“No methodology will work unless you are able to develop
the proper mindset to follow it.” –
Dave Landry
The world of trading is full of things that work and things
that don’t work. To be honest, there are many successful traders who’re also
teaching people how to become successful. There are many signals providers who
provide winning signals. There are many strategies that work and there are many
programs, like webinars and trading rooms which can help other traders to
improve significantly. Unfortunately, in spite of these, the percentage of
losers still remains above 90%. Why?
There is a primary reason for that (other reasons are merely
secondary). The human mind isn’t wired to trade properly – unless the mind is
trained to adapt to the seemingly ‘strange’ but helpful approaches that
guarantee one’s survival. We don’t find it easy to do the things that can
ensure our permanent triumph. What we find easy to do are things that agree
with our faulty mindset, but which can’t help us in the long run. If you can’t
ride your winners, it’s because your mindset is against that, and you’ll always
find it difficult to do. Even if a swing trading system has a high hit rate, it
won’t make money if profits aren’t allowed to run.
For instance, most motorists obey traffic rules because they
want to avoid the legal consequences for not doing so, not because they take
their own safety serious. Why should the use of helmet be enforced for bikers?
Don’t they know that the use of helmet is for their own safety? They know, but
they still find it easier not to put on helmet than to put on one. That’s human
mindset.
It’s known that making phone calls or receiving phone calls
while driving is dangerous (for the brain of a driver who does that doesn’t
fare better than the brain of a drunkard, at that time), yet some drivers find
it a fanciful and agreeable thing to do.
I once chattered at taxi. While the driver was driving me,
his phone began to ring consistently. He sensed that the call was very
important, and as a result of that, he located a suitable place to park. He
parked and received the call. After that, he continued the journey. What the
man did might look stupid in the eyes of most drivers. How could he begin to look
for a place to park simply because he wanted to receive a mere call? In
contrast, most drivers would prefer to answer the call while driving – the
thought of tickets being the only thing that can prevent them from doing
that.
In the world of retail trading where retail traders are
allowed to trade as they like, it’s no wonder that they often end up losing.
Even if they know what they can do to safeguard their accounts in the face of
the vagaries of the markets, they’re prone to ignore that because of irrational
emotions. If retail traders could be forced and micromanaged to do the right
things while trading, the percentage of losers would decrease dramatically, but
such a thing isn’t possible.
For example, false breakouts are common in consolidating market
phases, and trading them would have adverse effects on our portfolios if we’re
invested for the long-term. You may’ve sworn never to trade a consolidating
market, but because of the faulty mindset, you suddenly open a position in a
consolidating market because you feel the position is promising. You’ve sworn
to respect your stops, but you suddenly see yourself running a gargantuan
negative position. Obviously, you’ve refused to smooth the position because you
feel it may go back to the entry price.
When institutional traders cover their positions, the market
pulls back, but the noobs think they can follow the direction of the
pullback. When you see a significant
bias that occurs without plausible economic reasons, the bias can be transitory
and the pullback might even be a new protracted market outlook. You’ve sworn to
be a swing trader or position trader, opening a few trades per month or week,
but you suddenly start scalping or opening too many positions that you close
within 24 hours because of too much negativity. You call yourself a position
trader or an investor, but you suddenly find yourself watching the one-minute
chart because you can’t sleep while you’ve open positions. You know, a position
trader got nothing to do with one-minute charts. You think new significant
biases may start and you want to be an early bird by looking at one-minute
charts.
You’re swing/position trader, and thus you need to use wide
stops so that you can create more room for normal market fluctuations. But you
find yourself using stops that are too tight: you don’t want to allow a trade
to move against you by a few or several pips and you call yourself a position
trader! Tights stops cause frequent losses – even trades that ought to end up
winning would be stopped out if the stops are too tight.
Doing the right things require discipline, even if it makes
you look stupid sometimes. You’ve got to find a way to condition your mind to
do the right things; no matter what. That’s what pays in the long run. It’s
better to look for ways to control losing streaks than to look for ‘wise’
trading rules that don’t improve any statistics. This is what’ll ultimately
help you by making you avoid severe roll-downs. It’s after you survive severe
roll-downs that you can hope to make some gains.
This article is ended with the quote below:
“One thing is sure: a trading strategy that is not
adapted to the traders individual preferences concerning philosophy, trading
frequency or time exposure will not generate profits simply because it will not
be followed.” – David Pieper
Source: www.tallinex.com
Learn from the Generals of the Markets: Market Generals
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