A Trading Fool on a 2-legged Stool

[Roger Felton 10]

I met a trader a few years back who liked to trade counter-trend. One day he tried to fight a particularly stubborn trend and his first and second attempts failed miserably. On his next attempt, he chatted, "Well, three's a charm". It wasn't.

 

This story got me to thinking about the old 3-legged stool analogy. My, how rock-steady they are until you take away one leg...and their "charm" comes crashing down. But, what does this have to do with trading? A lot.

 

The goal of trading is ultimate, consistent and lasting success, right? But, beyond that, "success" means different things to every trader. That is, we don't all aim for the same amount of money (profit) in the same period of time with the same amount of capital and risk using the same strategy. To achieve our own individual definition of success, there are some fundamental critical elements that can be considered to be the three "legs" of a stool. They are: Method, Mindset and Mastery.

 

With an actual stool, each leg might be made up of wood, plastic or metal. In our "Trading Success" stool, each leg is made of a subset of components. Let's look at each one in detail:

 

The Method leg is comprised of the markets you trade and how you trade them. The markets might be Equities, Options, Futures, Forex, Nadex, etc. The choices here are huge but not as many as the number of ways in which we can trade them. I often remind my students that, "There are several methods to consistently win and a million ways to lose". Trading with the right methodology is important and it's even more important to realize that the right method for one trader might be a disaster for another. For instance, when choosing a method, careful consideration must be given to the amount of complexity and the level of drawdown pain involved. Your method choice, no matter how well it works for someone else, will never work for you if it doesn't fit your personality and style. Many traders mistakenly believe that, if they find a winning method that fits, that's all that matters and vast riches are theirs for the taking. Nope.

 

The next leg of our trading stool is Mindset. This encompasses the entire spectrum of trading psychology. It goes well beyond just having a winning attitude and would certainly include patience, discipline, focus and maintaining unshakable confidence in the heat of battle. Developing the proper trading mindset involves overcoming the negative (as well as enhancing the positive) effects that human emotions play in assisting or sabotaging trading success. No trader ever consistently achieved their trading goals, no matter how good their method or system, without first achieving good psychological control.

 

The final leg of our stool is Mastery. You can have the greatest trading method in the world and have total emotional control but you will fail to succeed if you are not totally knowledgeable and competent in what you are doing. A golfer, for instance, can identify all of the great techniques (Method) that the pros use and have total confidence in their ability to become a Sneed, Palmer or Woods, but, before that's ever going to happen, they're going to have to hit a lot of golf balls (Mastery). This means more than just practicing, however. Practice doesn't make perfect if you practice bad habits and a lot of traders do just that and never realize it. This is where good professional mentorship comes in and it's the only way a lot of traders are able to stay on target for the long haul.

 

So, next time you're getting ready to trade, ask yourself how many legs are supporting your Trading Success. If you don't have all three, the markets will charm you right out of your money faster than you can fall off a 2-legged stool.

Edited October 14, 2012 by Roger Felton

[steve46 12]

Yeah

 

OK then lets cut to the chase...in your classes, are you still trading a simulated account....?