To win in the markets, we need to master three essential components of trading: sound psychology, a logical trading system, and an effective risk management plan.
Remember, your goal is to trade well, not to trade often.
Every winner needs to master three essential components of trading; a sound individual psychology, a logical trading system and good money management. These essentials are like three legs of a stool – remove one and the stool will fall, together with the person who sits on it.
Losers bring money into the market which is necessary for the prosperity of the trading industry.
Traders lose because the game is hard, or out of ignorance, or lack of discipline or because of both.
The markets are unforgiving, and emotional trading always results in losses.
The answer is to draw a line between a businessman’s risk and a loss. As traders, we always take businessman’s risks, but we may never take a loss greater than this predetermined risk.
Markets need a fresh supply of losers just as builders of the ancient pyramids needed a fresh supply of slaves. Losers bring money into the markets, which is necessary for the prosperity of the trading industry.
Being simply “better than average” is not good enough. You have to be head and shoulders above the crowd to win a minus-sum game.
An astute trader aims to enter the market during quiet times and take profits during wild times.
So far, the only people who’ve made money from trading systems are their sellers.
To help ensure success, practice defensive money management. A good trader watches his capital as carefully as a professional scuba diver watches his air supply.
People trade for many reasons – some rational and many irrational. Trading offers an opportunity to make a lot of money in a hurry. Money symbolizes freedom to many people, even though they often don’t know what to do with it.
There are good trading systems out there, but they have to be monitored and adjusted using individual judgment. You have to stay on the ball – you cannot abdicate responsibility for your success to a mechanical system.
Why do most traders lose and wash out of the markets? Emotional and mindless trading are big reasons, but there is another. Markets are actually set up so that most traders must lose money. The trading industry slowly kills traders with commissions and slippage.
The mental baggage from childhood can prevent you from succeeding in the markets. You have to identify your weaknesses and work to change. Keep a trading diary – write down your reasons for entering and exiting every trade. Look for repetitive patterns of success and failure.
A loser’s true problem is not account size but overtrading and sloppy money management. He takes risks that are too big for his account size, however small or big. No matter how good his system may be, a streak of bad trades is sure to put him out of business.
Use limit orders almost exclusively – except when placing stops. Be careful on what tools you spend money: there are no magic solutions. Success cannot be bought, only earned.
It is hard enough to know what the market is going to do; if you don’t know what you are going to do, the game is lost.
The public wants gurus, and new gurus will come. As an intelligent trader, you must realize that in the long run, no guru is going to make you rich. You have to work on that yourself.