One mantra of traders everywhere is “Focus on the process, not the money.”
As traders and market participants, it’s hard to hear and harder to accept, because money is one of a trader’s primary gauges of success. Before focusing on profits, however, it’s important to develop a process that strengthens your mental and emotional intelligence and discipline.
Trading is process-oriented, and profits result from a well-executed game plan. When you focus on your profit and loss figures, or PnL, it’s tempting to deviate from your game plan; the dollars become a distraction that can trip you up, motivating you to sell out too early or to hang on too long.
When first starting out, it’s crucial to develop a strategy and have a clear set of rules before even focusing on profits. Additionally, keep your expectations in check.
Overnight successes are exceedingly rare in this business; becoming a good trader takes hard work, dedication and practice. At the end of the day, you want to make money on a consistent basis, and focusing on profits early on could be a huge distraction to your game plan. For example, let’s assume you were in shares of Facebook Inc. (FB) when the 20-day simple moving average crossed above the 50- and 200-day simple moving averages.
Now, let’s assume your initial game plan was to get out if the stock fell below its 50-day simple moving average, but you were only concerned about your profits, and when the stock broke below the 20-day SMA — but not the 50-day — you closed out. That change of heart and break of process means you missed out on about $10 in profit per share.
This is just one example of how you could deviate from your process and strategy when you’re just focused on your PnL. Again, trading is process-oriented, and profits result from your process.
Thus, if you’re serious about becoming consistently profitable, focus on the process and the profits will take care of themselves.
Jason Bond runs JasonBondTraining.com and is a swing trader of small-cap stocks.