Not everyone knows that a universal philosophy actually exists in the business of trading. Importantly, in order to be successful in the long run, this needs to be clearly understood and firmly burnt into the trader’s psyche.
Anybody can place a few profitable trades—randomness will take of that. But to maintain that run of success requires more. It requires a consistent step-by-step approach and the ability to remain firm and confident in your approach, especially when you are going through tough market periods.
Being ‘successful on an ongoing basis’ means running a portfolio (equities, shares) that continues to rise at a faster rate than the market accumulation indices (managed funds), while experiencing acceptable troughs along the journey.
Depending on your perception of investing in the market, you will have a different view of what it takes to continue to be successful. Whatever it is, it is likely to be encompassed in the following 12 Point Trading Philosophy:
1. Develop well defined trading processes that are part of a plan.
2. Create an edge with a positive mathematical expectancy.
3. Undertake the necessary preparation and research.
4. Become empathetic, especially with the way the market moves.
5. Trust your trading processes and your edge.
6. Resist “noise” outside your processes.
7. Overcome fear, hesitation, indecision and reservation.
8. Execute with confidence.
9. Successfully manage both the euphoria of success and the despair of failure when something does not go the way you planned.
10. Continue to engage according to your processes, regardless of your outcomes.
11. Transition your processes and your thinking into habits so that they become a natural part of who you are.
12. Become consistent and objective in your decision making.
Importantly, point Number 12, ‘becoming consistent and objective’ is the ultimate aim, the by-product of your processes, your endeavour and how you think.
Along the way you will need to deploy certain techniques, tools and skills to achieve the various parts of the trading philosophy. These may include:
• technical analysis
• fundamental analysis
• research capabilities
• money management principles
• risk management principles
• mental, physical and execution exercises
At the end of the day, the trading philosophy can be simplified into this equation:
Edge in the Market + Trader’s Mindset = Consistently Successful Trader
Pretty simple, hey?