Over time I’ve figured out, there are two extremes that create problems for traders. Understanding what these extremes are will help you become a better trader.
By avoiding the characteristics they exhibit it will help improve your trading strategy and enable you to use the software much more effectively. Thus you will become a professional trader!
We all have to start somewhere!
Across my many years of trading, I have discovered a lot about myself through trading, but I’ve also discovered a lot about other people. When I was young and I first started trading short term on financial markets I was very risk-averse. As a consequence, that made me a terrible trader!
But also having no aversion to risk, could lead you into some really bad positions in the market. Overconfidence is just as bad as none at all.
It was understanding how to sit in between these two extremes that allowed me to become the best trader I can be.
So what are these two extremes?
Extreme one: Over analytical
What we tend to find with people who are deeply analytical and academic, is that they’re trying to over quantify. They’re trying to slice out every piece of risk that you could ever possibly imagine.
And that’s just impossible!
Therefore, these traders have a simple problem with taking risks. It is that mentality that can hinder those with overcritical minds.
To become the perfect trader you need to have a sense of humility. It is a fact that you are going to get knocked back, you just have to accept that you’re going to screw up now and again and you just have to move on.
Extreme two: Too much risk
These traders tend to rely on their gut feeling and that may work for a short period of time. However, it’s just not good enough in the long term.
Their style consists of stumbling across a “strategy” that generally works, until one day it doesn’t and suddenly they’re out of business! At which point they can mask themselves in glory and say, ‘what’ a great trader there were.
Where on the scale should you be?
In my personal trading journey, I have leant on one side or the other at different moments in my career. I became the trader I am today by quantifying all of the things that are going on in the market effectively, but also by having the intuition and ability to be able to act on them.
You need a bit of that oomph to be able to take risks because there’s no point in not being able to take risks. Trading is all about taking risks, not avoiding them.
Risk is equal, or more or less equal, to reward.
Your objective when you’re trading is to try and earn money at the lowest possible risk.
If you just go into the market without preparation and start trading, but you’re not completely sure what the exact payoff is or why that occurs, then over the long term, you’re going to lose. To stay around for a long period of time you need to understand what you are doing and why.
From all of the data that I’ve kept over many years, right from day one, when there was virtually nothing in the market, it has allowed me to just look at the market and just detect if there are any subtle changes. It is a game of understanding but also having the confidence to commit.
The Perfect Trader
Ultimately to be a great trader, you don’t want to be on one extreme or the other, you want to be somewhere in the middle.
Where you are on this scale can be effective with whatever trading style you have, however it is important to understand that there are those two extremes that are as dangerous as each other.
The message I want to portray to you is that I sat at one end of the spectrums and I had to correct my behaviour, so I can confirm it’s perfectly possible to do!
You want to be able to implement a trading strategy and you want to be able to take that risk. It’s important to understand exactly the dynamics involved within that because that will allow you to grow and scale up what you’re doing. It will also transplant a strategy from one market into another and so on.
Understand what you are doing and why, but be comfortable with taking risks and realising that you may often get it wrong. But that your long term objective will not be defined by that. There is no reward without risk, that is what trading is all about. You just need to get it in balance.
Therefore, the core element to what a perfect trader is really…
…don’t be on either side of those two extremes when trading..
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