It’s certainly fun to talk about how we all like to enjoy the spoils of good trading, but believe it or not, knowing when—and how—to indulge ourselves can be helpful to our continued success. That’s because, just as a punishment system is important for preventing bad behaviours, an effective reward system is a valuable tool to help promote good ones. So, it’s at this point when we ask you all, “How do you like to reward yourself for good trading?”
Now, many traders will say that they like to celebrate milestone winning trades by taking some profits from their trading account and enjoying a nice dinner, perhaps going on holiday, or just paying off some expenses and having some extra spending money for the time being, and that’s all fine and dandy.
There are, however, some thoughtful considerations for developing a reward system with lasting trading success in mind, and we want to discuss some of those items here today. Items like knowing what really constitutes “good trading,” how often you can (or should) indulge yourself, and how to turn your rewards into lasting memories that will encourage and empower more good trading in the future.
It’s only natural for most traders to associate good trading with profits, and as a result, many naturally use P&L as their primary—or perhaps only—determinant for when they’ll give themselves some measure of reward. I’ve written here before, however, that I disagree with that practice, and I’ll give you two examples that help illustrate why. First, have you (or perhaps someone you know) ever just “gotten lucky” on a trade? You know the kind: One where all the trading rules were seemingly broken (or non-existent), the chart pattern wasn’t all that strong and/or familiar, and where risk wasn’t carefully managed, yet the market went your way and resulted in a winning trade nonetheless.
Few would argue that from a strategic, long-term perspective, that’s not an example of good trading, and yet, using the P&L-based logic, a reward might have been “earned” for something like that.
And secondly, the opposite can be true as well. How many times have you done everything right, isolating your chart pattern and qualifying the set-up, carefully managing risk, and executing the trade precisely according to your plan, only to have the market go against you and your trade be stopped out for a loss? In this case, it was an example of good trading, and while the trader has nothing to show for this time, this approach to the markets—as opposed to the approach exhibited in the previous example—should be encouraged, carried forward for the future, and even rewarded whenever possible. That’s why, rather than using P&L to define good trading, we often recommend considerations like these instead:
Especially for newbie traders, are you coming into the markets each day with the proper focus and preparations done? Do you have a short list of markets or currency pairs you’re watching for just one or a couple potential chart patterns? Is your trading desk neat and functional, and are you working to repeat the good trading habits that are important to your success? Even if you aren’t even taking live trades yet, it’s not to say that you can’t use a reward system to your advantage in a manner such as this.
How well do you follow your own rules for trading the markets? Do you stick to only your favoured market(s) and assets, and trade only qualifying set-ups? Do you have a hard stop loss on all your positions? And can you maintain 98%-100% plan compliance for a full week, a full month, or even an entire quarter? Many, including myself, would focus on discipline and especially plan compliance as the go-to metrics that separate good trading from bad.
Maybe you’re dabbling in new methods or learning a new chart pattern. Are you able to demo trade it successfully for a period of three (3) months and show consistent, positive performance results? Perhaps you’ve backtested and verified it in a sampling of real market conditions, too. Or maybe you’ve even just booked your first successful trade using your new pattern or set-up. If so, that’s good trading for sure!
A stronger mental game can benefit traders of all levels. So if you’re working to identify and overcome instances where fear, anger, or other emotions tend to plague your trading, recognise and reward your successes along the way. Like when you make it through a week, month, or a quarter without missing any qualifying trade set-ups because of fear or hesitation. Or when you use mindfulness to isolate negative thinking following a losing trade and keep it from impacting your next trades.