There is unconventional wisdom associated with profitable trading, and it is often associated with variables that beginner traders dislike. In fact, they are so overwhelmingly prevalent among beginners that their fears are also the cause of their failures. This is similar to a paranoid driver that is distracted by any noise until such time that heaven forbid, he/she gets into an accident.
Let’s go over these things:
Embrace losses to build a stronger trading environment
In the face of a trading loss, amateurs get discouraged easily and they often look for answers in the wrong places. Typically, amateurs mistakenly assume that their method is “not good enough” and they will then rebuild a completely new model from scratch, just to find themselves at the beginning again. Obviously, such an approach usually does not lead to better trading and amateurs find themselves repeating the same cycle over and over again. Professional and experienced traders, on the other hand, take their time and reexamine their model in order to make it better or more suitable to the current trading environment.
Small losses give you a chance to build more sustainable models by analyzing weaknesses and finding opportunities for adjustments. A well-executed trade that got stopped out can teach the attentive trader many lessons that could lead to a more robust trading system. Amateurs are typically not open to receive such insights and, thus, miss those valuable lessons.
Your experience and way of dealing with stops, mishaps, and other things that did not go your way will determine your destiny. Your analytical skills will make you stop trading and/or take you to the next level.
Randomness is part of your trading business. Let it work for you
Randomness and variance are part of trading, but beyond that, professional traders recognize randomness and do not try to fight it. They do not try and interpret each trade to a micro level. Beginners, on the other hand try and understand each move, and if they do not, they resort to the ‘t argument of “it’s manipulated” and “you can’t trade it”. In the world of social-media you now have thousands of tweets for each move, trying to explain the rationale of such moves. Together with 20/20 hindsight analysis, it’s usually a recipe for disaster.
Consider for example a CFO that decided to lift their Crude Oil Hedge buy buying 5,000 contracts. This may cause spikes, stops being triggered and further buying programs being triggered. Now, imagine this is done after 6 days of strong down trend. What does this mean? There are and will be “noise”, “randomness”, “profit taking” and other “interruptions” of strong trends. In summary, pros recognize that “@##% happens” while beginners try and understand such moves, often abusing hindsight analysis. The ability to recognize events as such, and recognizing that methods and direction should not change which each adverse move is fundamental to building a robust methodology.
Consider the opposite of someone who happen to be on the right side of the tracks, and now enjoying this benefit to a level that he did not anticipate. Would he also think that he was “unfair”?” instead he/she will attribute it to their expertise, pattern recognition and trading skills.
This shows that random events could work for you and against you. Being objective about such events and recognizing their existence will affect your psychological composition and could potentially reduce your stress level, the need to change what you are doing and/or rewriting your method.
Trading is a Business of Decision Making. Learn to make better decisions
In trading you have to get used to being wrong many times and being right much less frequently. Beginners have the expectations of being right most of the time and just being slightly wrong some of the time. Obviously, those two very different expectations are typically the cause for a variety of beginners’ problems.
This goes back to the ability to recognize that trading is the business of decision making which comprised of statistics (odds), psychology, and capital. You can probably add 700 more variables but in the end, they will fall under the three above. For example, your trading method falls under odds, the experienced trading results are also classified as odds, the aspect of money falls under capital and your behavior and level of discipline (or lack of) would be categorized as psychology, etc.
In activities where the odds are against you tremendously, let’s say roulette, time will work against you. The more time you play, combined with the odds of a roulette, the more likely you will lose.
In trading, the payoffs of good decision making can work for you. But, it does not mean that most of your decision will be right, in fact they will be wrong and it’s totally fine. Consider that most of the time you would be trying to get out of a drawdown – good traders reach new highs, then give back, fight drawdowns, and then reach new highs again. You may lose money on the day or close negative for the week, but it does not necessarily mean that your trading was bad. If you acted within your trading methodology and only traded when you had an egde, the odds are likely to favor you in the long term.
Trading is hard. You are amongst pros. Learn the Above. The more realistic you are in your expectations and prepared, the more likely you are to succeed. Avoid micromanaging your trading and internalize that you are in it for the long term.
There is a substantial risk of loss in futures trading. Past performance is not indicative of future results. Placing contingent orders, such as “stop loss” or “stop-limit” orders, will not necessarily limit your losses to the intended amounts, since market conditions on the exchange where the order is placed may make it impossible to execute such orders.