My friend is a technical trader that uses various indicators (such as the MacD and Stochastic) to determine his entries. While walking me through his system I asked him how he did over the past couple of months. I know I personally struggled in July and the beginning of August and since I'm a countertrend trader and his system is trend following (I think), I was curious how he did in comparison. His response was "I made close to 200, but I should have made 750 pips." As he went on to explain why he failed to pick up the missing 550pips that were just sitting on the table waiting to be snatched up, I discovered two reasons for why he was missing out. Discipline & Fear.
Lack of discipline seemed to be his biggest struggle. One of his reasons for missing those 550 pips was the fact that he failed to get involved in the trade. I don't know every detail for each trade but I know he mentioned that he was asleep for some of the signals, or at work (he has a full-time job) and just didn't set up his limit orders previous to going in. Even though at this point in his trading career he is not trading full-time, that's no excuse for not treating his trading like a business. Obviously trading isn't his primary source of income but II believe that if you truly want to be a successful trader, and possibly make it your main source of income in the future then you need to at least start putting some business like principles into your trading plan and treat it like one. This means setting work (trading) hours and having a set daily routine to follow. I often ask people, if you wouldn't show up late to your real job, then why would you show up late to your trading if you're supposed to be treating it like your job. In my business I have a set schedule that I follow every day. For example, 6:30am- Read training plan and start pre-market analysis. 7:30am- Breakfast time. 8:00am- Start day-trading, etc. If you keep the same routine, and did your back-testing accordingly then you will be able to take advantage of every trading opportunity made available. And for those who have been trading know that it is very important to take every trading opportunity that fits your plan.
The second reason for leaving the 550pips on the table was fear. Now to his credit he didn't miss every trading opportunity, but the ones that he was involved in would end with him taking profit early due to fear. I can see if he got out of trades early due to structure, or some other reason that may be in his rule book, but he was simply exiting because he was scared of losing profit. If this is the mindset you're going to have then, I hate to say it but you may be doomed as a trader. For those who understand risk/reward ratio's in trading, you know that if done properly, one winning trade can potentially make up for two losers and that it's important to see the trade all the way through. If you're consistently taking profits out early and letting losers ride, then how do you expect to make money. Also what was the point of all the back testing you did.
Having discipline and eliminating fear are the most important aspects of becoming a successful trader. My friend is great and developing systems, and very detailed in his back-testing. This is probably the third system he has shown me that had incredible results. However, this being his third system says something about him as a trader. He is stuck in the cycle where he does all of the behind the scenes work perfectly, but when it's time to step up and get it done on the big stage he fails. So I told him "it's not the system it's you!" Until he learns to become serious about his trading I'm afraid that he'll be stuck in the never ending downward spiral of bouncing from system to system.
Thanks for taking the time to read this post and look out for my next one called "The Holy Grail" (The Price of Doing Business).
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