Trading psychology contributes about 60% to success and position sizing contributes another 30%. Furthermore, most traders ignore the first two areas and don’t really have a trading system. That’s why 90% of them fail.
First, I would argue that trading psychology accounts for 100% of success. Why? This conclusion is based on two findings. First, people generally are programmed to do everything the wrong way. They have internal biases that seem to lead them to do the exact opposite of what is required for success. For example, if you are the most important factor in your trading whether u trade in Forex,commodity or Stocks, you should spend the most time working on yourself, but the majority of people totally ignore the “you” factor in their success.
I now think that there are five components to trading well:
1. The trading process. The things you need to do on a day-to-day basis to be a good trader.
2. The wealth process. Exploring your relationship with money and why you do or do not have enough to trade with. Never ever trade with leveraged money or money you might require in short term.The more you do more you will be in pressure of making profits and which will eventual lead to losses.Do not believe me check you ledger when you have done trade with money you required in short term.
3. Developing and maintaining a business plan to guide your trading. Trading is as much a business as is any other area. The entry requirements are much easier because all you have to do is deposit money in
an account, sign a few forms, and start trading.However, the entry requirements for successful trading require that you master all the areas listed here. That requires a lot of commitment, which most people do
not have. Instead, they want trading to be easy, fast, and very profitable.
4.Developing a system. People often consider their system to be the magic secret for picking the right stocks or commodities. In reality, 70% of your job should be done as soon as you enter the market. You should be clear about your sl and Tgt.Most of traders loose here because they do not have a definite trading plan nor a trading system.They trade on their emotions which lead to eventual downfall of a trader and whiping out his trading account.
5. Position sizing to meet your objectives-
6. Learning to accept losses as part of the game and cutting them short is the single most important step towards becoming consistently profitable. It sounds simple, but in reality is extremely difficult for everybody. Why? Because we’ve been taught that giving up is for losers and we should fight till last breath. I certainly agree that you should not give up quickly, but only if you can influence the end result. Let me be clear, the stock doesn’t know that you own it and it doesn’t care that you cannot afford to lose the money. The market will strip your last cloth if you don’t know how to manage risk. You have to understand and accept your power. You cannot move the market. You cannot tell him where to go and how fast. This is why so many people, who are successful as entrepreneurs and engineers, have troubles breaking even in the capital markets. It takes a special kind of person. Someone, who can forget his ego and concentrate on what actually works. Very few people are able to reach that level and to distinguish their trading life from their personal life.