Over many years of trading, I’ve found certain principles to be true. Understanding and using basic principles provides an anchor of sanity when trading in a crazy world. Whenever I find myself under stress, questioning my judgment or my ability to trade successfully, I pull out these basic trading principles and review them.
Don’t Try to Predict the Future
When I started trading I used to think that there were experts and geniuses out there who knew what was going to happen in the markets. I thought that these traders and market gurus were successful because they had figured out how to predict the markets. The hard truth about trading is Predict and Perish. As a trader I will make money when I take trade as per my trading system not when I predict what is going to happen in future. It might happen, It might not happen, but if you get in vicious circle of prediction and trading you will be never able to succeed in long term. Its your discipline and risk management which will decide your fate as trader.
No one knows where the market is going
It took me a long time to figure out that no one really understands why the market does what it does or where it’s going. It’s a delusion to think that you or anyone else can know where the market is going. I have sat through hundreds of hours of seminars in which the presenter made it seem as if he or she had some secret method of divining where the markets were going. Either they were deluded or they were putting us on. I have seen many complex Fibonacci measuring methods for determining how high or low the market would move, how much a market would retrace its latest big move, and when to buy or sell based on this analysis. None has ever made consistent money for me.
No one knows when the market will move
It also has taken me a long time to understand that no one knows when the market will move. There are many individuals who write newsletters and/or books, or teach seminars, who will tell you that they know when the market will move. Most Elliot Wave practitioners, cycle experts, or Fibonacci time traders will try to predict when the market will move, presumably in the direction they have also predicted. I personally have not been able to figure out how to know when the market is going to move. And you know what? When I tried to predict, I was usually wrong, and I invariably missed the big move I was anticipating, because “it wasn’t time.” It was when I finally concluded that I would never be able to predict when the market will move that I started to be more successful in my trading. My frustration level declined dramatically, and I was at peace knowing that it was OK not to be able to predict or understand the markets.