The Neglected Element of Trading Success

The Neglected Element of Trading Success

August 8th, 2018

Your trading system won’t make money.

It won’t, that is, if you don’t like it.

When we’re looking for a trading system, we spend a lot of time looking for the magical system and we spend zero time wondering if we like it.

I get a lot of emails about trading.

I’m asked about systems and robots and indicators and money management.

No one ever tells me what they like.

For example, a trader will email me and tell me he’s looking for a trading system. He’ll then list a few of his goals for trading. Then, knowing I trade three different robots live in the market,┬áhe’ll ask me which one I recommend.

And that’s the key moment.

Because it doesn’t matter what I recommend. In fact, my recommendation may be the one thing that keeps him from making money with that particular system.

The thing that matters most, the thing that will make him successful, is answering this question:

What do you like?

The style you choose has to be the right style for you. Otherwise, it will most likely fail.

If tennis player Rafael Nadal played a different style, if he played only on fast surfaces and tried to serve-and-volley every point, he probably wouldn’t be ranked in the top 100. Maybe not even in the top 500.

Nadal is a defensive player, maybe the best defensive player of all time, and his success is based on playing that style on slow surfaces.

Doing the opposite would be disastrous.

The same is true for trading.

Even if you have a system that will make money in the long run, if it trades in a way you don’t like, it will only lose you money.

How?

Because if you hate the way it trades, you’ll get out of winning trades early (“I better get out before it loses another one”) and quickly just give up altogether (“I knew it was going to lose again–forget this!”).

The winners are no longer winners and the losers take you out of the game. Voila, a successful system becomes a failure.

So how do we choose a style we like?

The first answer is: you already know what you like. Don’t listen to anyone else and listen to your heart. How do you like to trade?

But sometimes we get so bogged down with trading advice that we can’t see past our own confusion. How do we pick our style then?

It’s easy. Concentrate on the losers.

How do you like to lose? Or, more specifically, what type of losing trade doesn’t bother you so much?

For example, a trend following system loses pretty quickly. A breakout should work right away, and if it doesn’t, then a trend following system will rapidly stop itself out.

Is that okay with you? Would you mind a bunch of small losing trades (knowing a big winner is coming)?

Or would you rather avoid seeing losing trades as much as possible? If losing makes you angry, depressed, and a bad decision-maker, then you need a style that doesn’t put you through that very often.

A system without any stoploss at all might fit the bill. Or possibly a system with a “negative” risk/reward. Either one of those will only have a small amount of losers, and that might be exactly what you need.

If you want to trade, obviously you need to find a good system. But there are lots of those.

If you want to be successful long-term, you need to find a trading style that you dearly love.

Once you do that, success is just around the corner.