In the trading
world, it’s usually not the actual activity of placing a trade that is the
problem. That’s the easy part.
The hard part is
when you are on the path to placing trades that have an actual edge…and you can
do it consistently keeping in mind risk parameters and in line with your
ultimate trading goal.
Every day, someone
new to this business opens up a trading account and begins the long and slow
path to profits. Perhaps they’ve had coaching, bought a trading
system or had some other type of exposure to this business.
They envision the
success their “mentor”, trading forum participants, Instagram user, and anybody
else that places a trade has had and they seek to emulate.
REACHING
YOUR TRADING GOAL IS EASY
…or so you have been
told.
It seems easy.
Many people have told them that trading is “easy” and may have shown them the
results of their trading success. If you were to scan Twitter or
Instagram, there is no shortage of those claiming thousands of dollars per day
in winnings.
There’s no shortage
of those posting trips, cars, dinners, and anything else that shows the world
the success they have had.
Armed with that
vision, new traders trot down the path and every turn offers them a different
challenge such as:
- Stopped out right after trade entry/revenge trades
- Risked too much on the loser
- Risked too little on the winner
This is not the
results they have pictured vividly in their minds. The actual
reality of the goal looks nothing like what drove them to attempt the challenge
in the first place.
I recently read
a great blog post by James Clear that had prompted me to write this
blog post in relation to trading. It’s not a new topic for me but it
never gets old!
James says
to “set your compass and start walking” towards your treasure.
Commit to the goal and then “release the desire to achieve a particular
outcome and focus instead on the slow march forward”.
ACTUAL
COMMITMENT IS RARE
Let’s be honest with
ourselves…most people never actually commit to much in their lives.
In terms of trading,
what does that mean?
It means seeing your
“treasure” as a consistently profitable trader and then to tackle each
problem/celebrate each success that you find on the path.
Let’s assume you
have purchased a trading system and after studying the material, you put it
into practice. Your path may include back testing, forward testing, and
learning to execute without hesitation.
During your travels
on the road to consistently profitable, you encounter:
1. Revenge
trading. After taking a loss in the random series of wins/losses, you
toss the rules out the window and jump into a big green candle. Your
“treasure” remains the same however you seek out ways you may eliminate this
type of rule breaking.
Perhaps after a
series of day-trading losses, you get away from your trading desk and head
outside. You do anything to interrupt your current state…the one that
prompts you to revenge trade.
2. Twist
on your trading method. You’ve been reading trading forums (never a good
idea) and have seen the “power” of using X moving average for confirmation of a
move. The moment you use this average, you are no longer trading
the system you have tested and proven to yourself actually has an edge.
You remind yourself
that there is no secret in trading and that you have done some in depth work on
your trading system and the numbers show it’s a good system. You commit
to staying away from forums and remove yourself from the mailing lists of the
obvious marketers.
3. You
ignored risk parameters. During a string of wins, you decided to increase
your risk % but the next trade was a loser. You erased some healthy
profits from previous winners because you forgot there is no guarantee that the
next trade will be a winner.
Realizing risk
controls are paramount to ensure you stay solvent enough to reach your goal,
you recommit to a steady risk % regardless of your thoughts, win streak, losing
streak, or simply greed.
IT’S THE
TRADING JOURNEY
Think of
“consistently profitable” as the goal and then figure out the exact steps you
need to get you there.
Do you just need a
trading system or is more in-depth trade coaching and education the better route for you?
There is no one size
fits all standard but everyone can benefit from a complete understanding of:
Method:
Whatever your trading method is, you have to know it inside and out and be able
to execute “on demand”. You have to test it until you have proven it has
an edge and that you have enough faith in the system that you don’t second
guess.
Psychology:
There are some issues that we all have faced and some can still be
challenging. There are some important biases that you should be aware of
(especially when system testing) so it does help to have the ear of experienced
traders that can help you adjust to these realities.
Risk: Without
an understanding of risk and implementation of risk management, trading success
will remain out of reach. Risk does not just mean percent risked on a
trade as there are risk such as execution and gap risk you should be familiar
with.
In the end, it’s
about choosing the outcome you desire and then setting yourself on the path
that can lead to that outcome. Driving a car to a destination is never a
straight line but when you commit to the destination, you trust the route you
have laid out regardless of the turns you must make.
You travel the
route, adjust, travel, adjust in a continual cycle and then, without realizing
it, you have arrived.