratio will continue to improve and what was once 50% probability will start to improve over time.
You must learn to let go
In the spirit of thinking of probabilities, you have to realize that the market is completely unique in every since of the word. How the market or stock reacted to a news event last week will change this week. The key thing is getting into the position with no real expectation of how far things can run.
You have to let go of the idea that you will outsmart the market and begin to predict her every move. Trading is about reacting to the opportunities the market presents to you on a daily basis and not trying to dictate how she should perform.
This is a difficult concept to grasp, because there are so many studies out there like P&F or Elliott Wave which have predictive modeling tools. These tools like most indicators want to give you an indication of when a market is oversold or overbought.
You have to remember that these are just signs. The same way you approach a red light, this is an indication to you to stop your car. Well with the market, it will see the red light but it will decide whether it will stop or not on its own.
You have to realize you are not dealing with a logical entity. The market will go and do as she pleases. You have to be prepared that while you may see a red light ahead for the market, she may decide she wants to press on and reach new heights. Just remember it’s not your job to take the lead, but rather you should focus on being a passenger in the car.
What is your Exit Strategy? Try to establish one!
What is your exit strategy for closing a winning position? As you answer this question, think about if your exit strategy permits a stock to run wildly in your favor.
In the past I have used the price closing above or below a simple moving average (<10 periods) as a basis for exiting my position. I would say to myself, I am going to let the stock run as far as it wants to as long as it stays above the 10-period SMA. Well, sure enough every once in a while this would happen. The problem was the stock would get so far away from the average, I would become obsessed with the idea of giving back too much profit, so I would talk myself into selling on the first correction.
If you are honest with yourself, this sort of thinking is probably going on in your trading right now. You must learn to let go, think in terms of probability and stick to your exit strategy.
Reason being, while the stock may erase some of your gains on a sharp correction, you only need 2 or 3 swing trades a year to go in your favor to reap significant gains for the years.
Learn to make peace with Down on the Position
Over the last 14 years of trading, one concept has remained constant no matter what timeframe or strategy I use.
If I was never down on a position, not even for a second, I am likely in a homerun. This doesn’t mean it’s a guaranteed win, but these types of trades are exceptional. It means that you were able to interpret the exact time in which the market was ready to start a move.
In these types of scenarios, the money will literally fall into your account as the stock heads in your desired direction.
Go back and look at your trades. Where there any that you were never down on? How far did those stocks run? How much of the move were you able to capture?
Risk management and Money Management are must
When trading, do you think about how much you are wagering on each position? Have you begun to recognize how the amount of money you are using affects your trading?
Most traders are in what I call the growth phase. You have a small account, probably less than $100,000 and are looking to make big money. The idea of steady growth over a 5-7 year span in order to get to the big money $500k+ seems too long.
Instead of taking calculated risks, where you look to make consistent gains and let time work in your favor. You are likely to take riskier bets and wager large portions of your account on a single trade.
This sort of approach may work in the short-term, but over time the market has a way of weeding out risky traders.
On the other end of the transaction is the professional who never risks too much of their account and continuously takes money out of the market.
Take a minute to think through your money management principles. Do you ever risk more than 50% of your account in one stock? Do you find yourself hoping that one trade can erase all of your losses for the year?
Having heavily concentrated positions will not allow you to let your winners run, because you will likely be a nervous wreck. Since stocks rarely go in our favor immediately, you may experience a significant drawdown in your account, especially if you are using margin.
How do you think you will react the second the stock goes in your favor? That’s right, you will look to close the position. Not because you are wrong, but because you did not manage the risk properly, so you were never comfortable in the trade to begin with.
Without a certain level of confidence, the smart money will be able to shake you out of your position with any minor intraday correction and prevent you from riding the large wave.
Focusing on the Matters of Winning habit
Discipline, strategy and trading systems are how winning streaks can be targeted. However, you first must accept that losses will come and that no streak can or will last forever. Once that you have accepted losses you can then begin to look at your trading in terms of streaks. Any two winning trades placed back to back can be considered a winning streak. The more wins you have in a row the longer the winning streak. In another sense a string of trades in which you have more wins than losses could also be considered a “winning streak”, especially when compared to another set of trades in which there are more losses than wins. Discipline, strategy and trading systems are the means of accomplishing both kinds of streaks.
Haphazard and random trading can produce a winning streak. For that matter, a trader who fails to follow basic money management rules can also produce a winning streak. The thing about these two scenarios is that the streaks will be fewer, farther between and on average far shorter than a winning streak produced by a trader who is disciplined, uses a strategy and has a trading system. Think about it like this, the more you prepare yourself for losses and to recognize a winning trades the more you prepare yourself to produce a winning streak. It’s like the belief that the most successful people create their own luck. It’s not so much of being lucky, but of preparing yourself for the opportunity and being able to take hold of it when it presents itself. Every one of us has the capacity to produce a winning streak and to create our own luck.
What Separates Winners from Losers
Trading to me is the greatest personal endeavor a person can take on in their life. I say this because of how difficult it can be at times and how all-consuming it can be as well. It was one of the last professions that who you are and what you think of yourself is reflected back at you based on your equity curve.
Try to accept the random attitude of market
Understanding that the market is random is probably the key tenet of becoming profitable. I have done it all in terms of predicting the next action of the market. Elliott Wave, harmonic trading, point and figure, classic breakout estimates, etc. etc. At times the market would adhere to my analysis, which would make me feel like I was in control of the situation. However, there were times when the market would pass through my key level as if it didn’t exist. Now that I’ve been doing this for 14 years, I now realize that my analysis does not exist anywhere else but in my head. The only reason the market would respond to my analysis is based on whether or not the other the other active traders who can influence the move of my stock are on the same page as I.
It only takes one trader with enough capital to completely invalidate your analysis. It doesn’t take a herd of people yelling and screaming on the floor or placing thousands of trades over the internet. It only takes one person somewhere on planet earth to decide that the stock should go higher or lower.
So, where does this leave you? I will never tell you to not perform some level of analysis, because I believe in technical analysis. What I am saying is you must remove any emotional attachment for what the market can or will do next. You have to believe that the market will and can do anything. Until you come to this realization you will always cut profits short or get stopped out short of the breakout move, because your analysis has told you that if x happens then y is right around the corner.
You must truly accept the Risk from your heart
Some of you reading this will say that you always place your stop and are willing to lose the money. While you may say this, you really don’t want to lose the money. You’ll place your stop out there, which could be pretty far off from your entry price. Over the next couple of hours or days depending on your timeframe, you will slowly move the stop up because the stock is not “acting” properly. Sure enough, at some point your new stop order is triggered right before the market takes off. If this has happened to you, it is one of the most frustrating events that can occur in the market. Your analysis was right, the market in the end gave you what you expected; however, you were not willing to accept the randomness of the market and the fact you could lose money.
Until you accept the risk, you will interpret the noise of the market as a potential threat and will find some way of rationalizing to yourself that you must exit the trade now.
Always try to avoid Analysis dilemma
Most traders start out soaking up information. This information will come in the form of stock picks, books, seminars, trading coaches, gurus, you name it. Your personal beliefs, background and personality traits will then take that information and digest it into what I call your foundation for trading.
Next you will take this newly found information into the world of the market. This can be exciting and a bit scary at the same time. If you are lucky you will put on a few trades and things will go smoothly. The money will just flow. If you are unlucky, you will quickly realize why 90%+ of traders fail within the first few years of taking up the charge.
No matter how you start out you inevitably will face a loss that will hit you in the gut. This loss will resemble the first time a girl broke your hear, or the disbelief you had when you heard at school that Santa didn’t exist after your parents have been helping you draft your Christmas wish list and leaving out cookies for years.
You will feel a sense of utter disparity as your trading world unravels much quicker than the time you have spent to build it up.
This is the phase where most traders will spend their entire careers. In any business analysis of the company’s performance to drive further growth is paramount. Trading is no different. The only problem is you have to decipher when it’s time to tweak your model versus when results are just noise from the market.
Think about it, if you have just spent hours, weeks or months researching a system. This system on all fronts looks like it will give you an edge over the market let’s say 60% of the time. In addition to this edge, it also provides you 2-to-1 in terms of the size of winners and losers. By all accounts this would be considered a system worth testing in the real world.
Of course since the market is random, let’s say out of your first 6 trades only 1 works. The seasoned trader will know that it’s a matter of placing a large enough sample set of trades for things to net out. The junior trader or the trader stuck in the analysis paralysis phase will without a doubt, change this system before it has time to bloom.
As I’m writing this, it sounds so obvious that you have to allow time and opportunity to work in your favor. But when it’s your hard earned money on the line your first reaction is to analyze and correct. It’s such a normal human reaction to protect oneself. Yet this type of behavior is what traps us as traders and never allows us to reach our full potential.
All have an eye on your Equity Curve
People spend a lot of time analyzing their individual winners and losing trades looking for some sort of insight that will help them crack the code. Maybe if I choose a different moving average or if I cut my losses earlier. These all are helpful things when looking at one or two trades, but how would this impact all of your trades? Have you honestly maintained the same system long enough to even analyze how minor tweaks could help?
For me reviewing individual trades is critical, but even more important is the review of your equity curve. This allows you to take a bird’s eye view of your trading performance. The crazy thing is if you plot your equity curve you will see some of the same patterns that you see in price charts. As we speak for the year of 2013, I have a quadruple top at 70% return. I am now sitting right around 50%. Over the last 3 months every time I hit 70% I would have a nonsense trade that backs me off my high and then I quickly march right back up there again only to be denied. What hit me just his past week is that every time I approach the high, my appetite for risk diminishes. I am so worried that I will somehow lose the money that I begin to trade so conservatively that I slowly erode any gains until I pull away from my account peak. I know that I am losing my appetite for risk because when I back off my account highs it is a slow process; however, after backing off I will run right back up to my account peak in 20% or less of the time. This is only because after the pullback, I go back to trading loosely and with confidence. The difference between me now and me 5 years ago, is that (1) this back and forth process may last 6-8 weeks versus years, (2) I can see when I am displaying this type of behavior and (3) I know that it’s not my system but rather it’s all in my head.
So, my point in telling you this story is that when you review your equity curve you can see clear as day psychologically how you are processing the information presented to you by the market. It is better if you start your review of your account first by looking at the equity curve before you go into each individual trade. This will let you know if it’s really your system or if it’s you sabotaging yourself.
Recognizing when you are wrong
Recognizing when you are wrong does not mean the stock deviated from how your analysis stated things should go. Remember, the market is completely random. Understanding when you are wrong is something you need to define. For me it’s how much a position goes against me before I see a profit. Once this happens things will go one of two ways for me. First the market will give me the mercy exit opportunity and will close the position with a minor loss or slight gain. Secondly, the market will continue in the opposite direction and I will take a bath. Please do not get caught up in my specific rules; more focus on the fact that you need to know when you are wrong. Accepting that you will not always get it right will save you all sorts of time and money.
More importantly, you will begin to think of the market in terms of averages. You will have x percentage of winners and x percentage of losers. There is no escaping this fact. Show me a trader that always needs to be right and I will show you a negative equity curve.
Set a criteria when to Take Profits
What is your trigger for exiting a trade as a winner? Please don’t give me some nonsense about this or that key level. Unless you are intuitively trading for profits, which are probably less than 1% of the trading population, how exactly do you book profits?
Again this concept sound simple enough, but when you factor in that most traders have an expectation of what the market will do next it makes this almost an impossible task. For example, back in March of 2003 my business partner and I were long put options on the DIAs. We had about $200k in profits. Up to this point we had executed our trading plan flawlessly. At the time we expected the Dow to hit the 6k – 7k level which it ultimately did in ’09 but for this fight the bears did not have enough energy. Instead of listening to what the market was telling us in terms of the correction was over, we held on for what we expected to happen. This crucial mistake meant that instead of coming out slightly north of 1M, we loss the 200k. Afterwards we were talking about this traumatic experience and both of us had the same feeling that it was time to take profits, but because we did not have a clear trigger we just held on for what the market was going to do next.
Do you find yourself holding on for what your analysis says the market should do next? You must figure out when it’s time to walk away with the cash to move on to your next conquest.
Never be too proud of winning
Never be too proud that you are unwilling to point out your flaws. As you read this article you will see a number of examples where I have called out flaws in my trading. This is both therapeutic and also forces me to realize that my issues have little to do with my system and more around how I mentally approach the market.
If you approach the market from a negative perspective, you will lose money. Negative does not mean you expect to lose, but you may have a lot of fear in your trading or have not fully accepted the risk. Reviewing your equity curve and keeping a trading journal will help you navigate times when you fall off the rails.
Try to develop the best possible system
I use to create alerts for setups that I would review at night. Then once the alert was triggered I would sit there and analyze the structure of the setup to make sure it still fit my system. I would then tell myself that the stock wasn’t that good and if an alert was triggered for this other stock I would jump all over the trade. Sure enough, the alert would trigger for the other stock and I would enter the position. Since I am my harshest critic I would then follow the stock that I decided to pass on to see how it would perform. Funny enough 50% of the time the stock that I thought was no good would outperform the stock I thought was a sure winner.
What this taught me is if my system presents me with opportunities that fit my trading parameters I need to take them on a first in first out basis because there is no benefit in further analyzing the stock. All I was doing was creating a tense situation for myself in which I was unable to make a decision.
Now what I do is set my alarms the night before and I have them sent directly to my email and cell phone. Once the alert has been triggered, I review the stock just to make sure there isn’t some crazy event driving the price up or down at which point I enter the trade.
Taking every opportunity as they are presented to me allows me to trade in harmony with the market and not overthink the trade before me. This means I am trading in the moment and not trying to outsmart or predict what the market will do next.
Only you can define what letting your winners run means to you. The key thing is that over time you should see your average gain per trade increase. There are too many factors that drive how far one individual trade may go in your favor; however, over the aggregate your average gain per trade should increase.
The same way you gain strength and endurance from working out, these same rules apply to trading. As you gain confidence and learn to realize that you have a winner, you will learn to let go and take a ride in the passenger seat.
So for now 30% – 50% on one trade feels right for me; however, in a year or two I may have to update this article to say 60% – 100% for every homerun play as I learn more and more to accept what the market is offering to me in the moment.
Winning at trading has little to do with your system, trading equipment or internet speed. It comes down to can you accept full responsibility for your trading results. Do you accept the fact that the market gives you what you are willing to receive. Do you believe in the concept of probabilities and that you do not have to be right on every trade? The quest of finding the trading zone and staying in it never ends, so remember to have fun along the way.