You should have back tested and trusted trading system, rather than plucking one from the internet. I know it’s very tempting to simply copy the trading system of some (supposedly) successful trader, and it might very well be a very profitable strategy but the fact that it works for them, doesn’t mean it will work for you.
The best thing to do is to take note of those strategies and let other traders tell you what works for them, to see which parts really resonate with you. Borrow bits and pieces from other people’s trading strategies, but only to mold them into a strategy that is customized to your trading personality, financial circumstances and time schedule.
If you are a hobby trader and just want to stay in the market without losing too much, you don’t have to spend years building your system, but if you are committed, if you are serious, if you want to achieve financial freedom, than it might take you years before you have build and fine-tuned a successful trading system of your own.
Do you think that’s a little long? How about if you were starting a business and someone told you it might take you three to four years before it’d become a successful business. Would you find that very odd? Because if you do, you better not start a business. Trading on the financial markets for a living, to become financially independent, is a business too. It will very likely take you a couple of years before you master trading profitably consistently. (and don’t let anyone tell you differently).
So, find a trading strategy that fits your (trading) personality. Formulate a set-up, an exit strategy and determine the right money management, and you’re on your way.
A strategy may seem simple on the surface, but even a simple strategy is hard to implement in live market conditions. Every day, every trend, every pullback is slightly different; nothing looks exactly the same as it did in the textbook examples. To get proficient at implementing a method, practice it, a lot. Trade it in a demo account until you consistently see profit from it.
In sports, you do drills to create muscle memory, so you can instinctively act when the time is right. In fast moving market conditions, if you have practiced a strategy, you’ll be able to implement your skill at the right time. If you haven’t practiced, you’ll likely miss the opportunity, enter too early, or make mistakes with your position sizing. Build your skill base in practice sessions, so you’re not learning the hard lessons when real money is on the line.
Be Passionate but do not be Obsessive
Be passionate about trading
Look, if you’re only in it for the money and don’t care at all for charts, price development, financial news, or how different tradable instruments correlate with each other, in other words if you don’t like the game , you probably won’t last very long as a trader. In the beginning you might struggle, and there will definitely be difficult periods, so if you don’t have any passion for the activity itself, for trading as such, it will be very hard to get through those difficult periods.
Be dispassionate when trading
You’ve carefully build a trading system that fits your trading personality, that has a solid set-up, exit strategy and money management. One of the main reasons you have a trading system is to keep you from making emotional decisions. So, now that you’re in the market it’s time to let your system do its work.
Therefore, when the position is open you are dispassionate. Your system is running the trade and you don’t care either way whether or not the trade goes one way or the other. The system does not provide you with a 100% wins – no system can – but you’ve set it up so that it is profitable on the whole, and now you have to let it do it’s work.
That doesn’t mean you can never change your system, it means you have to trust your system as long as you’re in a trade.
You have to trust your trading system. You have to trust your set-up, you have to trust your money management and you have to trust your exit strategy. If you don’t, you’re likely to change your system before it has had a chance to prove itself.
Let’s look at an example. Say you have a system that provides 50% winners and 50% losers. A winning trade will make you 100 Points a losing trade will cost you 30 Points. That means that in the long term, executing 100 trades will turn an average net profit of 50×70 = 3500.
That doesn’t mean you will make 3500 profit every time you execute 100 trades. A random sample of 100 trades could easily show 80 winners and 20 losers, or the other way around. But in the long run you will turn that average net profit of 3500 per trade. That is, if you stick to the system.
If you don’t trust your system, you’ll switch too soon to another system and you’ll never find out whether or not that system (or any other trading system) works or not. Of course you can back test your system, and doing so will help you fine-tune it before going live, but many traders still have difficulty following a system even after it has proven itself in a solid back test. As soon as they start trading with real money, doubt creeps in after only a couple of losing trades, and then the tweaking, changing, distrusting begins. Before long, many traders have switched to a new system entirely, after which the process repeats itself.
Of course you can tweak your system – and you should – but do it sparingly, and mindfully. You’ve spend time building the system, tracking the system, evaluating your system. Only when you find a leak over a longer period of time should you adjust the system.
If you don’t trust the system while you’re in a trade, you’ll become impatient. Impatience makes you exit too soon – afraid that profits will dissipate – or too late, because you don’t want to take a loss.
Once you’re in the trade and for as long you’re in the trade, you have to trust the system.
Following these principles won’t guarantee success as a trader, nothing can, but you’ll have a lot more chance to be successful if you do.