Courageous Features Of SuccessRecently I was involved in a trading training class. I taught the class a single trading method. The final activity for the class was live trading. They knew the theory of the trading method but now they were trading with a small amount of money. I identified the entry conditions for the index trade. There was enough time for all the students to evaluate the trade suggestion and enter an order. All the students had the same computers, the same software and a similar knowledge of the trading methods I had been teaching.
Logically we think all the students should obtain similar results. In fact, the results of all the students were very different. A similar trade is shown in the example chart. The trade plan is to “enter on rebound from the lower edge of the long term GMMA.” These conditions are activated at point B on the chart.
When I identified a profitable trade conditions some of the students made more money than me. They entered the trade early because of their greed. This is point A on the sample chart.
Some students made less money because they waited to get extra confirmation before entering the trade. Other students lost money because they entered too late. This is point C on the chart example. A few students did not trade because they had experienced losses and were "afraid" to have another loser. If my trade suggestion was not successful then the same variety of student results also happened. Some students lost more money than
me. Some students lost less money than me, and some students had a profitable trade.
The most important difference in results came from the way students acted on their stop loss. Students who acted quickly had good success. Students who did not act quickly on the stop loss were less successful and their trading was not profitable. Every student was looking at the same chart and the same market index. The students all acted differently and their trading results were all different.
These experiences in the training class confirm that psychology is an important part of trading success. A good trading plan is important but it is the psychology of the traders which will decide if the trade plan is successful. Every trader works in the same market, but the results are very different. Some traders have good profits while other traders have many losses. The reason for the difference is the method each trader uses and the psychology of every trader. When the method traders use is the same, the results are not the same. Aggressive traders will enter the trade before it is correctly confirmed. Cautious traders wait too long before they enter the trade, and they miss out on profits. Timid traders use a tight stop loss and they have an exit signal before the trade can fully develop.
Long term trading success in the financial market comes from 3 features. They are all related.
The first feature is the method the trader is using. There are many successful methods. Many of these methods are simple, and this makes the method very effective. We prefer to use simple method rather than complicated methods.
The second feature is consistency. The trading method must be applied in the same way every time. Every trading method will make mistakes. The best trading methods have a long term success rate average of around 70% including bull and bear markets. Using the method, the trader is correct for seven out of every ten trades. In some market conditions the method will have a higher success rate, perhaps eight out of every ten trades. This is higher than the longer term average success rate of 70%. The consistent trader knows the extra successful trades happen because the market is good.
In other market conditions the success rate may fall to four out of every ten trades. This is lower than the long term average success rate of 70%. In this condition the trader will do less trading and use more caution. He continues to
use the same method because he knows the long term success rate average is 70%.
A trader who does not have consistent trading will change the method when the success rates falls because he looks at the short term result. He should look at the long term result. The trader who has consistent trading will not change the method because he knows in the long term the method has a high success rate.
The third feature is discipline. Discipline is required so the trader can consistently develop and manage every trade according to his trading method and trade plan. Discipline is necessary to continue to use a trading method when the success rate is lower than the long term average success rate.
These three features are related. When the trading method is simple it is easier to develop consistent trading and it is easier to continue to use good trading discipline. The falling market in 2008 tested trading discipline and consistency. The recent market has many short uptrend rallies followed by rapid downtrends. In these ‘choppy’ market conditions there are no strong long term trends. In this market condition it is important to apply consistent and disciplined trading.
Logically we think all the students should obtain similar results. In fact, the results of all the students were very different. A similar trade is shown in the example chart. The trade plan is to “enter on rebound from the lower edge of the long term GMMA.” These conditions are activated at point B on the chart.
When I identified a profitable trade conditions some of the students made more money than me. They entered the trade early because of their greed. This is point A on the sample chart.
Some students made less money because they waited to get extra confirmation before entering the trade. Other students lost money because they entered too late. This is point C on the chart example. A few students did not trade because they had experienced losses and were "afraid" to have another loser. If my trade suggestion was not successful then the same variety of student results also happened. Some students lost more money than
me. Some students lost less money than me, and some students had a profitable trade.The most important difference in results came from the way students acted on their stop loss. Students who acted quickly had good success. Students who did not act quickly on the stop loss were less successful and their trading was not profitable. Every student was looking at the same chart and the same market index. The students all acted differently and their trading results were all different.
These experiences in the training class confirm that psychology is an important part of trading success. A good trading plan is important but it is the psychology of the traders which will decide if the trade plan is successful. Every trader works in the same market, but the results are very different. Some traders have good profits while other traders have many losses. The reason for the difference is the method each trader uses and the psychology of every trader. When the method traders use is the same, the results are not the same. Aggressive traders will enter the trade before it is correctly confirmed. Cautious traders wait too long before they enter the trade, and they miss out on profits. Timid traders use a tight stop loss and they have an exit signal before the trade can fully develop.
Long term trading success in the financial market comes from 3 features. They are all related.
The first feature is the method the trader is using. There are many successful methods. Many of these methods are simple, and this makes the method very effective. We prefer to use simple method rather than complicated methods.
The second feature is consistency. The trading method must be applied in the same way every time. Every trading method will make mistakes. The best trading methods have a long term success rate average of around 70% including bull and bear markets. Using the method, the trader is correct for seven out of every ten trades. In some market conditions the method will have a higher success rate, perhaps eight out of every ten trades. This is higher than the longer term average success rate of 70%. The consistent trader knows the extra successful trades happen because the market is good.
In other market conditions the success rate may fall to four out of every ten trades. This is lower than the long term average success rate of 70%. In this condition the trader will do less trading and use more caution. He continues to
use the same method because he knows the long term success rate average is 70%.A trader who does not have consistent trading will change the method when the success rates falls because he looks at the short term result. He should look at the long term result. The trader who has consistent trading will not change the method because he knows in the long term the method has a high success rate.
The third feature is discipline. Discipline is required so the trader can consistently develop and manage every trade according to his trading method and trade plan. Discipline is necessary to continue to use a trading method when the success rate is lower than the long term average success rate.
These three features are related. When the trading method is simple it is easier to develop consistent trading and it is easier to continue to use good trading discipline. The falling market in 2008 tested trading discipline and consistency. The recent market has many short uptrend rallies followed by rapid downtrends. In these ‘choppy’ market conditions there are no strong long term trends. In this market condition it is important to apply consistent and disciplined trading.
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