When you think about the biggest challenges which are involved when becoming a successful trader, one of the first things which may come to mind is the absolute randomness and unpredictability of the Financial Markets.
There is also the difficulty of mastering fundamental as well as technical analysis, along with practicing disciplined money management. Another major concern is how much “risk” capital is enough to start with.
Do you have the confidence to trade? This is where the absolute “rubber meets the road” scenario occurs where a portion or at times all of your capital is exposed to risk from an unfortunate turn of the market. You can lose your shirt and potentially even you’re entire life savings.
Most fear the randomness which are the markets as being one of the biggest obstacles to overcome. If you take a look at any chart and attempt to decipher its up and down movements, it’s completely bizarre and random!
How can anyone be able to make any sense off this unpredictability? The most logical would be to educate yourself, learning as well as getting the proper trading tools which can help you navigate through the randomness.
This is where studying Technical Analysis and Fundamental Analysis comes into play. We all know that there are workable trading tools, techniques and systems which we can use to be able to overcome a few of these trading obstacles. And hopefully one day, we can make some real money and even maybe become a successful trader!
But one of the “Laws of the Markets” dictates that at least one time in your trading career, hopefully sooner rather than later, you will eventually run into a string of losses, and then you decide that your “trading system or technique” isn’t good enough, and then we strive to learn a newer, better one.
We then eventually go back and study our collection of Technical Analysis methods, and search for ways which we can implement them into our trading plan.
Then by no surprise, that latest greatest new trading method may not work out as well as anticipated yet once again, and then we begin to blame the markets for being so erratic, or we blame the Technical Analysis method for not working properly.
Eventually, we learn to trade better while simultaneously executing better money management, and then we realize, “Oh! Damn, So this is why I’ve been a losing trader!”
The cycle, like the markets themselves, will then repeat itself, except we now have the proper trading system to trade and the discipline to use better judgement.
Trading Is Deja-Vu
One thing for certain is that the cycle will repeat, it may not work out once again, as history tends to repeat itself over and over again. That trend of losing your trades can raise it’s ugly head at any time. When this happens to you, you get frustrated and blame everything, the markets, the trading system, the cat, your parents… absolutely everything!
Trading In Circles
I took some time off to pursue other interests. Then once again, the markets, the mistress that it is, I eventually went back into the world of trading once again, but this time with a fresh new and unique insight. I now understand that the market is finicky and does whatever it chooses to do and trying to pinpoint its randomness is pointless to try and predict.
Most of the trading methods and systems out there actually work, but it’s up to you, the trader using the method to utilize it properly. If you give your 10 year old son a Honda Scooter, do you think he’ll be able to drive it the same day?
This was when I eventually realized the biggest obstacle in trading properly was…me, and only me. I am the sole proprietor of who makes the trading decision work.
I am the one who ultimately decides how much capital to trade as well as how much to risk. I am solely responsible for all of my trading actions! There’s absolutely no one that’s governing what I can or can’t do, so why then was I blaming everything and everyone else?
They are all my decisions, they are my trades, my picks, the entry and the exits, that’s all me! It’s not the market or the trading technique which is failing me, I’m failing myself! So keeping that in mind, I began looking into what was with my mindset that was failing me to become a successful trader.
Fear Of Fearing Fear
Fear, that ghost waiting in the dark corner. Fear resides directly in the human genes, and thus it’s just human nature to feel scared, it’s a precautionary instinct to keep you safe.
You feel the fear when it comes to trading, the fear of being wrong and experiencing losses. The very nature of trading the markets is that when we choose wrong, we lose that money, which is a double slap to the face.
Most people react differently to fear. Some will approach it and then try to overcome it, while others will just avoid it completely. It’s the classic fight or flight scenario. When it comes to trading, I tried to ignoring the fear. I know that there are built in risks which are involved in every trade, and I fully realize that there is the very possibility that I could be wrong and thus lose money.
But I’ve chosen to ignore fear when making a trade. In other words, I know there’s a good chance that I might lose, but I don’t think or want to take the actual responsibility of making that wrong decision. The market does not lie but I do.
That grip of fear was in place but I just chosen to ignore it. So what happens when that fear just becomes too much to ignore? When the trade starts to go against you. I then start to panic. I will then just abandon my trading plan and then impulsively exit the trade position before the stop loss hits, taking a small loss. But more often than not, the market will then reverse, turning it into a profitable trade.
The problem with trading is that your trade will never lose until you close it, so your losses can eventually turn into a profit before you give in, and then decide that it’s a losing trade.
So how did I eventually solve this problem? I got rid of the fear! There is no reason why you should be fearful at all. It’s usually associated with your ego and stubbornly thinking that you’re always right, well you’re not, so let that go, as ego and pride promotes you to be wrong, and for all the wrong reasons.
So if the trade is going against you, then what? I already had my calculated stop loss set in place and it was planned accordingly, right before the trade was executed, so stick with it, don’t you dare budge.
So be confident and have a bit of faith in your decision and make sure that you hang in there. Inviting fear to be part of your decision will ultimately lead to indecision and doubt.
Just think of any professional athlete which lacks self-confidence and allows fear to dictate his decision when making plays or displaying his skills while playing the game.
Controlling The Chaos
The mind is a constant non-stop smorgasbord of emotional activity. We’re constantly thinking as well as making good or bad decisions in our daily lives.
When it comes to trading, you can bet that the mind is racing with activity when it comes to deciding what to trade, how to make that trade, and when to make that trade.
To make matters even worse, we have a folder full of trading tools and methods at our disposal. There are a myriad of indicators as well as trading methods which are available, enough to cause chronic chaos which develops into a dull pain in your head.
The mindset and thinking becomes chaotic because of the different indicators that you use. The price is based on support right now which is on a Fibonacci re-tracement, while the trend-line is supporting. The MACD and RSI are all indicating a bullish divergence so I’m thinking that this may be a good buy.
Hey wait a moment, according to my Elliot Wave signal, we’re at the top of the Wave 3, so there isn’t much room to move. The exponential moving averages are beginning to cross over which is going down, and there’s that potential bearish news which may be released in the next hour. Whew… all that nonsense hurt just writing about it.
There is a lot of information which is flowing through your head. And the worst part of all is that all the indicators are contradicting each other. This one signal is telling me to buy while this other one is telling me to sell! What or what should I do? This is a paradox! Any experienced sensible trader would just let this trade go.
The point of all this is that the market is often completely full of noise and nonsense. So much so that our brains will have a difficult time to filter it out. With so much chaos that’s going around, how is it possible to make the proper sensible trading decision?
I acknowledge that there are a lot of great traders who utilize or even has developed a lot of those complex blinking indicators, and those flashing “buy now” or “sell now” auto trade buttons which can potentially be successful.
But the idea is to try to keep things as simple as possible. Decide to trade by taking it one step at a time, make sure that you master one technique, before you move on to another.
That Awful Word Addiction
This is actually a common problem which a lot of new traders face. What is meant by addiction is our built-in tendency for wanting to continue trading! We’re wanting to always be in that position to have something to analyze. We’re just wanting to trade something just for the sake of trading.
After all, we’ve decided to become traders right? So what traders should be doing is trading all the time! The chart is always currently showing the price, as it’s sitting on support, so go LONG! There is a MACD bearish crossover, so go SHORT now!
Obviously as we keep this up, we will lose in the long run. The commissions will begin to pile up, and since our our trades are less than spectacular, the odds of it being a successful trade is extremely low.
Even if we happen to have a strong trading signal, our emotions can keep us from acting on it since that strong trade signal means there are less signals which are generated, which may mean that there’s less trades!
Keep It Simple Stoop
You need to learn how to keep your trading signals as simple as possible and never hesitate to pull the trigger without fear. When you’re considering a trade, you should be thinking about how much you can lose instead of how much profit you can make.
If you’re just starting out, trade in higher time frames, preferably 1 hour to 4 hour. The allure and the seduction of daytrading is attractively enticing, but if you’re not able to handle the longer time frames properly, how can you trade in a much higher paced higher stress environment that is daytrading, when the real money is on the line.
By trading in higher time frames, you will see a lot less trade signals and thus will be trading less. As time passes, you’ll be able to see how the proper strong signals will increase your odds of winning that trade and then that proper trading habit should be formed.
When starting out, your aim should be trading less and questioning yourself more on why you should not pull the trigger on this particular trade, instead of why you should take this trade.
It All Comes Down To Patience
Patience is one of the vital factors which hinders someone from becoming a successful trader. Patience is somewhat related to addiction. If you lack the patience and discipline, then you will not be able to just sit on your hands until there is a good trade.
At times, when trading longer time frames, you can go days or even a week before you’re able to see a good trade generate. If you don’t have the patience to wait for that, then you’ll find a reason, most likely a poor one, to trade and then experience some losses. In the trading world, the key is you need patience… and a lot of it.
Another reason that patience is critical is because it takes a while to be a good trader. Doctors or lawyers can not be trained in a year, so what then really makes you think that you can suddenly be a great successful trader after attending a seminar or reading a few books.
There are many novice traders who will take that huge hit and then will never recover. They will just decide to walk away from trading and and never turn back.
Then there are others who will keep on learning. They learn from all their mistakes and then learn to refine their trading methods over time over a lot of years. Trading is not something that you can master in a weekend, so without practicing patience, you may never attain the mastery that’s required.