Golden Rule for Traders :Stick with a System

Continued from Previous Post Do You Trade The Market or Your Emotions ?

• Develop and Stick with a System

Successful traders have a system. They stick to their system of trading religiously, even when it seems like it might not be working perfectly. You have to determine exactly what is wrong with a trading system before you can change it. If you keep altering your strategy after every trade, you have nothing consistent to revise and, more importantly, nothing to repeat consistently.

 

Successful traders find a successful strategy and stick to it. They know that real success means discovering two or three techniques that work dependably, and then using them over and over and over again. Successful traders do not focus on the profit or loss of an individual trade. Instead, they feel successful when they identify and perfect a technique that works repeatedly.

 

In the end, a successful trader is not necessarily the one who made the most money on a few big trades. That person was simply lucky. Successful traders are the ones who stick to their system. Their trading methods and indicators focus on high probability trades, sound money management, keeping their strategies free of curve-fitting, and working their system into their business plans for successful implementation. They only feel successful when they have identified an overall strategy for success that they can use to generate money time and time again. Someone who is merely lucky has no idea how to repeat their success.

 

The point here is not to think of yourself as successful or as failing according to individual trades. Define yourself as a trader by your system, not your bottom line. A series of losses may actually be more profitable in the long term if they teach you how to improve your system, or help you identify a particular technique that works. This is what it means to keep a long-term perspective, and the most successful traders know that the long-term is the only thing that matters in day trading.

 

If you can integrate these insights into your own psychological mindset, you’ll gain a significant edge in the market. I can’t stress this enough: the right mindset is one of the keys to investment success, and most traders fail to understand this.

 

• Know When to Trade (and When Not to Trade)

 

Successful traders know when to trade: they trade when their system tells them to. That might seem like an obvious point, but people too often forget it during the excitement of actually having money on the line.

 

A trader should be governed by his or her system, not by the circumstances of the moment, the market, or the outcome of a few trades. Keep a long-term perspective which focuses on developing a consistent, repeatable strategy. You won’t know what is successful or what fails if you constantly change your reasons for trading.

 

It is hardest to keep this kind of control when you’re experiencing losses. But this is also the most crucial time to be consistent. Otherwise, you won’t know how to avoid downturns in the future, or how to prevent them from becoming too damaging.

 

Losses can cause you to do one of the most destructive things a trader can do: rush into trades. Successful traders take their time while selecting trades, and they are picky about which trades to jump on. They don’t place orders in a moment of crisis to try to compensate for a loss, not do they trade just for the sake of having a position in the market every second. They act only according to their plan, even if it seems to be failing. There will be plenty of time to revise their plan when they reach their evaluation point.

 

At the same time, successful traders do not stay in a losing trade. They honor the stop losses that they set, and they do not hold their position in the hopes that the market will eventually “go their way.” Too often, people make bad decisions based on hope rather than on a predetermined set of acceptable losses. Know what you’re willing to lose, and then lose it if you have to. The individual trade is not what matters: it is your overall strategy. In fact, think of this loss as a gain: what can you learn from this that will prevent you from getting into the same position in the future?

 

If you can integrate these insights into your own psychological mindset, you’ll gain a significant edge in the market. I can’t stress this enough: the right mindset is one of the keys to investment success, and most traders fail to understand this.