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10 Things Traders Confuse with Success

Many new traders deceive themselves. They celebrate small wins. They look for the magic solution to making money through a fail safe system. They believe a seminar or newsletter will change their life completely. The mistake trading for easy money and coaches and gurus for having that secret recipe for success. Well, there is none, there is simply trading robust methodologies that have an edge, while managing risk, and keeping the right mindset. Trading can be a very fruitful endeavor, but new traders need to quit looking to be given fish and learn to fish for their self. Don’t confuse these 10 things with trading success. New traders need to understand the difference between having a tug on their fishing line and having a boat full of fish.

  1. It is not the winning trading system that determines your trading success but your ability to follow it.
  2. It is not the big wins that make you rich but your ability to keep them and not give them back in losses.
  3. Reading great trading books will not help you unless you read the right ones and really practice their lessons.
  4. Mentors will not help you unless you follow their advice.
  5. All the training to trade will do you know good unless you put it into action in your account.
  6. A great methodology will do you no good if you do not have great risk management.
  7. Small winning trades will not make you profitable if you have big losses.
  8. Capturing bull market trends make no difference if you give back your profits in the next bear market.
  9. A 95% win rate does you no good if your 5% of trades that are losses are bigger than the 95% that are winners.
  10. Participating in social media does traders no good if they follow the wrong people and are in the wrong trading groups.

Skill Vs Luck

Michael Mauboussin, head of Global Financial Strategies at Credit Suisse, has written extensively on the role of skill vs. luck in many endeavors … mostly for business, sports and investing.

He is well worth paying attention to.

This, in particular:

There is actually a very interesting test to determine if there is any skill in an activity, and that is to ask if you can lose on purpose. If you can lose on purpose, then there is some sort of skill. Investing is very interesting because it is difficult to build a portfolio that does a lot better than the benchmark. But it is also actually very hard, given the parameters, to build a portfolio that does a lot worse than the benchmark. What that tells you is that investing is pretty far over to the luck side of the continuum. That is the first important thing.

From that one paragraph, and the logical conclusions that follow (there is a lot more to it than that one paragraph) … a few important points:

  • There is a continuum of luck to skill
  • Investing (I’d substitute ‘trading’ in there) has elements of both … “pretty far over to the luck side of the continuum
  • Given it’s a spectrum, there is skill involved
  • Skill can be improved

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