Take two traders, give them the same starting capital, the same trading platform, the same market and the same trading system with precise entry and exit rules. Come back a month later and what do you find? One trader will be up 20% and the other down 40%.
It’s amazing, isn’t it, how two people can have the same opportunities in life and yet get very different results. The answer to success in trading lies within each of us. Whatever happens, it’s your fault, plain and simple, it’s not your trading system or some other factor, it’s you. Yes, you!
That’s why understanding the truth about trading, being able to see the big picture is extremely important, especially for beginners or traders who are losing money. When you understand the fundamental truth about trading, then you are on the road to success. This is the first step.
Trading is a game of probability!
Let’s flip a coin. I win one dollar, you win one dollar. The eagle should appear half the time and the heads should appear the other half, and we are both equal. However, unbeknownst to me, you have a loaded coin. For every 100 tosses, the headsail appears 49 times and the tails 51 times. You have a license to print money. Let’s call it the Tail Trading System.
All you have to do is sit and bet on the tails all the time, and eventually you will win all my money and everyone else who bet against you. The only thing any trading system does is give you an edge, a favorable bias, something that is more likely to happen than not.
No matter what trading system you use, be it breakouts, trend-following, Fibonacci, moving averages, channel following, oscillator signals, Bollinger bands, swing trading,
opening gaps or any of the myriad other systems, you basically rely on a positive attitude. Your system says that when I see “x” then “y usually follows.” Big emphasis on usually. Sometimes it works, sometimes it doesn’t. Most of the time it does.
All your trading system does is help you identify high probability trades, enter them correctly and protect yourself while allowing your profits to grow. Some trading systems are better than others. Find a system you are comfortable with, trade it on paper, test it in real time with a small amount, and then stick with it. Don’t waste your time looking for the perfect system. It doesn’t exist.
A cool disciplined trader will take an average system and make money with it. An insecure, lacking in confidence Trader will take a great system and destroy it. All traders have good days and bad days. Some days you will make small profits and other days you will make small losses. A few times a month you will be able to make some big profits. The problem is that you never know when. You have to keep playing the game to get a big winner. If you are not in the game, you have no chance.
You need to see the big picture. Realize that the current trade is just one of many. On that basis, the current trade is almost irrelevant. It is like a small piece of plankton in a very large ocean.
Trading is about managing risk and then surrendering to the oldest law in the Universe: the Ancient Law of Probability. This, my friend, is the first truth about trading.