Trading is much simpler than we all initially make it out to be.

One of our instructors, Teresa Bell, summed it up best when she said “trading is simple, following the plan is what’s difficult”.

And what makes “following the plan difficult” has nothing to do with the market, and everything to do with your preconceived notions and previous experiences regarding money. The advice given by the American president Franklin Roosevelt in 1933: “The only thing we have to fear is fear itself”, is as appropriate today for traders on all experience levels as it was for the citizens the president was addressing during the midst of the Great Depression 76-years ago.  Fear is the number one reason why so many people who set out to learn to trade fail. Fear of losing money and fear of failure combine to create a maelstrom of emotional activity that makes it impossible for the average individual to progress along the “trading learning curve”. The way to get past the fear is to develop a traders “mind-set”  And to realize, as Roosevelt pointed out in his historic speech that our fears: “concern, thank God, only material things”. The way to get past the fear is to envision and then experience sustained success. The way to succeed in anything is first have a plan, and second, have the will to execute that plan. 

With these two essentials in hand: a trading method, and a trading plan, we are in a position to acquire a trader’s mindset to over-come the mental obstacles that stop so many others from succeeding at trading. The method and the plan are still only concepts, or words on paper until you start to execute the plan on a trial basis. It is through your execution of the plan in first a simulated environment, and then on a trial basis using a very small percentage of your risk capital, that you will start to acquire the experience which will develop into your trader mind-set.   

The definition of a trading mind-set is having a subconscious believe in the validity of the trading methodology one uses. The invaluable advantage a trading mind-set gives you is the understanding  that by sticking to your trading plan that yes, you are going to have losing trades, but that you are not going to hesitate to take the next trade. You know that on average you’re winning trades are going to be bigger than your losing trades and at the end of the month, or quarter, or year depending, on which time frame you trade, you are going to have made money. You will know this because you will have extensive real-time experience at back-testing and demo trading. You will have experienced some of the same emotional hang-ups, and made some of the same mental and physical errors that other traders make on their journey, but you will have made them in a demo account. You will have put yourself in a better position to succeed in a very competitive profession. And you will have done this in a relatively short amount of time relative to the entry standards of many other professions. And the best part: you are going to get better, and better at it.

There are hurtles along the way for sure. Losing hurts more than winning feels good, as anyone who’s had a disagreement with someone who plays an influential role in thier life can attest too. It takes a lot more niceties to make up for just one insult. There are also the problems that anticipation and the attachment to opinions create. Both will break an individual down quickly, and create outsized draw-downs. Even following the rules can wear on people as it’s natural that while studying a methodology, and starting to trade it, one would have doubts regarding its validity. It is not easy to follow rules and guidelines which we did not contribute to creating. Doubt wears on the trader, and nothing but time, and extensive back-testing and demo trading can relieve that.

And then there is the problem that most people are not very good listeners. And that most students are not at first interested in following someone else’s methodology as much as taking what works from it and working it into a methodology they are trying to create themselves. And that is fine, as long as they know the importance of honestly evaluating a system or method, and don’t lose track of their goal: to make money. It does not matter whose method you trade, as long as it works. This is where discipline must come in. Trading is not about reinventing the wheel, or excitement, or facing a personal challenge, or making enough in a day to buy a new boat. Trading is about following the rules and making money on a consistant basis. But before you start to understand that and acquire the proper mind-set for the job, you have to experience making mistakes and taking losing trades in your demo account. Depending on your current mind-set this may even be painful for you.

It will however be much less painful in a demo account than a live account. The only way to understand the importance of waiting for the candle to close before entering a trade is to do it many times. Similarly the way to see the importance of staying focused on your trading plan check list is to be distracted and miss a nice trade. The only way to feel the negative effects of an opinion is to experience the anticipation of a market move occurring, then feel the expectation this creates, and how that leads to jumping the gun on the trade, and getting stopped out with a loss just before the big move occurs. The only way around this is to experience it, and put that lesson behind you. Until you’ve done all these things, and felt the tension as you’re waiting for that closing price as you’re double checking your trade check list, you’re not going to mentally progress as a trader as much as you’d like. And you’re not going to acquire that all important traders mind-set. You are not going to learn as quick as you’d like to until you realize there is nothing to fear, other than occasionally being wrong. 

Jay Norris
www.trading-u.com