Trading Psychology

Want better results? Try it in small steps

Trading is not just about opening and closing positions in profit or loss and counting successful and unsuccessful trades. It is a never-ending process of learning and improving with the goal of consistent profit. Today, we'll talk about a method that can bring out the best in you in gradual steps.

Most traders using candlestick charts know very well that this, the most commonly used chart type in technical analysis today, originated in Japan. However, not many know that the land of the rising sun also created a method that, like candlestick charts, can help traders greatly in achieving better results in the long run.

Kaizen - continuous improvement

This method is called Kaizen, which translates as "improvement" or "good change". It originated in Japan after World War II and is the idea of small, step-by-step adjustments and changes to increase efficiency, improve quality and reduce waste in the corporate environment.

However, these constant small changes should not be temporary, but should become part of the company culture, and all employees should be involved in the process. The concept was then based on the PDCA principle, Plan-Do-Check-Act, which involves successive planning, introduction of new procedures, checking and adaptation. The Kaizen method should ultimately result in continuous quality improvement and efficiency gains, while reducing costs and increasing the ability to adapt to change.

Kaizen and trading

Although this method was originally applied to the corporate environment, it is very well applicable in the trading environment. Even trading can be considered as a continuous process of improving your skills and learning from your mistakes. As with large firms, it is not very effective for a trader to decide to rebuild his strategy through-and-through after a few failed trades.

This is because such a revolution is futile. Every strategy should allow for periods when it fails and should allow for a series of losses that it can, in accordance with the rules of risk management, manage just fine.

Thus, an approach where the trader makes seemingly small and insignificant changes can prove to be highly effective. When considered as part of the overall strategy, these minor adjustments can significantly enhance long-term profitability.

Small changes and a patient approach

However, the key is to make changes gradually and, according to the PDCA principle, give them time to have an impact. That is, make one small, seemingly insignificant change in the approach, get used to it, improve it further and then proceed to the next step.

So it is important not to make these small changes in quick succession, but each time a change is a partial success, you need to analyse it and make it a routine. In short, feedback and testing are just as important as when you are building a new strategy. When that change becomes part of the original strategy, you can move on to the next small change that can get the system or strategy moving in the right direction again. So it takes a great deal of patience, but it will ultimately translate positively into results.

Sometimes, for example, it is enough not to enter a position as soon as a signal appears, but to wait for the first swing, which then allows you to either enter at a better price or set a more favourable SL with a more favourable RRR. At the same time, it can be a two-step process where you first try to enter at a better price and only when this method is applied can you proceed to enter tighter stop losses.

A constant process

It must be remembered that the Kaizen method is a continuous process, so these changes can be made all the time. At the same time, you have to take into account that it will not always go as you want, because a change, even a very small one, may not always lead to improved results. However, a certain amount of self-reflection and understanding of your strengths and weaknesses can also help to make the impact of the changes you make over time as positive as possible. Ultimately, the benefit of this continuous process is also to better adapt to changes in market conditions, which again leads to reducing potential losses and improving long-term profitability. Trade safe!

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