Are you stuck in a trading rut, unable to improve your rate of returns despite adopting seemingly better technologies and trading methods? Every trader experiences ruts every so often. Sadly, some unfortunate traders can get stuck in a trading rut for years. Other traders, suspecting this fate, simply quit trading (which might be the smarter decision).
If you are stuck in a rut, then perhaps it’s time to take pause. You may want to refrain from adding any additional new platforms & software into the mix. New technology does not always improve trading performance.
If you want to add quality to your trading, you might want to consider the ancient principle of addition through subtraction. Stop everything, set everything you know aside, and rebuild it all, spending your time minimizing and unlearning rather than accumulating and cluttering. Your trading rut may be originating from the very foundation of your entire perspective and approach.
There’s no “magic pill” that can make you a better trader. Trading well has as much to do with your skills as it has everything to do with the way you navigate the random probabilities of the marketplace. But there are a few solid principles that can potentially put you on the path towards better trading. This post will discuss principle #1.
Principle #1 – Start by Doubting Everything You Know
Performance Results
Start with the information presented to you. You learned a particular trading method and you feel it might work. Short of testing it live, how would you know? Perhaps it came with a set of performance stats. Are the market conditions surrounding those stats still relevant to today’s markets, or was it from 10+ years ago? Are the stats a actual performance or hypothetical backtests?
Did you learn the method from a “trading guru”? How do you know for certain that the method has worked out for your so-called “expert”?
Trading Psychology
Is it true that you should “stick with your system”? What if your system is flawed? Then you’re stuck on the road to potential ruin. This applies to all pseudo-scientific “trading psychology” principles. You didn’t trade well because of your lack of discipline. You lack discipline because you don’t have confidence in your method. What if there’s a valid reason not to have confidence in a given method? Before you blindly follow any instruction, you’d better find out.
If you’ve ever studied with a “trading expert,” at some point in time you were probably baffled by how your instructor purportedly made a profit (typically on a demo) while you ended up losing money. Ask this question: why was your performance so different?
Live Trading Rooms
Live day trading rooms are notorious for demonstrating how easily profits can be made by showing live trading. Often, it’s hard to tell whether a platform is in live or demo mode. And many intelligent onlookers, some who even work in the financial industry, will fall for this every time.
Time-Tested Trading Maxims
Consider this expression: “the trend is your friend until it goes around the bend and ends.”
It may be true that following the trend is typically better than going against it. But how do you accurately identify, let alone predict, a trend as it is taking place? Trends are not clear until you are looking at them from hindsight.
What’s important is not identifying and predicting trends as much as being able to implement risk management strategies for when you are wrong. And you may be wrong often. So the maxim, though possibly true, diverts your attention from the real issue, which is managing risk given that you may not be able to see the trend as it is taking place.
There are plenty of maxims to consider, but those you’ll have to critically explore or debunk yourself.
By doubting everything, you are taking personal accountability for everything you have assumed, everything you have learned, and everything you think you know.
Your eventual goal should be to thoroughly sift through your knowledge base and to rebuild it all. Hopefully, this time, with fewer errors.