“A trader is the weakest
link of any trading system” (Alexander Elder)
During one of the trading
Seminar a student asked the following
“After 4 years of winning
and losing hundreds of trades and blowing out several accounts both demo and
live, trying different systems, experimenting with many strategies, I am still unable to achieve
my trading goals and become a consistent profitable trader. I wonder why I am
taking two-step forward one step backward and one step forward two-step
backward and pretty much in league of majority of traders who are struggling to
make consistent profit day in day out.
As this problem is faced by many traders I decided write
an article on this to find out reasons for failure for aspiring traders so as
to kick start their trading career with a bang.
The most important reason for failure lies in my trading
approach. Most of traders still react on emotion, fear & greed and
they need to change the way they think and get rid of this herd mentality,
otherwise traders won’t be able to become profitable trader, no matter how hard
they try.
“If you want to have a better performance than the crowd,
you must do things differently from the crowd” (Sir John Templeton)
Professional traders think different from rest of the
crowd majority of the time and that is why they are consistently profitable
over longer period. Lot of these traders have started with small capital and
made big fortunes by trading consistently year after year. Although their
trading style and system is different from each other, some are technical traders;
some are fundamental traders and some mixture of both.
Patience & Discipline
Amateur Traders are not sufficiently selective when
entering trades. When they see volatile price movements, they become impatient
and enter trades in middle of nowhere based on emotion, fear & greed rather
than waiting for their system to give a buy/sell signal according to their
trade plan. They want to be part of market action, as soon as they open their
charts and see volatile price movements. They don’t think in terms of probabilities
rather they give too much emphasis to an individual trade. They fear that if
they don’t place an order instantly they might lose a golden opportunity to
make money and when they finally place a trade, majority of the time it’s too
late and they fall on trap to professional traders and enter at a level where
these professionals are exiting their positions and as a result the market
retrace and take out amateur traders stop-loss.
Professional Traders
understand importance of patience and discipline in this business. They stick
to their trade plan and don’t panic when they see volatile price movements.
They understand that there is no place for emotion, fear & greed in
trading. They know their edge and understand that if they stick to their system
and follow their trade plan they would be profitable in the long run. They know
that price doesn’t move up or down in a straight line and that after every
impulsive move there would be a corrective move to entice more buyers/sellers
and they don’t need to jump in the middle of a fast moving train. Rather they
are looking for an opportunity to buy/sell at a discounted price (wholesale
price) to get a better risk to reward ratio on majority of their trades. They
assess their success or failure based on series of trades rather than an
individual trade. They think in terms of probabilities and fully
understand that there is random distribution between winners and losers. As
such they don’t get upset if the miss out on a trade or have couple of losses
nor they get excited after few winners
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