A universal ‘formula’ exists in this trading caper that needs to be understood and positioned in your 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 that continues to rise at a faster rate than the market accumulation indices (or, more realistically, managed funds) whilst experiencing acceptable (to you) drawdowns during the journey.
Depending on your perception of trading the markets, you will have a different view of what it takes to continue to outperform the market. This article is intended firstly to challenge the view that individuals cannot beat the pro’s and secondly to provide an insight into how individuals can outperform the pro’s.
The private investors ‘trading formula’ comprises the following:
- an edge with a positive mathematical expectancy,
- well defined trading processes that are aligned to a trading plan,
- continuing to engage according to your processes,
- overcoming hesitation and indecision,
- overcoming fear and euphoria,
- doing the necessary preparation,
- trusting your processes and your edge,
- executing with confidence,
- resisting “noise” outside your processes,
- thinking from the market’s perspective,
- 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 will 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 investors have this capability, 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, e.g. brushing your teeth. Transitioning from the ‘new knowledge’ stage to the habit stage is a process that few people complete, mainly because they give up due to existing habits preventing the necessary priorities being set and the necessary actions being taken. This is one of the biggest obstacles to individuals going to the next level in any endeavor that they take on.
On another subject, I have some ground breaking Risk and Money Management research that I plan to disclose to my journal followers starting next week.
The research is the culmination of some 3½ person years of investment and will display the type of care and commitment we make to our customers. I’m certain the information will challenge the way you look at the markets forever.