Viewpoints
Take a pick.
Pick up any two traders out of the best trading firm. Give them US$ 10K each
and give them your tested set of rules to follow, that is entry, exit and stop
loss rules and tell them to work on the same platform with same charts and
timeframes. Then, then tell them you’ll be back in 1 week.
After 1
week, you shall find in all probability that one of them has made at least a
buck higher than the other? Why?
Interesting
isn’t it?
Well, each
day life brings same such opportunities to each one of us and yet one will
operate better than the other. Why?
Simple.
Trading is just a game of probabilities. If someone is observant enough, they
shall most probably find some way that is a profitable way of trading. Now,
they have to put this to test. Test the theory over a period of years. If you
find that your theory is profitable most of the times, then there is something
to it. Let’s call this ‘your’ system.
Now, all you
have to do is be loyal to ‘your’ system and follow it by your ‘set’ rules, no
matter what happens. Over time, your account shall be in profits.
If ‘your’
system comes true most of the times, then even though there may be losses (which
are certain to happen in any system), you shall eventually be in profits.
MISCONCEPTION
Firstly,
clear up your mind of the myths. There is no ‘perfect’ system. As earlier
mentioned, it’s all a game of probabilities. So, if ‘your’ system has the
better odds on its side, then you have no reason to worry. Over time, you shall
be in profits.
Now, some
systems are better than others of course but again NO PERFECT SYSTEM EXISTS.
An
undisciplined trader will take an excellent system and make it look like the
worst. A disciplined one will however take even an average system and make
profits from it.
There is no
way of telling when ‘your’ system shall become profitable. The odds are with
you of course, but in every 100 trades, if the odds are even 52 wins for you
opposed to 48 losses, that means there will also be 48 loses you have to bear
with to get those 52 wins. Every system and every trader (no matter how
brilliant they are) have losing days and winning days.
Probability,
Probability, Probability, Probability, Probability – Get it into your system!
If probability of your system WINNING MORE from past data tests is better than LOSING,
then you have no worries. That is why the more tests, the better your chances
of probability.
What’s a trader?
I am simply
going to follow ‘my’ system. That’s all. PERIOD!
A trader is
supposed to follow a ‘system’ that is all. It’s that easy?
Is it that
easy? Ask yourself?
Every
trading system should have these:
SIMPLE, isn’t it? J
Get-Rich-Quick
Most people
get addicted to this and get out of trading a frustrated cursing person.
Why?
Never put
too much money on a particular trade. If probability is on your side, why do
you want to mess it up by forgetting those 48 probable losses out of the 100
that ‘your’ system is set on.
You know
your system works and also that out of the 100, you shall win 52 of the times,
based on your tests so it’s best to prepare your account for the 48 losses, by
risking minimum on each trade and you are in all probability going to be
smiling your way to the bank.
If you feel
you are undercapitalized, it’s best to change your account from a regular to a
mini account.
One way of
getting out of a get-rich-quick mentality over the years thru the help we have
provided to hundreds of our clients worldwide has been to focus on how much in
% terms your account is growing instead of how much money you are making
literally.
If you have
US$ 5K, then a growth of US$ 200 in a month may seem pitiful for a typical get-rich-quick
person. But try converting that to % growth and you get 4% growth in a month.
Now as
yourself what your fixed deposit gives you annually and compare that to the 4%
you made in just a month.
This has
helped many of our clients to stay on the positive frame of mind for years and
we hope it shall help you too.
Another tip
we provide all our clients is to enter a trade, set the stop loss and target as
per the ‘tested’ system and then close the platform and take a break. Go watch a
movie.
Remember,
the probabilities are on your side, if your system has passed the test of time
in the past so maximum that can happen is lose. Your staying or going away from
the ‘chart-watching’ is not going to make a win a loss or a loss a win. On the
other hand, if you exit a position that is wining for the moment just to avoid
a loss, remember you didn’t abide by the reward: risk rule and that means you
have already lost 1 win if the trade ultimately wins.
However, you
may argue that what if it loses later on. Remember, the loss has already been
factored into ‘your’ system and that is why we say maximum damage that can
happen is that you lose this trade but winning this trade may mean lesser
profits than COULD HAVE BEEN POSSIBLE in this 1 out of the 52 winning trades
out of the total 100 trades.
One more tip
we hand over to our clients is to practice ‘the’ system on a demo account for 3
months. That shall settle some nerves and make your more unemotional. Practice being
mechanical and take note of your emotions when the trades go wrong and write it
to your personal diary how you felt.
Before
starting to trade for real money, read this diary once at least. It usually
helps one understand what kind of behavioral pattern they have. Work on the
market objectively but more than that work on your emotional responses as if
you were the object not the chart.
We almost
forgot to mention another rule of trading. NEVER TRADE MORE THAN once DAILY. If
you stick to this rule, you shall see an enormous change in your behavioral
pattern