Colin’s Note: Today’s insight comes from our colleague, Market Wizard Larry Benedict.

Larry is a former hedge fund manager who went two decades without a losing year… including 2008 during the Great Financial Crisis.

That track record earned him a spot in Jack Schwager’s Wall Street classic on the world’s greatest hedge fund managers, Hedge Fund Market Wizards.

In short, Larry is one of the world’s most prolific moneymakers. So, today, I’m spotlighting an essay he shared with his subscribers on the two most important steps you need if you’re looking to improve your trading.

Most of us are familiar with stories of how the tech titans started out… tinkering in their garage or at the school lab.

Companies like Apple and Microsoft grew from humble beginnings to market values in the trillions.

Some of that can be put down to timing. They rode the wave of an entirely new industry.

But timing wasn’t the only thing…

Otherwise, hundreds or even thousands of other tech startups would still be in business today.

Their success also wasn’t about capital. Plenty of well-funded companies have gone bust.

So what is the reason behind the titans’ success?

Ultimately, it came from creating a sustainable process and sticking with it. Plus, an unwavering passion to improve.

It’s a similar story when it comes to trading…

Finding Your Process

You might think you need a ton of money when you’re starting out: If only you had a bigger trading account, surely you could make it as a trader!

But there is nothing further from the truth…

If you have poor trading discipline, a bigger trading account only means that it will take you longer to go broke.

Your first step as a trader needs to be finding a sustainable process. This is a process that you can follow day in, day out.

Start by picking just a couple of stocks (or sectors and indexes) to trade. Learn everything you can about them.

That way, you’re not distracted by all the other trading ideas out there.

For example, my options advisory The S&P Trader only trades the S&P 500. And it has maintained an 85% win rate this year out of 99 total trades.

The next step as a trader is clearly defining your trading strategy.

In The S&P Trader, we follow a trading strategy I developed and have traded profitably for decades.

It put my hedge fund in the top 1% ranking by Barron’s. And it enabled me to go 20 years without a losing year during my hedge fund career.

From your entry to exit, you need to know your plan before you place your trade.

What is your position size? When will you take profits? Will you trade stocks or options? What is your stop loss? And so on.

Focus on your strategy – and not the size of your profits.

As you practice your trading discipline, the profits will take care of themselves…

Aim for Consistent Growth

When I was a young trader, I cleaned out my trading account.

I put on multiple positions. I traded way bigger than my account size could justify. I chased every move.

No matter how much money I started with, the result would have been the same.

Only when I figured out trading discipline and came up with the right process did my account start heading the right way.

I turned it all around by trading a fixed amount per trade.

And I only traded one thing until I knew everything about it I could.

Then, I focused on taking lots of small profits rather than betting on outsized gains.

At the end of every day, I would run through my trades and work out how I could do it better.

Sometimes I thought about them so much that it was hard to switch off at the end of the day!

But I firmly believe these steps made me a better trader.

Too many new traders want to grow their accounts quickly.

They think that if they nail just a couple of big trades, that will put them on the right path.

But if you’re new to trading, you need to do the opposite…

Go slow. Aim to make $50 or $100 a trade. That’s all that matters at the start.

If you can do that consistently, your account will start to build quicker than you can imagine.

Once you’ve done that, you can start to do bigger trade sizes with higher confidence… because you’ve already developed a system that works.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict