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When trading goes well, it can be a fantastic experience but when it goes bad it can be a terrifying one. It is true that fortunes have been made and will still be made in the markets but it is just as important to realise that without the correct understanding, knowledge and controls in place, fortunes have been lost and will still be lost. We believe this is simply because people keep doing the same things expecting a different result. This pattern repeats itself for just about every new trader that comes onto the market
Obviously, for an individual to become a successful trader he must recognise these patterns of wrong beliefs and errors and then by rational observation and logical conclusion break the pattern. We are here to help you do just that. The main reason it is so difficult for most to achieve this goal of recognising their errors or mistakes is because of the nature of the market and the way in which it has what can be described as random reinforcements.
What we mean by random reinforcement is that the market sometimes rewards bad market practice and punishes good market practice.
Most traders do not understand that they can have a profitable trade for the wrong reasons or a non-profitable trade for the right reasons. This simply leaves most traders confused and totally unsure of what it is they are doing wrong or for that matter, even what it is they are doing right. This is the very reason that it is so hard for most to recognise what expertise are needed to develop into a profitable and successful trader. We feel that with the correct guidance and the right attitude just about anyone can be brought to a level of a competent trader.
We would first like to point out that in our own observations as traders, we came to realise that almost every successful trader used what can be described as A Complete Trading Methodology. This is by no means a coincidence, as a good complete trading methodology automates the entire process of trading.
What do we mean by A Complete Trading Methodology?
A complete trading methodology automates most of and sometimes the entire process of trading. The methodology provides answers for each of the decisions a trader must make while trading. A complete methodology makes it easier for a trader to trade consistently because there is a set of clearly laid out rules, which specifically define exactly what can or should be done at any point in time during the trading process.
Most of the mechanics of trading and in some cases all are not left up to the judgement of the trader. This dose not necessarily mean that a complete trading methodology disregards the discretion of the trader altogether but rather insures each decision that can be made at any point in time are clearly defined by predetermined parameters.
Therefore what we define as “a complete trading methodology” does identify trading strategies from both discretion and non-discretion approaches as valid provided they meet the required workings of what a complete methodology must encompass.
The “Complete Trading Methodology” insures that the mechanics of trading and all decisions associated with trading are not left up to the “SUBJECTIVE and EMOTIONAL” whims of the trader.
The fact is that a disciplined trader who can consistently and systematically implement a rational and clearly defined complete trading methodology and at the same time apply strict rules governing the principles of risk control and money management within that complete method with the same consistency will achieve long term profitable results.
Profitable trading and a complete trading methodology are based on three things and these are: Trading Psychology, Risk Management and Trading Strategy or what is sometimes referred to as the three M’s.
"MIND"
"MONEY"
"METHOD"
“Mind” refers to trading psychology. A profitable trader always has a sound mindset and belief structure that assists him in the market to trade with consistency and discipline. It helps keep emotions in check and the trader in control.
“Money” refers to risk management and how it can affect your capital. A trader may have an otherwise technically sound trading strategy or method but if he risks too much capital on every trade sooner rather than later he will go broke.
“Method” refers to trading strategy or trading method a trader uses to find his trades. How the trader studies the market and finds his entries, exits etc.
Each component of a “Complete Trading Methodology” should work collectively to reinforce the overall performance of the Methodology. To insure efficiency the trader must be completely comfortable with every aspect of the methodology to insure discipline and consistency are adhered to at all times.
Which component is more important?
The few traders that eventually arrive at the realisation that there is more to trading than simply buying or selling and having a few basic rules in place, if any, often ask this very question. The answer is simple, each component is as important as the next. The truth is, the sum of the total is what makes a good trader and if there is lack in one area the sum dose not add up.
Think of a three-legged stool, if all the legs are present and equal in length than it is very stable and reliable to use with confidence. Now imagine sitting on the same stool but now with one leg not been equal in length you will not be to confidant when using it, now imagine one of the legs are missing all together. You will not be sitting for very long!
The phases of the lonely trader
Looking at traders in general, those that start trading with no help of any reliable kind, tend to go through three phases of development and at each phase more and more of them drop out, never realising there true potential in the markets.
The main reason for this is that they have no one to support and guide them along the way. The importance and benefits of assistants provided by more knowledgeable traders to insure the novice trader does not end up like most who go it alone is often overlooked through ego, pride and arrogance or simply ignorance.
Most traders we come across are looking for some sort of get rich quick scheme and hope to make money in the markets with no effort. The problem is they jump into trading with little or no understanding and education and expect to achieve the same results as the large, experienced and market educated traders.
Most do not understand if they enter the markets with little or no trading education and even less understanding of the trading process and all the aspects that can affect performance, perhaps having no systematic well thought out trading method at all. Then they are treating trading as a gamble and are doomed to fail with the majority of people that enter the markets that way.
If they gain an education, test and adopt a more professional stance and come to understand what must be done in order to succeed, they are then treating trading as a business. Successful traders take joy in trading but at the same time they are incredibly passionate and take trading very seriously, they consider it a business.
In our experience, we have found that most every successful trader we have the privilege to know, are confident in their own abilities but at the same time also humble, teachable and passionate individuals.
The first phase in development is the “Method” phase. Most people that first start trading with no guiding assistance tend to focus all their attention on the method or trading strategy. Most traders do not survive this phase as the effects from the absents of Trading management “Money” and Trading psychology “Mind” is to severe on the overall performance. In this phase no matter what trading method they think they are using, the ultimate decision is more usually an emotional one.
They simply have too little experience and end up losing in a destructive and aggressive manner. No trading method no matter how sound will help see them through without progressing very slowly all the way in a process of very expensive trial and error analysis.
The traders that do survive this first stage of development are those traders that are of course most determined to succeed but these traders also have an open mind and are willing to admit that there is something very wrong and start asking questions.
Through the process of rational observation and logical conclusions the trader comes to the realisation that a trading method alone is not sufficient to, not only prosper in the market but also it is not even sufficient to survive.
The thing is, in this phase they have developed systems and strategies that can help them take sound action in the market and have even become quite proficient at technical analysis; this experience makes the trader more confident and determined to find the answers.
The second phase, “Mind”
One month their account is up 15% and the next down 15% or worse. They now enter the second phase “Mind” and start to look within for an answer to their problems. As their trading method is adequate to produce profit but they are still not profitable, they realise that their biggest obstacle to consistent profitability is the person they see in the mirror.
The understanding that just as much as the computer they use is a tool to trade, they themselves are just as important to the overall performance.
They realise that impulsive and undisciplined trades with no protective stops lead to their losing strikes, soon they start to develop the correct mind set and mental strategies that can support them in trading the markets in a consistent and disciplined manner.
The traders that survive the second phase come to recognise that their character, with all its complexities is just as much a trading tool. Of course most traders do not get this far but for those that do, they become more relaxed and confident and less anxious in the market.
The third phase, “Money”
These traders are now in the third phase and start focusing more on risk management. The trading “method” is in place, they are now also at peace with themselves, and they spend more and more time assessing how to allocate trading capital in order to reduce overall risks associated with trading.
A sound “Complete Trading Methodology” = PROFIT
Summary
A very significant thing most new traders do not understand is that it is not merely sufficient to start using the first trading strategy “Method” they come across, as there are very important considerations to make before choosing a trading method.
For one it is imperative that the method itself matches the traders makeup and beliefs as an individual, also the time available to the trader needs to be considered as well as the risk profile of the method and a great deal more. It is more important for a trader to be comfortable with the parameters of the Trading Methodology than simply asking what strategy is profitable.
It is one thing to have a profitable strategy but it is another thing all together to implement that strategy if it simply dose not agree with ones risk tolerance for instance. It is far more easer to correctly implement a Trading Methodology successfully if the trader is comfortable with it’s parameters.
It is also tremendously important to understand every aspect of the Trading Methodology, it’s mathematical or fundamental construction and it’s characteristics in the market, so that one is familiar with it’s every process as it is been implemented in real time trading. The confidence, consistency and discipline afforded by a thoroughly tested complete Trading Methodology is often the means to been a profitable and successful trader.
Most often for someone starting out as a trader it is usually best to adopt a non-discretionary approach to trading at first and over time increase on his or her knowledge and trading skills that will be needed to develop and trade profitably from a discretionary based method.
This is not to say that we believe discretionary strategies are by any means superior to non-discretionary strategies.
The truth is, it is simply much more easier for someone starting out as a trader to have less discretionary freedom while implementing a trading strategy until their trading skills and confidence levels are properly developed to support the added emotional pressures associated with discretionary trading methods.
In our experience we have seen traders in both instances consistently take profit out of the market using both, self developed or adopted, non-discretion and discretionary strategies.
As a trader develops his skills and becomes more aware of self, he will also become more aware of what trading strategies line up with his personality.
Once a trader aligns his “Trading Strategies” METHOD and “Risk Management” MONEY with his “Trading Psychology” MIND", he will know were he belongs in order to perform at his best.
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