There are many, many, robust trading systems and methods that do make money in the long term. The problem is the trader having the discipline and mental toughness to trade one of them consistently. The vast majority of time, failure is not a result of the system or method but rather through human emotional error.
Though my own experiences and having worked with so many aspiring traders, I have logged what I believe to be the seven key markers for identifying this critical error.
Avoid Key Trading Mistakes
If you can understand these errors and overcome them, you could make a lot of money in the right market conditions. The key is making sure you don’t trade too big . . . as well as not to let frustration make you panic and quit during a drawdown (this is all too common).
Here are the seven common requirements for successful trading . . . and why falling short in these requirements mean trading mistakes that lead to system failure:
- The trader must have the discipline to take the system’s entries and exits.
- The trader must have the discipline to take the stop loss on a losing trade when it is hit and not keep holding and start hoping.
- No matter the method, the trader has to manage risk through proper position sizing, controlling the greed emotion. Trading too big will blow up even the best systems.
- The trader must have the perseverance to stick to the method even during losing periods, and also stick with trading itself until success is reached after enough research and study.
- The trader must be able to manage their mind. If they cannot, then the stress will break him or her. I have seen this happen many times. If you can’t handle losing money, you should not be in the markets at all.
- The trader must find a robust method, must understand why it has an edge, and must believe in their methodology.
- The trader has to know himself or herself and trade the method that fits their risk-tolerance levels and their own psychology.
The good news is that if you have not fallen short in any of these areas when you lose money in a trade, then the market was just not conducive to your methodology . . . and it is not your fault, so don’t dwell on it.
Don’t be your own worst enemy.