A great excerpt from “Trading Rules: Strategies for Success” by William Eng. It’s a great reminder that market prediction is a fool’s errand:
When you buy something, you want it to go up. When you sell something, you want it to go down. The chance of entering the trade correctly is small, but the chance of exiting the trade correctly is smaller. The chance of being right on both entering and exiting is the smallest. With such diminishing odds of coming through with a completely correct and, therefore, profitable trading campaign, the fewer decisions you make in the markets, the more profitable your trading should be. How many people actually get to sell at the top or buy at the bottom? At most, a handful in each reversal area. First, you must be a market follower, once the market has told you want it wants to do. If the market is a raging bull, you have no alternative but to buy. If it is bearish, you have no alternative but to sell every time you get the opportunity. Let the market tell you what to do. To do otherwise is to try to control the markets-something that is only reserved for God and natural disasters. Secondly, selling at the top and buying at the bottom does not guarantee profits. How many times have you heard of traders who managed to sell near the highs or buy near the bottoms, only to miss the ensuing move completely.
This is probably the single biggest factor which divides the winners from the losers, not just in trading, but in any other walk of life. Yes, it pays to have money and time on your side, but you could have all the money and time in the world and still fail at trading if you do not have the drive to do well at it. On the other hand, you could have a lack of resources, but have a greater chance of success because you have the drive to win. That drive will help you preserver when the going gets tough.
A trader who can admit his mistakes to himself and also recognize his positive traits is one who is likely to succeed. Honesty gives you clarity, and clarity allows you to make sound decisions which have a basis in reality. If you do not know yourself and cannot be honest with yourself about your trading activities, you cannot see what is going on. Imagine getting into a car blindfolded, turning the key, and driving out into rush hour traffic. That is what trading is like if you are dishonest with yourself. Another good metaphor would be driving drunk. An inebriated driver has no idea whether or not he is even making mistakes, and does not hold himself accountable from his actions. Stay sober and check your windows and mirrors when you trade.