Trading is a simple game.
If not for our inexplicable determination to complicate it, trading would present as a simple… almost easy way to make money.
If you’ve been investigating trading for any length of time, you likely know that there are some easily understood and often repeated rules to follow. They’re the rules that all market participants claim (try?) to follow. Traders claim to adhere to these rules in no small part because they have shown their value over time and, more important, the traders have heard these rules enough to at least assume that they’re both true and important.
The simplest and most frequently referenced of these rules are:
- Keep your risk small
- Buy low, sell high or sell high, buy back low
- Cut losses and let profits run
- Never add to a loser
- The trend is your friend
The rules are deceptively simple and, on their face, seem easy to understand and implement. And the truth is they are simple… so traders should have a pretty easy time of it right?
Time and again, would be traders find their accounts impaled on the spikes of the market all because they are unable to or, more accurately, unwilling to follow the simple rules laid out above. Why is that? What makes it so hard for those who want so badly to free themselves and join those of us who trade for a living… or at least secure their financial future through more active securities trading? Why is it so hard to adhere to that short list of rules?
Is it the rules themselves? Are they simple, but impossible to follow?
In short… no.
The problem is not the rules, but in their application.
Disagree? How often have you or someone you know:
- traded a position larger than you should because of your “conviction” on the idea?
- entered the market with no plan, stop loss or target?
- sold a winner to finance an average down in a loser?
- found yourself on the wrong side of a double down strategy?
- entered in the direction of an extended and, arguably, exhausted trend?
- given a trade “just a little room?”
What do these things have in common?
They’re all mental mistakes.
They have little to nothing to do with the market, and everything to do with a trader’s emotional make up. More specifically, a trader’s responses to price action in the market. Most of those who read this post will ignore/dismiss this, but it really is one of the proverbial legs that holds up the stool. Your goal as trader is to develop the proper filter for price action, then both implement and maintain that filter.
Incidentally, there’s no need to quibble over the moniker “trader.” Instead, consider looking at it as being on an aptitude spectrum between novice and master trader. In so doing, one can feel free to call himself a trader irrespective of performance or profitability. All are simply on the endless path toward mastery.
So as you can see, the problem is not so much with the simple rules.
Rather, the problem is with implementation.
Figuring out why you continuously break the foundational rules of short term securities speculation and, more important, repairing that tendency is the not so secret answer to setting you on the path to consistent profitability.
My goal in this and other posts is to offer some insight into the anti trading teachings that many have internalized and, worse, applied to the markets. Through a retraining of the thoughts and processes inappropriately applied to the markets, traders can begin to more clearly see what the market is saying as opposed to that which is desired. That is of course, the first step in aligning your behavior with the market’s messages. It’s not unlike the southern saying, “if you wanna see what’s in front of you, open your eyes.”
The process of simple trading seeks to exploit the market’s clear messages by taking actions consistent with and driven by those messages within the context of the foundational principles discussed above.
That’s a fancy way of saying, “trade what you see, not what you think.”
Those who are able to do this perfectly and repeatedly elevate their performance of the process to a sort of artistry… The Art of Simple Trading (I know, I know… but I just couldn’t resist). Internalizing such a simple trading process will absolve you of the need to have iron discipline as the process itself will replace your tools of self-deception and make your actions more natural and consistent with market action. Positive outcomes (aka money in your pocket) from the process will deepen the internalization and your commitment to the principles creating a virtuous (and profitable) cycle.
P.S. Want to know a bit more about trading? Click below…