Sunday, October 13, 2013

Become a master of your own method

"One reason so few of us achieve what we truly want is that we never direct our focus; we never concentrate our power. Most people dabble their way through life, never deciding to master anything in particular." - Tony Robbins

The above quote is particularly relevant to trading, and people who are starting out on their trading journey. Plenty of new traders are lured by the prospect of quick, easy profits. How difficult can it be?

Some of those people may have some initial success, before they encounter a run of losses, which can happen with any system or method. If they are not careful, those traders then start on the journey to find a holy grail, which experienced traders know doesn't exist. They switch from one method to another, trying to find a way of obtaining profits without incurring losses. To begin with, this usually coincides with a poor approach to risk management.

These individuals would be far better off doing the following:
  • Find one basic concept that appeals to them, and resolving to stick to it;
  • From there, create a method based around that concept;
  • Trade it with proper risk management;
  • Review a meaningful sample of trades to determine suitably and profitability;
  • And only after that start to think about making any changes to of the parameters used.
In other words, take that one basic concept, master it, and make it your own, instead of dabbling in a multitude of different methods and timeframes.

People might wonder why I do not refer to paper trading or backtesting an idea. Well, there's a very good reason for that. There is a world of difference between the theoretical results and those that can be achieved when you have actual money in play.

The main source of that difference? The trader. 

Unless the trader cultivates the mindset that fully allows him to trade the system as intended, their actual results achieved will suffer. When there's real money on the line, your mind can play funny tricks. Rather than paper trade, I would rather someone starts trading the system for real, even if it is only a small amount of what they intend to trade in the future.

That way, you can iron out any bugs in terms of execution, risk management, or (most importantly) your psychological make up first.

For those who are keen to learn and understand trend following, this is one of the reasons my mentoring programme lasts for at least a year - so that these people have a reference point, someone who has been through what they are about to go through, and be in a position to assist them wherever possible. 

In addition, you learn how the system works under differing market conditions. Otherwise, it is possible that you start trading such a method when the general market conditions are not favourable, suffer some losses and would maybe ditch the system, through no fault of its own. While time is spent covering the hows of entering and exciting trades, just as much time (if not more) is spent discussing the risk and psychological aspects associated with trend following.

"If you want to be successful, find someone who has achieved the results you want and copy what they do and you'll achieve the same results." - Tony Robbins

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