How to overcome break-even trading with practical tips and strategies - #241
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Welcome back to TradeCities Traders Improved Podcast and in this episode we are going to talk about how you go from break-even to profitable trading and we are diving deep into the break-even mindset.

Before we get into the podcast, what is break-even? And break-even refers to traders trading around their starting account balance, which means, let's say you fund your trading account with 10,000 US dollar, and then you will go up for 11, 12, 13,000, then you drop back maybe to 8,000, 9,000.

You recover, you come back to 11, go back to 9 and so on and so forth. So you're not really making any progress and wins and losses are often just cancelling each other out. And this is really really common for traders to get stuck into trading around the break even and it is very very frustrating and this phase can drag on for weeks, months and I have seen traders who have been trading for years

that are still in this break-even stage and it is incredibly frustrating. And you might start questioning everything. Your strategy, your skills and even your decisions to trade in the first place. And what makes it all worse? It's after a good streak, you have a few wins, you have a good profit and then you end up giving it all back. It's like one step forward, one step backward and this can take on for months or years even.

And if you're not careful, this frustration can push you into making even more mistakes and then also taking the wrong decisions. So how does the break-even mindset mess with you? A lot of traders obsess over short-term performance, which is a huge, huge issue. You look at your last week, you look at your last month, and then you measure yourself against those numbers.

And it's like those numbers turn into an invisible line in your head. It's your personal watermark you feel like you can't dip below. What's the problem here? The problem is that it creates fear. You become scared to let winning trades run because you don't want to lose the profit you've made. And when you hit a losing streak, you start panicking, thinking about how far you are from break-even. And then a lot of traders just increase their risk, which is obviously another huge issue.

but they increase their risk and take larger trades, maybe even random trades, because they hope that they come back to break even. And this is a vicious cycle. But you can overcome it and

I have some tips and strategies and mindset shifts that can help you to break through the break-even phase. So here are some real strategies that you can apply right away. You don't have to adopt all of them. Maybe pick one or two in the beginning and see how they will impact your trading and then you can add more over time.

So the first thing you have to do is you must forget about your P&L. This might sound silly because in trading it's all about money, but this is really, really important and it is the first point

for a reason. You have to stop checking how much you are up or down all the time. It's like staring at the scale when you're on a diet. It will just mess with your head. And instead of worrying about how much money you're making, you focus on how well you are following your trading plan. And this is really what matters in the long term. And the trading mindset is all about having this long-term mindset. When we come back to the diet example,

Your main task is to eat better, exercise a bit more and if you do mess up, you get back on track right away. And over time, those things, those good habits, they will help you get in shape and lose weight and you don't have to drive yourself crazy every morning with day-to-day fluctuations your scale shows you. In trading it's really, really similar.

You make good trading decisions, you follow your trading plan, you journal your trades, you review your trades, you backtest more, and you're following your risk management principles and apply solid position sizing.

And those are your main tasks. In the end, this will increase your chances of success significantly and you don't have to drive yourself crazy looking at your P&L all the time. I have some more tips later as we move on to more practical tips on how we actually implement those things. Also what you should be doing is spend less time staring at your trading charts. More screen time doesn't make you a better trader. And in fact, I would argue

It usually leads to overthinking or jumping into bad trades. When you're just staring at your charts all day, you're flipping through timeframes. When you're hunting signals, maybe you're getting bored and then you just take bad trades. I think we've all been there and I think we can all relate. And instead, what I like to do is I use price alerts a lot.

I set them up so you don't have to check your charts all the time and only when the price alert goes up, then something important happened and I need to be aware of that. Otherwise, step away, go for a walk, read a book, do literally anything else but looking at your charts. Another important tip is that you need to focus on quality over quantity. You focus on finding the best trade setups. Don't just trade because you're bored or because you think you see something.

When you stick to high probability trades that match your plan, that you have backtested before, that you know your numbers on, not only will you trade better, but your confidence will also grow because there's less frustration. Because we always all know when we are messing up. We all know that we shouldn't take those random trades. We all know we shouldn't revenge trade. We know we should follow good position sizing. So it's really, really frustrating to trade.

Always see that we keep doing those things that we know we shouldn't do. And by avoiding that, your confidence will grow. And confidence is everything in trading.

Another tip that is really helpful is that you can separate your analysis from your execution and that's what I like to do as well. And that's actually a very big hack. You use one platform, TradingView in my case, where I analyze my charts, I do my trading plans, I set my price alerts and I use a separate platform for placing trades. So that's your broker. And this keeps you from messing with your trades impulsively.

Because if you have to open another app or another program on your computer or on your phone to move your stop loss

or take profits too early, or revenge trade, or take a random trade. This little space between your charting platform, TradingView, and your broker platform, those few seconds that it takes for you to open it up and do the thing that you know you shouldn't be doing is often enough to make you think, "Wait, is this really part of my plan? And is this really what I should be doing?" So this separation between analysis and execution can be really, really helpful.

And also you need to start doing your homework. And here it all comes down to how serious do you take your trading? And that's a very good question to ask yourself. It's often also very painful, but it's really important that we are honest with ourselves because if we are not, we are wasting our time that we could be using for something more important and also the money that we're losing in trading because we don't take it seriously. This can be all avoided.

And when we talk about homework, I'm referring to things like journaling your trades, replaying market data, so backtesting, reviewing what worked in your trading journal, and also looking at things that didn't work.

And it's really important that you do those things away from your actual trading. You can treat it like post-game review, because athletes also don't improve during the games. They improve by analyzing their performance and by practicing. Analyzing the performance in the terms of trading context is obviously our trading journal, and practicing is then also backtesting, which is super, super helpful.

Let's talk about how we can build a little bit more mental resilience because trading is a lot about the mental aspect and we need to build our resilience. So what you can do, which is actually a very good hack, is that you can split up your funds. So you can open two different trading accounts and this makes it harder to obsess whether you are up or down overall. Plus it's very good risk management to not have all your eggs in one basket.

And also, if you do that, what you should be doing or what you can consider is that each broker account has a different amount. So instead of putting 10,000 in each account, maybe put 7 in 3 or maybe 6 in 4 or maybe make it even more abstract, put 655 and then the remaining to the 10,000 you put into the other account. And this will make it much harder to obsess about the break-even.

Another very important point when it comes to building mental resilience is that you should consider taking breaks after losses. So after you lose a trade, you don't dive back right in a way, you don't do revenge trading, but you close your trading platform, you walk away and you let yourself reset.

And what happens is that when you come back later to your charts, very often you will realize the market is still there. Your emotions are much calmer and you're much, much better prepared to trade rationally now. Instead of if you would stay in front of your charts after a loss, you feel the emotions start boiling up inside yourself and then disaster is just one click away.

Another really important thing that helped me in my trading is that you develop non-trading hobbies. So you should pursue activities outside of trading that reduce your stress and it will improve your mental health. And those can be really anything. There are no limits. It can be creative hobbies, can be reading, exercising.

Anything really goes here. Just think about what brings fun to you. What are things that maybe you enjoyed when you were a kid or when you're still a student or before life took over and you had all those obligations. Think about what really brought fun to you and then maybe pick that up again.

And these non-trading activities, they will give your mind a break and it will prevent trading from becoming an all-consuming focus because I have seen it many times, traders who have nothing in their life going on besides trading, obviously then trading is such an important role in your trading that you often mix up your self-worth with your trading results. And that's a recipe for disaster because in the short term,

Trading results are unpredictable and uncontrollable. And even though you might have done everything correct, this week the market just didn't follow through on your trading setups. And if you then let those trades that just didn't work out, but you did everything well, and you did actually a very good job, if you let that influence the way you see yourself and you let those things influence your mood, that's really, really bad for your overall life. It's not going to be good for your mental health, for the people around you.

Also, set hard rules for walkaways. And this is really helpful because normal losses are usually not the issue here. But large losses are what is keeping traders in this break-even cycle. Taking a normal loss is totally fine. You risk 1% or 0.5% of trade and the market hits your stop loss, but you followed your plan. The trade overall was good.

That's not a big problem. What is a big problem on the other hand are big losses. Losing 5% because you risked too much or because you jumped right back into the market or because you moved your stop loss too far away as the price kept going against you. This will destroy you and recovering from such a big loss will take much, much longer and it will also destroy your mental capital. And if you're a trader who still has those single large losses occasionally,

There's a very good chance that you are still trapped in this break-even cycle. So what you can do is you pre-define conditions where you step away from trading, for example, after a certain number of losing trades in a row or when you're just feeling overly emotional, when you feel really frustrated, when you feel anger coming up, when you feel desperation and maybe even when you're feeling or catching yourself revenge trading.

So you take a trade, you lose, totally fine, but then you jump right back in and you realize, "This is a trade I shouldn't be in." Close the trade immediately, regardless of where it is, and then walk away from your screen. And walking away ensures that you don't make emotionally charged decisions that could spiral into further losses.

And as I said just a moment ago, when you come back, you will see the world is still there. Nothing has changed. The market is there, but your account hasn't taken a big hit. So maybe a few more tips to help you shift your perspective on trading and break even and losing and all of that.

First, trading is a long game and breakeven isn't the end. It is just a phase. It's normal. It is expected. Every trader will go through the breakeven phase. Some traders will take longer. Some traders will move through the breakeven phase faster. It really depends on how you implement all of the things that are already explained in this podcast.

And the more time you spend trading and refining your skills, the more you'll push past this phase. You also should stop comparing yourself to last week or last month, especially those short-term comparisons are really really deadly for traders because

Every week is different in trading. You have high volatility, normal volatility. You have momentum phases. You have sideways ranges. You have markets that are inactive, markets that are very active. So every week is different. Your system will perform differently during all of those phases.

And it's really important that you stop this comparison on a week-to-week or even on a month-to-month basis. And it's really important that you recognize that progress happens off the charts. Again, just like athletes don't get better during the game, you won't improve by constantly being in the market and staring at your charts. Use your downtime to analyze, plan, work on your mindset, journal, backtest, all of those things that we know we should be doing, but that we don't do enough.

And very important: Be patient with yourself. Trading is a marathon, not a sprint. Mistakes and setbacks are just part of the process. You learn from them and don't be too hard on yourself. I know we are always our own worst critic. We always know and see our mistakes very very obviously and we all know how flawed we are. But it's okay, we are all human. It's part of the process.

It's part of the learning experience. So accept that, but work on it as well. Figure out and identify one thing week after week that you want to improve on and then write it down, put it on a post-it note, write it on your, hang it on your monitor and then next week try to improve that and don't repeat that negative behavior.

And two final tips that I have here: First, limit exposure to noise. So avoid overloading yourself with news, market updates or opinion from other traders on social media or YouTube. Because that might trigger emotional responses or self-doubt and just gets you into bad trades or into a bad mindset.

You need to really carefully curate your sources of information, focusing only on those that directly align with your strategy and that make you feel better, make you feel energized, inspired and motivated. Celebrate small wins is the last one. It's a fun one. So you recognize and you reward yourself for non-monetary successes.

Like when you are sticking to your trading plan for a week or for a month, when you are completed your journaling process for the week or for the month. And then you can define rewards that really encourage you. And again, this is really personal. Whatever is bringing joy to you, define it as a reward and then celebrate those small wins. And this positive reinforcement will help you build confidence over time. It will also help you build those positive habits, right?

and you will see right away the impact of your decisions. So I hope this podcast episode helped you and you learned something that you can apply to your trading right away and that will get you out of this break-even mindset and this break-even phase.