Why You're Not Making the Money You Should Be

Summary

In this video, the speaker discusses the concept of 'performance gap' in trading, where traders often underperform despite executing the correct setups. The video highlights the psychological aspects behind such behavior, including poor execution, misaligned systems with market cycles, and behavioral slippages like hesitation and fear. The speaker offers actionable solutions, such as tracking missed trades, adjusting strategies based on market conditions, and reducing trade sizes when in doubt. The aim is to help traders improve their behavior and align their actions with their potential to achieve better performance and profitability.

Takeaways

• 😀 The performance gap refers to the difference between your potential returns and the actual returns you achieve, often due to behavioral factors.
• 😀 A key reason for underperformance is not aligning your trading system with the current market cycle, which can cause pressure to take profits too quickly.
• 😀 Trading execution is not just about entering the trade; it also involves proper risk and trade management, which significantly impacts your performance.
• 😀 Emotions like hesitation, fear, or FOMO can interfere with trading decisions, leading to missed opportunities or poor execution.
• 😀 Market uncertainty can cause a misalignment between your trading strategy and market behavior, leading to stress and poor execution.
• 😀 Discipline alone is not enough to achieve consistent success in trading. It's essential that your trading system is in alignment with the market and your mindset.
• 😀 To close the performance gap, you need to journal not just the trades you made, but also the trades you missed and the reasons behind them.
• 😀 Analyzing your trading behavior, such as hesitation or fear, can reveal underlying issues and help you address them for better performance.
• 😀 Small adjustments to your trading strategy, based on current market conditions, can improve your results without overhauling the entire system.
• 😀 Reducing your trade size when you're feeling uncertain or underperforming can help minimize losses and keep you in the game longer.

Q & A

What is the performance gap in trading?

The performance gap refers to the difference between a trader's potential returns and their actual performance. Even when the trader's setup and entry points are correct, behavior slippages can prevent them from achieving their full potential in terms of profits.

Why do traders often underperform despite having the correct setups?

Traders may underperform due to issues with execution, psychological factors, and behavior slippages. They might hesitate to take full advantage of a trade or fail to manage their trades properly, leading to a performance gap.

What are behavior slippages, and how do they affect trading?

Behavior slippages occur when traders fail to follow their planned strategies or make emotional decisions, leading to suboptimal trade execution. These slippages prevent traders from reaching their full potential, often resulting in missed opportunities or unnecessary losses.

What role does psychology play in trading performance?

Psychology plays a crucial role in trading because emotional responses, like fear, hesitation, or overconfidence, can negatively impact decision-making. Traders need to understand and manage their psychological state to improve their trading outcomes.

How does market misalignment contribute to performance gaps?

Market misalignment occurs when a trader’s strategy does not match the current market cycle. For example, if a trader follows a bottom-double-bottom strategy during a bullish market, they may struggle to find profitable setups, leading to a performance gap.

What is the importance of execution in trading?

Execution is vital in trading because it determines how well a trader can implement their strategy. Proper execution involves risk management and trade management, such as holding positions appropriately and not prematurely taking profits or cutting losses.

What can a trader do if they are feeling uncertain or fearful about their trades?

If a trader is uncertain or fearful, they should consider reducing their trade size to limit losses. This can help them stay in the game longer, survive through tough periods, and eventually become more profitable as they gain experience.

How can traders track and improve their behavior?

Traders can track their behavior by journaling their planned trades, including the ones they missed, and noting the reasons behind these missed opportunities. By identifying patterns such as fear or hesitation, traders can address underlying issues and improve their decision-making.

What should a trader do when their trading strategy is not working due to market conditions?

When a trading strategy is not working due to market conditions, traders should make adjustments to their approach without abandoning the strategy completely. For example, if breakouts are not working, they could start looking for pullbacks near breakout points.

What are the key steps to improving performance in trading?

The key steps to improving performance include tracking your trades (both successful and missed), following your trading plan, addressing emotional barriers like fear or hesitation, adjusting your strategy to fit market conditions, and managing trade size to reduce losses in uncertain times.