This changes everything!

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If you are struggling a bit and dealing with more loss than gain, this is something that will help you turn that corner in no time. As i am sure you are aware, keeping a journal is vital. But how you use your journal is critical.

One big way your journal will help you is tracking the P/L (profit and loss) of every trade you take. This is one area where a digital journal with graphics capability is a huge plus. There are some really good online and application based journals available. Even if you just use a spreadsheet you can insert a P/L graph easily.

This is what a 15 day segment from a trade journal P/L graph might look like.

This example is not ideal, obviously, as the losses added together are substantially greater than the wins. A fast way to fix this is to set a daily max loss and make that a hard fast rule as a part of your overall trading plan. As we all know, one of the KEY elements to success in trading is following our rules.

The next step is determining how to implement this rule. Where you decide to set your max loss amount is up to you and depends a lot on your account size, and how much you are comfortable losing each trade. It is very common to set the limit at one or two percent of your account balance. The most important thing is that once you decide, you must use the tools at your disposal to ensure this limit is not exceeded. The best way is to use a hard stop order on each trade. I know many traders avoid this. They get frustrated being stopped out. But even more frustrating is draining your account. I will tell you from experience that this is the single most important change I made. If you like to scale into and out of trades, a hard stop may not be possible. In this case you MUST respect the limits you decide on before the first entry. Once you begin to limit your losses to a small and consistent amount each red day, you have taken a BIG step forward to trading profitably and consistently. Now the P/L chart looks like this:

Even if your winners aren't that good you are now protecting your account. Now you focus on the upper chart, continuously improving your strategy, making better entries and exits, without worrying about the losses. Losses are an inevitable part of trading, for even the very best traders. But if we set a limit and stick to it each trading day, we put ourselves in a very good position. Now it's GAME ON!