Trading is marketed as sexy profession. If you are good at trading, well you must be incredibly smart, good looking, funny, and of course, rich! We all know this furthest from truth. Traders are pale, unkept and have bad posture. I kid.One of the biggest aspects of of trading is psychology, the manipulation and control of our biggest sex organ of all, our brain. However, an often overlooked aspect of trading psychology is mental framing – how we position our thoughts and ideas about the market.
Newer traders approach trading from a “right versus wrong” perspective. They devise their trading system based on a false sense of security believing certain setups and strategies can be designed to give them”right” signals and helps them avoid “wrong” signals.
This is a devastating trap. The paradigm of “right or wrong” does not exist in the market place. The market operates in a constant flux in search for equilibrium of demand and supply, there is no right or wrong direction or price. The market is never wrong, it just “is”.
In any given setup the trader has a 50/50 chance of being correct regardless of system being implemented. The determination of profitability is in the execution of the trade. You can be wrong in your analysis and still exit the trade in the green, vice versa.
Where is the path of least resistance? How much upside vs. downside am I facing? If this same scenario happens more than once, will I be profitable given a statistical set?
The difference is that the inexperienced “right or wrong” approach assumes that there are magic points in the market that are guaranteed to be profitable if traders can find it, while the other looks at every scenario from a statistical mode of thinking which over time builds a trader’s edge – they no longer rely on pin-point accurate signals and don’t even bother looking for them.