In addition to this idea of realizing any system has inherent losses built into it:
IMO...
Amateur Trader -
Doesn't realize that systems have such losses built into it. Any string of random wins creates false sense of security leading to bad trading habits and eventually to string of losses. String of losses leading to frustration, anger and possibly the end of a promising career.
If initial string is a string of losses, trader realizes he has wrong system, wrong approach or wrong set of beliefs about the market. At this point, trader has two options...continue on same path and fail because he is rigid and unopen to reality or he/she can identify and change problems within either their system or their approach (realize I wish to not write a book so I explain in basics). Either way, string of losses will create a much harder "clawing" back to the point where profitability is possible (either from fear or anger of losing money).
Accountability is not within, it's "the market's fault for my failure", market makers fault, brokers fault for crap execution, trade callers fault for crappy picks, etc. Control is the markets, not the traders. Emotions run high, clarity in stock action reading is clouded, and little chance of success is forthcoming..thus we have 90% failure rate.
Professional Trader-
Realizes system has inherent losses built into it. Realizes any string of profits is not to put him/her in a euphoric state where greater risks are taken because they are "on a roll". Any string of losses is seen not as frustration and anger, but simple drawdown period (period where trader continues trading to continue with feel for the market, but lessens exposure to each trade until they pull out of this "funk")
A couple weeks out of 52 during the year where we have these drawdown periods (I seem to have them in February and November, don't ask me why, I haven't a clue..yet) allow us a learning experience. Professional trader pulls through it without emotion and anger and continues to believe in the system that provides better probabilities for success over time.
Notice, accountability is within here, control is regained and there is confidence in the professional trader to pull through. Amateur (and I don't use this as a negative word, just simply a word to describe a new trader) will assume trading is impossible (and he/she might be right for them) because "market is responsible for their failure".
Main point: Don't allow string of wins as amateur lead you to bad trading habits. The worst thing you can fall into is a string of random wins that makes you feel that your "rudimentary system or reasoning" is solid. Allow a string of losses as an amateur to prompt you to changing your ways and beliefs.
As a professional trader, you will find the irony interesting that a new winning trader and a professional trader both do not fear the markets, but for different reasons. The amateure has nothing to fear because no bad things happen to him...this will change soon and check his convictions about trading. The professional has nothing to fear because he accepts his risks and controls them and is able to move through tough market periods, drawdown periods and anything else that comes flying at him/her unexpectedly. You trade the market long enough..everything happens to you.
Respectfully,
Chris
realitytrader.com |
