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Trading is an evolution of self and system. -Jonathan Keag

Contrary to popular belief, the key to success in trading is not:

  • a huge ego
  • hot stock picks
  • knowledge of the fundamental drivers of markets
  • or even how to read a chart
  • following a guru
  • taking big risks

What I have discovered in my twelve year journey learning to trade successfully  in the markets is that:

  • perseverance is the key not ego
  • that trading a methodology with an advantage over the long term counts
  • trading with the trend not the fundamentals make money
  • chart reading without a trading plan does not work
  • following a proven system leads to success
  • limiting your risk per trade keeps you in the game long term

There are three main areas of trading you must master if you want to be in the top 10% of traders that consistently take profits from the market.

  1. Psychology: Trading is a miserable experience if your very self worth hangs on your every trade. You must separate your ego from your trading, you do not want wins to make you too happy or losses too make you depressed. In trading you are a business man, you are using capital to create more capital. When you lose money on a trade it has nothing to do with you if you followed your trading plan, the market was simply not conducive to a profit with your system, nothing more, it isn’t personal. Separate your ego from your trading.
  2. Risk Management: If you want to be successful in trading you have to avoid the risk of ruin. If you risk 2% of your trading capital per trade and you lose ten times in a row then you are down 20%, you need a 25% return to get back to even, you can do that. If you risk 10% of your capital per trade and lose ten times in a row you are at $0 and ruined. If you trade long enough you will have ten losses in a row, plan to stay in business after this happens. Carefully control what you lose.
  3. Method: You need to trade a method that fits your personality and is proven to win over the long term. Some people love to trade growth stocks, they need to find a method that is a proven winner and trade it. They will need to quantify what can be on their watch list, position size of each trade, and define entries and exits along with initial stop losses. Most importantly stick with the system so they will be trading it when it wins big. Each trader has to find the market they want to specialize in and become an expert. Before trading a system they need to look at the systems historical performance with some form of back testing. Find a winning method that fits your personality and trade it and it alone.

These are the puzzle pieces each trader needs to fully understand and master in their individual trading journey.

 

Book recommendation “Come into my Trading Room” by Alexander Elder