That little difference compared to many other concepts in trading, which try to predict the next market movement, can make all the difference in successful trading/investing. Instead of being obsessed with market movement, we let ourselves be carried by the flow of market movement.
In this regard, the focused trader doesn’t want to know what happens next, he realizes that if you knew what happened next, the purpose the market was designed for – to find that exact spot where there is an equal disagreement on value and an agreement on price (quoted from Bill Williams) – would become obsolete, which would result in the death of the market, there would no trading activity be going on anymore if everybody knew what happened next, because a) nothing would happen next, and b) everybody would be in the same positions, which is the reason why nothing would happen next. Nobody would be on one side of the trade, while everybody would be on the other side of the trade – never getting filled on their order, because there is no market movement.
It is the market’s job to represent current value in the moment of now in the form of price changes that are the exact result or effect of the activity of trading, i.e. buyers and sellers making up certain levels of supply and demand which translate into a definitive price that changes every second. Only because no trader, investor or institution doesn’t know what the next price change will be, is there a market that moves in different phases that differ in profitability for each participant. Like it or not, there is no crystal ball out there, top traders and fund managers do not know more than you, no matter what information they are supplied with.
No matter how much information you have, you can still be wrong. -Larry Hite
Larry Hite is one of the top trendfollowers in the field of trading, managing billions of dollars and he is the Managing Director at Hite Capital Management, LLC. If you really think about his quote, it becomes clear that it is very easy in the field of trading to become obsessed with the activity of the markets due to the fact that you will never know for sure, no matter what you do, what the next price change will be or where the next trend is headed. Most of us cannot cope with this Principle of Uncertainty, simply because we haven’t learned how to deal with it. Nobody at school or at university and in society in general educates people about how to deal with the fact that we don’t know what will happen tomorrow. It is not only true in trading, but in life itself, that this principle finds its application. We basically perceive uncertainty as something negative, many people will try to solve problems before they even occur, i.e. the activity of trying to prevent certain issues even coming up, in order to keep their trading and life straigthened out. In the latter this would result in leaving profits on the table, not taking a signal, putting on too many positions/not enough positions, being prejudiced about the next market moving and ultimately not being able to follow their trading plan; instead of seizing every market opportunity, being open to whatever may appear next and using it for their own advantage etc.
A perfect way it seems, judged by the number of traders doing it, to deal with uncertainty in the field of trading is to draw dozens of lines on their charts, put up several indicators, fibonacci retracements and -expansions, calculate S&R levels, Pivot Points, Bollinger Bands, pay attention to cycles, fundamentals and of course CNBC and Bloomberg. Reuters Live Feed and nine monitors with complex trading software flashing in front of you all day long seems to be the way to go when paying attention to what most people share on social networks and in personal chats.
Well, the less than 10% who are successful in trading do exactly the opposite of that!
It doesn’t matter if you listen to the pro-traders who regularly appear on Michael Covel’s podcast, or for example to Larry Williams when talking about his own success on the BetterSystemTrader podcast, or to Tom Basso who says he is still trading a methodology that he used in the 1970’s – none of these people spend their life in front of half a dozen computer screens daytrading the market, instead they have come to realize that in trading the basic motto “less is more” applies. Instead of consuming new information every day, being hyped by every tick the market makes and never finishing of trading as thoughts keep circulating in your mind even when you are engaged in other activities, the top 10% of successful traders will simplify their trading rules for easy and automatic execution, will only trade with very concise and appropriate risk on each trade and are willing to be their own mentor, i.e. continously observe their personal psychology to improve their trading process.
There is absolutely no need for any trader to know what happens next, when you can follow the above outlined principles the provenly successful top traders live and trade by. In a world in which the future will always be unknown to everybody, there is only one chance to survive in financial markets, and that is focusing on the aspects of trading that you can control while letting the market take care of the rest. And what is it that can be controlled on each trade that is put on? The methodology used for picking entries, stops, exits; the position size and the trader himself. But NOT THE OUTCOME! There is no way, even though you may think there could be a way, that any trader/investor can control how much money he makes. That is actually one of the main dilemmas of the Average Joe who wants to be a millionaire trading. Most people focus on how they can make, instead of how much they can lose. The market takes care of your profits if you are applying your methodology correctly. Winners in the market worry about how much they can lose on any trade. Sticking to these basic principles of trading and trendfollowing as they have been outlined in detail before, will ensure trading success.
Understanding yourself from within is what makes the difference in successful trading and investing. – Profitunity
This perspective explained is very simple to understand and also suggests, that trading is actually a very simple task, because you only need to
a) have a tested trading system
b) manage your risk and
c) control your emotions
in order to trade successfully. The problem though is, that the process of trading and making money over a long period of time may be very simple, but it is not very easy! And the reason for that is the oulined point c). Trader psychology is what ruins success for most people, because they are lured into the game by what society and the financial media suggests to them that it is: an easy way to make a lot of money from one moment to the next. This creates all sorts of emotions in a trader, most commonly referred to as greed and fear, but there are various sub-forms of those: euphoria, frustration, depression, hope etc. which all have a negative influence on trading results. But instead of focusing on a) – c) as listed above, they are controlled, yes overwhelmed, by their thoughts and by their emotions, not realizing what the essentials are, building up completely unrealistic expectations resulting in an unsuccessful trading career. Instead of the trader being the one who controls his emotions, he is controlled by them, which is a recipe for failure.
Accepting the principle outlined in the title of this post makes you realize, that a) – c) is the only thing you need to focus on, everything else is just noise and once you really digested that you can finally get on with your trading life – executing as per trading rules, position size as per risk management rules, observing yourself and your emotions constantly, then taking the small loss or the big profit and simply engaging in the accumulation process that trading really is, there is nothing more.
How successful this simplified approach to the complex world of financials really is, can be learned by following this blog. Already a post here and there exists, the latter showing you how easy it can be to navigate even when markets are posting the most disastrous first week of trading in any year in history so far.