Your Potential Distance with a Successful Trader

Correct trading ideology, or winner’s psychology, is necessary for traders who want to profit. It is a mindset that without which, none of your techniques would work, especially for those who uses technical analysis. This is very important.

So, how do we cultivate this winner’s psychology?

1. The first step to winner’s psychology is an anti-humanity approach

Many traders say that in the market, among every 10 traders, 7 lose money, 2 draw, and only 1 makes profit. Yes, I have seen this phenomenon in many trading competitions, too. Even among traders who are very confident in their capabilities to compete, only about 10% of them can make a profit in the end, and these competitions usually only take 1-3 months. Imagine if it is a year or more, there would be fewer profitable people.

So what exactly is causing this? I've seen a lot of trading techniques, I've tried a lot of techniques myself, and I've thought of a lot. It turns out that humanity causes most people to fail. In this section, we do not discuss about fund management and execution capacity.

To me, I find that most people perform very well during market fluctuations, but when it comes to trend markets, they tend to lose a lot or are even forced to close out. More surprisingly, when the trend is big, most people held opposite positions to the trend. The bigger the trend is, more people, as much as 90%, can hold against the trend. I have posted these data before. You can also look at the recent examples of the Euro falling sharply and gold rising sharply.

In fact, I think most people are clear how many people are winning and how many losing. What is weird is that, any textbook that talks about technical analysis would teach us to follow the trend, to stop loss and hold the position. But what turns out goes against the fact. If we all follow the textbook, at least 50% of people should’ve traded correctly or more than that, but the fact is not so, and the reason deep down is humanity.

It’s human nature to take a risk-averse approach when it is profitable and sell out earlier. At the time of loss, we adopt risk appetite, we keep going and even increase the position to amortize costs. So, when they were trending, when they are following the trend, but they leave too soon. And those who do it wrong will hold positions all the way, and even continue to increase positions. This explains why a bunch of people react against the trend all the time.

The golden rule to profit is cut off loss and let profit run. It is easier said than done because it goes against humanity, and that is how winners think.

2. Rational fund management can lead you to success

Fund management includes fund management strategies and risk control levels. Different fund management methods will bring different results, which may turn a profitable system into a liquidation. Many people ignore this, and they always think about how much money they can make and how many times they turn, but they ignore the risks. There are many people who could have made money using their methods, but because they use too much leverage, they overestimate their risk tolerance, they end up bearing huge losses or sometimes are closed out.

This will strike you so hard and make you think that certain methods are not working and continue to look for better technology. In fact, they are all going the wrong way. It is very difficult to use technical analysis to secure a very big advantage, even it can, it won’t be us normal traders using that in the market.

The reason we can make a profit is to accidentally catch a wave of trends, and many people die before profiting because of their poor fund management. They will repeat the above, in the end they will not believe in any stop loss, they will only carry lightly. You can keep going if you are lucky or close out if you are not. Although most people will make money for a period of time, their profit and risk are not proportional, and they actually take too much risk.

3. Choose the right market situation for system trading

The mistake that many people make is to think that there would be a system can fit all market situations. Especially on the mechanical system, they will drawdown for 10 years or more, and then use this system. In fact, they have no idea what kind of market this system is suitable for and how it will perform on various markets, they only know that it will be profitable after 10 years. The problem is that the market is changing. If you don't know the performance of your system in different markets, you simply cannot insist on using the system.

Many people choose to wait for the callback in the trend, but they do not know what the market is suitable. They may choose a variety with a strong trend and then start waiting for a callback, but it never appeared until there is a big reversal or a sharp correction. In fact, they should choose some varieties that often have callbacks. What the market is like now is more likely in the future. Doing specific things on a specific market is the most efficient and more effective.

If there is any secret in technical analysis, this is it. Of course, the premise is to classify the market situations. Your method must perform well on one or two markets. If you say the market is unpredictable, you don't know what the market situation is. I think you actually do, have a look at the market, whether it is trending or oscillating, how the trend is going, the market is how the fluctuation goes. Then you can fit in your methods.

4. Persistence is victory

Many people will always have a short-term preference, and once the system withdraws it is considered the system has failed. Whether a system is profiting or losing, it is incredible to be executed 100 times. Most people may do it 10 to 20 times and if the system performs poorly, they would give up.

But sometimes the system retraces, at times for months, and some systems even have years of loss. Does this mean that your method is not working? There are years even Buffett and Soros loss money, do you think they would give up their trading ideas because of losses?

The market is always flooded with a lot of opinions about methods that don't work. Remember that the rule of profit is to keep the risk low, cut off the stop loss and let the profit run. Stick to it!

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