If you ever read any book on trading you would notice that every author our there talking about three most important things of successful trading and investing are:
- Trading edge
- Money management
- Discipline or psychology
Depending on the book one is reading one of those three are emphasized more or less. If you read book on technical analysis author will say that having edge is most important, and even if you have PhD in psychology if you don’t have proper edge you will not be able to make money.
If you read book on psychology again author will tell you that you can have best trading system on the world if you are not able to take signals you will not be successful trader and that you must make system that will suit your personality.
Finally if you read book on money management, author will tell you that even if you have best system in the world and having best discipline in the world if you risk too much of your capital on each trade you will probably ruin your account and the game will be over.
That post made me think about is it really like that, can we represent those three characteristic as pyramid. Is one more important than the other?
To answer I would ask you following: What is more important heart or brain? Eyes or ears? Legs or Arms?
My opinion is that those three characteristics are all equally important. You must have all three of those to make trading viable business. Instead of pyramid I would use three legs stool to represent them. Simple reason here is that one can seat comfortably on three legs stool but if one leg breaks seating will not be as easy if possible at all. Same goes for your trading or investing, if you missing anyone of those three characteristics you will have troubles to make it in this arena.
To go back to beginning and those three authors, instead of focusing on one and completely ignore other two, I would say to become successful at trading you must focus on all three together. You have to look for good trading edge, you have to have great money management rules, and of course you must be able to execute your signals without hesitation.
If one of three legs breaks you must fix it quickly your you are going to go out of business.