Understanding the Profit Cycle
When I first started trading, I felt like I was constantly stuck in a loop of ups and downs. I’d experience incredible gains for days or even weeks, only to have it all come crashing down in a matter of days. It was a frustrating cycle of making money and then losing it all back, leaving me right where I started or, even worse, in the red. I know many of you have been there, feeling like you’re on the right track but just can’t seem to break through that plateau.
The key to breaking this cycle lies in understanding the concept of the “Profit Cycle.” It’s a cycle that affects everyone’s trading, just like the seasons affect the weather. There are times when our accounts go through seasons of drought, and other times when they experience seasons of plenty. The biggest mistake I made early on was not recognizing this cycle and not properly managing it.
Applying the Profit Cycle to Your Trading
So, how do you apply the Profit Cycle to your trading today? I like to use a four-step plan: Prove, Perform, and Polish.
Prove: Uncover Your Triggers
The first step is to prove to yourself what works and what doesn’t. This is where journaling and self-reflection come into play. Take some time to write about a time when you blew an account or lost more money than you should have. Ask yourself what happened in the moments, the morning, or the week leading up to that trade. Was it a lack of confidence, were you chasing, or did something happen in your personal life that affected your trading? Summarize your findings in 280 characters or less and share them in the comments below. This process will help you uncover your triggers and start building your “Screw It” clause in your trading plan.
Perform: Develop a Consistent Ritual
Once you’ve uncovered your triggers and built your Screw It clause, it’s time to focus on performance. The performance component of trading is heavily dependent on the strength or weakness of your will. It’s easy to say “plan your trades, trade your plan,” but when it comes to execution, traders often hesitate to press the button or become overconfident and neglect risk management.
The solution is to develop a consistent ritual that helps you enter the markets with your best self. This could be something as simple as enjoying a cup of tea, reviewing last night’s sports scores, or even praying the rosary. The key is to find a routine that puts your mind at ease, motivates you, and helps you focus.
Polish: Refine Your Approach
Finally, it’s time to polish things up. Now that you’ve put in the work to plan, prove, and perform, it’s time to reflect on your journal and identify what you did well and what you could improve. Ask yourself questions like: Did your plan play out as expected? Why or why not? Did you experience any tilt, and should the plan be adjusted moving forward?
The polishing stage is all about the pursuit of perfection. We’ll never reach it, as we’re all human and fallible, but the process of constantly refining and improving our approach is what enables us to trade at our very best.
Embracing the Profit Cycle
Remember, you and I are works in progress, and we always will be. The key is to embrace the Profit Cycle, recognize the seasons of drought and plenty, and develop a plan to navigate them successfully. By Proving, Performing, and Polishing, you can break the cycle of losses and start building a sustainable, profitable trading approach.
So, let’s get to work. Start journaling, build your Screw It clause, and develop a consistent ritual. And don’t forget to share your insights in the comments below. Together, we can master the Profit Cycle and take our trading to new heights.
Trade well, and trade delicious. We’ll see you next time.
Aaron.
Want more from Aaron?:Trading Insights: A Deep Dive with Aaron, A Self-Taught Trader
Want to watch the video?: https://youtu.be/poJsGJPuH4A
