In over 25 years of learning what works and what doesn’t in the stock market I believe there are many paradoxes. Most of trading is counter intuitive and new traders usually enter the market looking for predictions, sure things, hot tips, and to know what to buy. In reality it is following price action as it unfolds, position sizing, a robust trading system, discipline, and knowing when to exit a wining trade that really creates profitability. Most new traders never become profitable traders because they can never make that leap. Trading is a business and when the new trader becomes a manager of their business and quits wanting to win the trading lottery, that is when the real progress begins.
Here are ten paradoxes that I have come to believe on my own path to profitable trading.
- A seemingly contradictory statement that may nonetheless be true.
- One exhibiting inexplicable or contradictory aspects.
- A statement contrary to received opinion.
- The less I trade the more money I make by avoiding trades taken from impatience and boredom.
- All my biggest profits were made on option contracts I bought not ones I sold. Option contract asymmetry favors option buyers while winning percentage favors option sellers.
- My number one job as a trader is to manage risks and keep the capital I already have not make money.
- The best traders in history were the best risk managers not the best at entries and exits. The traders that survived to be the big winners were able to accept when they were wrong and exit a losing trade.
- The ability to admit you are wrong about a trade and get out is more important than being confident in a wining trade and staying in no matter what. The risk of ruin is greatest when you have conviction about a trade and can’t accept when you find yourself on the wrong side of a strong trend.
- Winning traders think like a casino losing traders think like gamblers. What is the best way to make money in a casino? Own the casino. Casinos are profitable because they have a mathematical edge that plays out over the long term as long as they have table betting limits.
- Opinions, projections, and predictions are worthless, trade the price action. Good trading systems can only take signals in the present moment. The future does not exist.
- At times market fundamentals can be good filters for a trader but they are always terrible masters. Price trends where it wants regardless of fundamental valuations.
- Only your date stocks but marry your risk management. Stocks are only good if they are going up.
- The smaller and more focused my watch list the better I trade what is on my watch list because I know the backtested price action and the historical charts very well.