It's Not What You Know, it's the You You Know by Sam Evans

 

If you have been having a tough few weeks in the Market lately, then I assure you, you are not alone. Both the Broad Market of Equities and the worldwide Forex Markets have been a little indecisive and we have been experiencing a mixture of tight range-bound price action, combined with periods of short-lived momentum swing moves, as well. To the novice trader, this can be a difficult time to be trading and many students of the market have been finding frustration during these times. That said, the consistent trader is unlikely to be phased by the market conditions, not because they are lucky, not because of some "secret" trading strategy, nor because of their position sizing. In reality, the consistent professional trader is not affected by any market conditions simply because of their mindset, nothing more nothing less.

You see, early on in the career of most traders, we become bogged down by the need to be right and have a technique or the ability to get it right more often than wrong; however, this usually results in frustration. Let me explain. A vital ingredient in the dynamic of successful trading is understanding right from the very start that we will all take losing trades. It is both inevitable and unavoidable. There is no possible way that we can get it right all the time, and accepting this and trusting the strategy is a key component of ongoing success. As I have said before, it is not about the amount of times you win and lose, but rather how you win and lose, the ideal being small losers and large winners. I know this sounds relatively straight-forward, but in reality, it is easier said than done mainly due to the emotions we experience when money is on the line, and because of the general fragility of the human psyche.

Nobody likes being wrong, let's face it. We all carry around an ego and in no way am I saying this is a bad thing. All of us should be proud of who we are. Our values and beliefs make us unique and there is absolutely nothing wrong with having an opinion. However, when it comes to trading, the ego can be a real killer! The market does not know we exist as individuals and does not care about what we deem to be right, wrong, fair of unfair. It simply creates objective opportunities which, depending on our particular strategy, will result in wins or losses on our accounts. I firmly believe that the majority of trading techniques in existence can all generate profitability, but only if executed in a disciplined manner and respect the fundamental requirement of stringent risk management at all times. This "flawless execution" can only be monitored by the individual trader and it is their sole responsibility to make sure they stick to the plan.

My own working background started out in an environment as far removed from trading as could possibly be. I used to be a Radio Producer for a major London Radio Station in my early twenties, and then moved into the world of Film Promotions. Most people assume that I came from a background in the financial sector, but in all honesty, trading was never something I even paid attention to or was especially aware of until around six years ago. I loved working in the media business and truly believed that I had found my calling. I saw myself as a creative type and thrived upon coming up with new and exciting ways to communicate with my audiences. We never really knew if our latest promotional idea or show would work or if the public would "get it," but nevertheless marched on with conviction and awaited the results, be they good or bad. Now you may think that being a creative type of person could actually not be the ideal personality trait for entering a career of trading, but in my experience, I have found that this has proved to be far more of a help than an actual hindrance and the reasons why are not immediately as obvious as you would first think.

Typically, many people assume that anyone from an analytical background or business environment would be the ideal person to embark on a trading career, seeing that they already possess a core variety of the necessary skills required to navigate the trials and tribulations of the Forex Markets, and to a large extent this is very true. However, we should also remember that these personality traits can also prove to be a thorn in the side of a trader if they are not prepared adequately. In my experience, I have actually found that many professional types struggle with trading in the early part of their journey not because of their lack of skills, but instead because they fail to utilize these skills in the proper manner, mainly due to the incorrect mental attitude. There is no doubt whatsoever that consistently profitable trading requires a combination of objective analysis, risk management and disciplined execution. A doctor, lawyer or business professional all have these skills right from the very start, but it is their previous experiences of putting these skills into practice and seeing the results that can eventually clash with their final trading results.

Let's take a mechanical engineer, for example. They are used to understanding thoroughly how a certain system or machine works and when they put the pieces together in the right way, they will typically see the final product work. They can understand this because they knew in the first place that if they carried out their routine to maintain the system in the correct way, it will work. However, when it comes to using a pre-defined strategy or system to take a trade this does not automatically mean that the trade will produce a positive result, due to the fact that the market itself is just full of too many variables to guarantee an outcome, no manner how thorough the execution and analysis was in the first place. This simple dynamic alone can prove to be a difficult scenario for somebody of an engineering mindset to come to terms with. Sure, they have the necessary skills to follow a detailed trading technique to the nail, but if they cannot prepare themselves for the possibility of a positive or negative outcome, they will suffer in the long term. This is a similarly difficult prospect for a high achieving business professional or entrepreneur to face, as well. Used to being right and reaping the rewards for their decisions and execution, these personality types also face aversion to their results when faced with the prospect of doing the most detailed and flawless analysis possible, only to be left with a loss of capital as a result. Having gotten used to being right can make it next to impossible to accept that in trading, we have to get used to being wrong plenty of times if we are ever going to succeed. No matter what skill set you bring to the table, you have to accept that there is only so much any trader can do to stack the odds in their favor and after that, the rest is left firmly in the hands of the market.

So as a creative type and having gotten used to taking an idea and running with it with no real certainty of the outcome, I found that when I took on the challenge of trading as my new career, things were not really unlike what I was used to enduring before. Now, of course, this was just one piece of the puzzle and while I carried this skill set already, I did have to learn to not let my creativity get the better of me. I can certainly say that my ability to follow a system took a while to develop. Where I had certain advantages, I also had many disadvantages, too. An engineer would enjoy a different set of pros and cons compared to me and so on. In the end though, it all comes down to the same thing: Using the skills we already possess to the very best of our abilities, and developing the traits we are missing to form a coherent approach to trading will bring us consistency to flawlessly execute each and every trade to the very best of our abilities. No matter what background you come from, you can make trading work. It is simply about using what you have, learning about what you don't have and then maintaining a positive, objective and unemotional mental state at all times. Understand yourself and only then will you ever have a real chance of truly understanding the markets.

Be well and take care,

Sam Evans sevans@tradingacademy.com

 

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