There are a few basic points that you need to keep in mind.

Do you understand what it is to play a zero-sum game? Trading is considered to be a zero-sum game in the long run. It basically implies that it is hard to make money in the long run. While this may or may not be true, the reality is that it is extremely difficult to be consistently right in trading. Hence the focus must be to terminate loss making positions at the earliest level possible. Invest more time and money on winners than on losers. Your smartness as a trader lies in making the best of your profitable positions and exiting your loss making positions quickly.

Trading may be for the short term but you need to sustain performance for the long term. Short term performance means nothing in trading. We say that for 2 reasons. Firstly, with the same strategy and same macroeconomic conditions you can be amazingly right today and awfully wrong tomorrow. So, don’t ever try to annualize and project your trading returns. Secondly, it needs a lot of trades to make money but one bad trade is enough to wipe out all your profits. Keep that point in perspective. That is because your trading success is about how you trade in different market conditions. Even a mug can do well in bullish markets.

Don’t try to say that just because you did well in the past, people should forgive your latest mistakes. That is not the way it works. You are as good or as bad as your last trade. In a way, you must be extremely self-critical. It does not matter if you earned 30% in the previous month. If your most recent trade has bombed then you need to get virtually paranoid about it. Always judge yourself by your last trade. All previous trades are history! It is just like announcing corporate results. You are as good or as bad as your last quarter results.

You are operating in a relative environment and you must never forget that. Firstly, you are one among the thousands of traders in the market. So constantly try to understand what are others are doing right which you are not. Secondly, trading is one of the methods of capital allocation. You must constantly evaluate if that is the best method or you are better off being a passive investor.

In trading there are no “Ifs and Buts”. Once you have taken a decision, don’t worry about whether you should have taken that trading decision in the first place. Your immediate priority must be to consolidate your gains if the decision is working in your favour and look for an exit route if the decision is not working. When it comes to trading decisions an ounce of action is worth a pound of analysis.

When you trading, it is not just about buying and selling. It is also about staying out and doing nothing. When it comes to trading there are 4 important decisions to be taken. You need to focus on when to enter, when to exit, when to hold on and when to stay out. Unfortunately, the last two decisions are extremely important but most traders do not give adequate weightage to them. Surprisingly, you do not make the most money in trading by timing your entry and exit. On the contrary, you actually make money in trading when you are able to decide when to hold on and when to stay out. Know when to stay out as that can be one of the most profitable decisions at times.