The proper execution of your trades is one of the most fundamental components of becoming a successful trader and probably the most difficult to learn. Most traders find it is much easier to identify something in the market that represents an opportunity, than it is to act upon it. However, there are some very good psychological reasons why it is so difficult to act on a trading signal. To understand these reasons, you need to understand the nature of trading systems (defined as any methodology that consistently identifies an opportunity to buy or sell with a potential profit in some future moment) and how these systems interact with the markets and ourselves.
For example, most good trading systems, technical or otherwise, will consistently take money out of the markets over the long run. Most of these good systems have been available to the public for years, and yet, there is still a huge gap between what is possible and what most traders end up with. The problem with trading systems is they define market behavior in limited ways when the market can behave in an almost infinite combination of ways.
Systems mathematically or mechanically reduce relationships in human behavior characteristics to percentage odds of what could happen next. They can only capture a very limited number of these behavior characteristics compared to the billions that are possible. As a result, any identified pattern may or may not be repeating itself with respect to the way the pattern or relationship progressed when it was observed in the past. Therefore, we never really know if it is valid or not until it has actually completed itself. The big psychological problem here is that people have a great deal of difficulty acting on opportunities with probable outcomes.
For example, most good trading systems, technical or otherwise, will consistently take money out of the markets over the long run. Most of these good systems have been available to the public for years, and yet, there is still a huge gap between what is possible and what most traders end up with. The problem with trading systems is they define market behavior in limited ways when the market can behave in an almost infinite combination of ways.
Systems mathematically or mechanically reduce relationships in human behavior characteristics to percentage odds of what could happen next. They can only capture a very limited number of these behavior characteristics compared to the billions that are possible. As a result, any identified pattern may or may not be repeating itself with respect to the way the pattern or relationship progressed when it was observed in the past. Therefore, we never really know if it is valid or not until it has actually completed itself. The big psychological problem here is that people have a great deal of difficulty acting on opportunities with probable outcomes.
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