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Secret to trading success: You

  
  Education
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“You are the weakest part of your system”. That is a defeatist statement and completely untrue. It makes your expectation to fail easier to accomplish and more importantly it makes failure easier to handle. It shifts the pressure away from you and unto fate.

Would you fly on an airline if their motto was “Our pilots are the weakest part.” I do not think so. You are your system. Even if your system is automated you added the inputs, parameters.

Taking responsibility for your action is not easy. Taking control of the outcomes of trading or life is a huge responsibility. You will have moments of weakness, but you are not weak. The market does not go straight up and either does the road to success.

Writing your trading plan?

  
  Education
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  1. Why am I trading? This is not a trivial question to ask; and you must answer it honestly. Are you trading to make money? Or are you trading for the thrill? In other words, are you trading like an investor or like a gambler?
  2. What are my trading goals? Again, not a trivial question. Are you trying to gain a few dollars for extra spending money? Trying to fund your retirement? Trade for a living? Or are you trying to amass a fortune and retire early to a life of luxury? How you answer this question will identify the level of risk that you will have to endure.
  3. What is the size of my trading account? An obvious question.
  4. What is my skill level? Be honest.
  5. What is my tolerance for risk? And does that tolerance bear any relation to my skill level? It’s no good having a high tolerance for risk if your skills are inadequate.
  6. What must I do to improve my skill level?
  7. If my skill level is low, what trading size can I use to ensure that a single bad decision will not wipe me out? Preserving capital and staying in the game long enough to LTP good trading practices is crucial.
  8. What is my preferred trading instrument and have I familiarized myself with the behavior, range and velocity of that instrument? Some trades, like bonds and the ETF’s can move at a glacial pace.
  9. What indicators will I use to identify my entries and exits? Here, “the more, the merrier” may not be the wisest choice. Remember, there can be paralysis by (over)analysis.
  10. Where will I place my initial stop; and how will I manage them? You may have a trailing stop strategy, or you may plan to just exit when your indicators say, “Get out!”
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Intrusion Kills

  
Education, Life
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Facebook’s CEO Mark Zuckerberg:

“I want to stress the importance of being young and technical. Young people are just smarter. Why are most chess masters under 30? I don’t know. Young people just have simpler lives. We may not own a car. We may not have family. Simplicity in life allows you to focus on what’s important.”

Of course, family, and other aspects of life are important, but that doesn’t take away from Zuckerberg’s wisdom. Want to make something big happen, like trend following success, then avoid distraction. Period.

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