A universal ‘formula’ exists when trading and investing that needs to be understood and positioned in the trader’s psyche to continue to be successful on an ongoing basis. Anybody can place a few profitable trades, randomness will take care of that. But to continue to be successful on an ongoing basis requires more than the consequence of randomness.
Being successful on an ongoing basis means running a portfolio (let’s assume equities – other instruments can be traded) that continues to rise at a faster rate than the market accumulation indices (or, more practically, managed funds) whilst experiencing acceptable (to you) drawdowns (troughs or valleys) in your portfolio along the journey.
Depending on your perception of investing, you will have a different view of what it takes to continue to be successful in the market. Whatever it is, it is sure to be encompassed in the following ‘trading formula’.
The ‘trading formula’ comprises the following:–
• doing the necessary preparation through research,
• an edge with a positive mathematical expectancy,
• well defined trading processes that are part of an overall trading plan,
• continuing to engage according to your processes regardless of market conditions,
• trusting your processes and your edge,
• executing with confidence,
• resisting “noise” outside your processes,
• overcoming fear and euphoria,
• overcoming hesitation, indecision and reservation,
• becoming empathetic with the market,
• transitioning your processes and your thinking into habits so that they become a natural part of who you are,
• becoming consistent and objective in your decision making
(which are the ultimate aim and are the by-product of your processes and how you think).
Along the way you may need to deploy certain techniques, tools and skills to achieve the various parts of the trading formula, such as discipline, technical analysis, fundamental analysis, money management principles, risk management principles, research capabilities, mental drills, physical drills, execution drills.
Discipline is not an end but a technique to use to achieve an end. Some already have the capability to be disciplined, some learn it and some don’t. Once a particular end is achieved, discipline is no longer required because the end becomes a part of who you are and is executed as a matter of habit. Habits don’t require discipline. Transitioning from the ‘new knowledge’ stage to the habit stage is a process that few people complete. Existing habits get in the way and they give up or they chop and change between different ‘knowledges’ and hence remain inconsistent. These are two of the biggest obstacles to individuals going to the next level in any endeavour that they take on, not just trading and investing.
Notice that knowledge is NOT a mandatory part of the trading formula to succeed in this trading caper although it could be argued that it fits under ‘research’. Most individuals that fail have sufficient knowledge to succeed, it is that they don’t transition the knowledge that they have into a set of processes that are consistent and objective nor do they achieve the necessary mindset for trading. They continuously vary their processes on a whim without the necessary preparation and research. Waiting for newer or better knowledge is not the answer. Working on the parts of the ‘trading formula’ is the answer and transitioning from knowing what to do, to doing what you know.
One of our core aims at Share Wealth Systems is to continue to provide active investors with the tools, training and ongoing coaching necessary to enable active investors to trade and invest according to this trading formula and hence achieve a sustained profit advantage in the market.