The MMM's of trading or the basic 1,2,3's
The easiest and most exciting part of trading is developing a methodology. After all, it is pretty exciting when a newbie opens up the charts, studies some indicators, and then is able to use them to predict future price action. There is much aura of excitement in forums like this one when it comes to that, and Ill add, rightfully so.
Let me drop the first bomb. Once the methodology has been developed, it is only the beginning of the road to success. (Stay with me. Were in an industry where 90% of all traders fail, and most of that 90% know how to forecast market movement within the scope of how they trade.)
The next part in the developmental process for the trader is money or margin management skills. Without this skill, you are doomed to fail. Many traders jump into the markets jazzed and so excited about there accomplishment in developing their ability to predict market movements. They feel they are ready to conquer the world and next month they will have $1 million in their account. Something happens!
They are still able to use their methodology to predict market turns and reversals. But, there equity is dropping instead of increasing. Now they start blaming their broker for trading against them, the big players in the markets for moving the markets, this economic event or that other event, and the excuses continue until you build a mountain with them.
Truth be known, that trader has not developed money management skills. They take position sizes that are too large and /or run their trades with no stops. No matter how good your methodology is, you will be wrong sometime, and by avoiding money management is when you get smacked with the big loss that throws all the hard earned gains to the wind.
Lets say up to this point the trader has developed the methodology and the money management skills, now he is ready to make a ton of money in trading, right? Wrong!
You might have the best methodology in the world, and the money management skills in the world, and you still might lose it all. Yet, at this point, the trader could be ready to go live.
The next part of trading to harness is the mental discipline. Trading with virtual money and trading with real money are 2 complete different things. This is why I say, after you pass the 1st 2 parts of this program, and then enter the markets as conservatively as possible. So not worry about making the BIG money. Be patient with yourself and with the growth of your money. After all you have the rest of your life to enjoy it.
The reason I say at the beginning to be as conservative as possible is because the smaller amount of money at stake, the easier it will be on you mentally. It is now a test of the fear and greed of trading. It is the test to stick to your methodology with your real money at stake. This is the intangible element no one knows about. Your equity will definitely know about it. There is nothing glamorous about this part of trading, yet it is as important as the other 2 aspects. This is the part where people get in forums like this one, post their forecasts, look like the greatest thing since flapjacks, but their account balance is heading south (Its okay for the markets to head south, but not your account balance.). This is the element that will separate the men in this business from the boys.
This is why it is of utmost importance to take all the time that is needed to thoroughly develop each stage and the transition. The mountain to climb looks easy because of the initial excitement in the development of the methodology, and it is like there is nothing else to do. That is barely the beginning.
In review the 3 stages that thoroughly need to be developed at each level are:
1. The methodology, which is the obvious starting point.
2. Money management. It seems easy insignificant, but youll die on the vine without it.
3. Mental discipline. The intangible element that determines if you are really ready even after you go live.
I welcome comments and everyones input concerning this post.
The easiest and most exciting part of trading is developing a methodology. After all, it is pretty exciting when a newbie opens up the charts, studies some indicators, and then is able to use them to predict future price action. There is much aura of excitement in forums like this one when it comes to that, and Ill add, rightfully so.
Let me drop the first bomb. Once the methodology has been developed, it is only the beginning of the road to success. (Stay with me. Were in an industry where 90% of all traders fail, and most of that 90% know how to forecast market movement within the scope of how they trade.)
The next part in the developmental process for the trader is money or margin management skills. Without this skill, you are doomed to fail. Many traders jump into the markets jazzed and so excited about there accomplishment in developing their ability to predict market movements. They feel they are ready to conquer the world and next month they will have $1 million in their account. Something happens!
They are still able to use their methodology to predict market turns and reversals. But, there equity is dropping instead of increasing. Now they start blaming their broker for trading against them, the big players in the markets for moving the markets, this economic event or that other event, and the excuses continue until you build a mountain with them.
Truth be known, that trader has not developed money management skills. They take position sizes that are too large and /or run their trades with no stops. No matter how good your methodology is, you will be wrong sometime, and by avoiding money management is when you get smacked with the big loss that throws all the hard earned gains to the wind.
Lets say up to this point the trader has developed the methodology and the money management skills, now he is ready to make a ton of money in trading, right? Wrong!
You might have the best methodology in the world, and the money management skills in the world, and you still might lose it all. Yet, at this point, the trader could be ready to go live.
The next part of trading to harness is the mental discipline. Trading with virtual money and trading with real money are 2 complete different things. This is why I say, after you pass the 1st 2 parts of this program, and then enter the markets as conservatively as possible. So not worry about making the BIG money. Be patient with yourself and with the growth of your money. After all you have the rest of your life to enjoy it.
The reason I say at the beginning to be as conservative as possible is because the smaller amount of money at stake, the easier it will be on you mentally. It is now a test of the fear and greed of trading. It is the test to stick to your methodology with your real money at stake. This is the intangible element no one knows about. Your equity will definitely know about it. There is nothing glamorous about this part of trading, yet it is as important as the other 2 aspects. This is the part where people get in forums like this one, post their forecasts, look like the greatest thing since flapjacks, but their account balance is heading south (Its okay for the markets to head south, but not your account balance.). This is the element that will separate the men in this business from the boys.
This is why it is of utmost importance to take all the time that is needed to thoroughly develop each stage and the transition. The mountain to climb looks easy because of the initial excitement in the development of the methodology, and it is like there is nothing else to do. That is barely the beginning.
In review the 3 stages that thoroughly need to be developed at each level are:
1. The methodology, which is the obvious starting point.
2. Money management. It seems easy insignificant, but youll die on the vine without it.
3. Mental discipline. The intangible element that determines if you are really ready even after you go live.
I welcome comments and everyones input concerning this post.
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