| Here’s an interesting thought experiment: Suppose you find a trading system that made money consistently in all market conditions. It was backtested objectively during independent time periods and handily beat your own trading performance. It also took less risk to obtain these results, with minimal drawdowns. The system’s price is quite reasonable. The catch? The system trades four times a year.Would you obtain the system? Would you trade it? Would you buy it and then try to tweak it in various ways? Would you be able to follow its rules faithfully, or would you convince yourself in the middle of trades to take sure gains or limit losses?Such a system would not meet the needs of many traders: needs for action, needs to figure out the market on your own, needs to feel like *you* were beating the market. Money is the rationale for trading, but it is not the only motivation. Traders also trade to make themselves feel good, to validate themselves, to avoid a 9-5 job, and so much more. This is truly the source of most problems with “trading discipline”: what we need to do to make money conflicts with the other needs that we impose upon trading. If we bring a host of unmet emotional needs to the perfect trading method, we will inevitably sabotage that method. A rich and fulfilling life outside of trading might just be the best trading strategy of all. |
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rssWhat enables a trader to exit every trade the same way, with confidence?
- Preparation: If you put yourself in the best possible position and you lose money at least you spent that money wisely. Good things happen to those that are prepared because 90% of people do not know how to do it or are unwilling.
- Purpose: Acting with purpose. You prepared, you knew the risks, you executed the way you wanted to execute. In cold blooded evaluation you would do it the same with the information you had at the time.
- Protection: Losing the invisible money is how I have seen many people blow up. Invisible money is not locking in profits or losing more than your plan allowed. If you lose what you intended to risk you own the trade, if you lose more the trade owns you.
Your goal as a trader is to always reduce the time it takes to analyze, react, and recover. The best traders do this effortlessly after much thought, experiment, and practice. I lacked confidence because I thought about the wrong things or not at all and I was doing random things all of which made it too costly, emotionally and financially, to practice.