TRADE AND TRADER
It is estimated that 8 out of 10 people who try to trade do not earn any money. According to a recent study, 75% of traders in the US lose everything within two years. This is an astonishing rate of failure, but what is even more surprising is that this failure rate has remained unchanged for almost 150 years.
The most important factor in the rate of traders who go bankrupt is that this rate remains constant regardless of time.
However, traders have had much better conditions over time. Now traders can spend 1 sec. With complex Technical Analysis programs, sophisticated computer systems. They also transact with the data of all markets in the world displayed on the screen. Despite all these advantages, most of the traders are losing and going bankrupt. So the problem is much deeper than adding advances in technology to their trading. The answer to why the vast majority of traders lose is like opening a pandora box. However, the reasons are mostly very simple.
When people first start trading, they follow one of two ways.
The first group only focuses on what they are following, or they try to find tips or clues from many sources. As can be expected, those in this group cannot be permanent for a long time.
The second group is a bit more sophisticated. They set out to look for the Holy Grail (the indicator that ensures your success in the markets is consistent and precise).
Yet this magical indicator never existed, and these traders will stop paying themselves for this futile search. Some traders buy or try to find new Technical Analysis packages, some spend hours searching for the latest indicator on the internet or believe that they will increase the chances of success by changing the color of the computer. The reality is that this kind of 'Holy Grail' and the pursuit of system building take no more than 10% of the trader's time. However, many traders spend all their energy focusing on system creation, especially on entry signals. Whereas the 'buy signal' is a small part, and often an insignificant part, of trading systems.
Many of you do not agree with what I am saying about the buy signal, but make a decision by reading what I will write below.
If you are acting completely randomly in the markets, your chance of success is 50%, so you have an expectation of one to two. For every dollar you lose, you have to earn $ 2 so you can continue trading.
A group of e-traders known as 'The Turtles' are some of the most successful traders in the world, even though their systems were built with only 30% success. If you do not believe it, you can test what I said with a simple account, assuming that you start with $ 10,000 and lose 10% in the first trade and earn 20% in the next transaction, you will see how big your account has reached if you repeat this process over and over. As this simple approach shows, the point of purchase is not a determinant of our success.
The trader must decide what to earn, not how many times it will be justified. Because getting right doesn't have much to do with how much you earn. Despite this, most traders are obsessed with the entry-point, constantly focused there, each with a desperate attempt to justify. This is a signal that the trader's ego is in his grip, early warnings that he is drifting to extinction.
System building goes far beyond the entry signal.
The essence of the mechanical trading system is the creation of the system's expectation concept. In other words, what you can earn in each transaction but what you will lose in each transaction… How often you make a transaction takes a place in the system.
If you have a huge expectation, the system can generate a signal once a year, for example. Finally, what is your selling criteria? It is easy to enter the position, on the other hand, your exit-sell point determines the money you will earn. It should be very clear that system design is much more than the search for a magical system, it is an attempt to create a comprehensive approach to be permanent in the markets. However, the system building features that I have listed are only a small part of your trading armor. The MAIN criteria for your success are money management and psychology.
I'm pretty sure for myself that trading is more of a psychological effort than a financial element. Traders focus on building systems for many reasons. Not all technical analysis programs involve much beyond generating a buy-sell signal, because the situation makes manipulation very possible when looking for the 'ideal' indicator. To see how meaningless this is, consider the fibonacci numbers. Many traders use these numbers by default in their indicators, whereas how can 13-day HO produce spectacular results than 12 or 14 days? By doing so, traders think they can grasp the mysteries of the markets and learn about the market secrets they must discover. The second reason why traders concentrate on the buy signal is due to concerns about being justified, as I mentioned earlier. As we all know, we all have ego and we are affected by this emotional drive in all the decisions we make. It is really difficult for us to stay with the fact that there will be more positions that end up wrong than those that are justified, but that's always what happens.
For example, the rate of correct positioning in moving averages, one of the most used methods in input signals, is below 50%. Therefore, we always strive to overcome this imbalance by seeking a system that will justify us. And so because of this trading fact traders nurture, protect and grow their ego.
The third reason traders spend so many futile hours for an entry signal is the illusion that perfect entries will provide control and dominance. Traders somehow think that the entry signal will give them the dominance to control and beat the markets. This situation can be compared to the fact that they prefer certain special numbers to use randomly selected numbers in the digital lotto. However, whether you use special numbers or random numbers chosen in the numerical lottery, your chances of winning are equal. Approximately the same fact does not change your rate of success or loss in your trading, as you will see either using fibonacci numbers or others when choosing the number of days in your moving averages. I don't want to make you think that creating a trading system is pointless, of course traders need an entry signal form. It is a fact that we need to determine trends, under which conditions and analyzes such as what kind of expectations we should have. But by focusing solely on the input signal, it is the biggest mistake to ignore, ignore, ignore the other complex elements of the system and the very important money management and trading psychology. Traders should start to understand these two most important elements of being a long-lasting successful trader. Ignoring these elements and concentrating on the search for the 'Holy Grail' will definitely add you to the 80% who haven't earned any money.
The Enemies of a Technical Analyst are the following.
1) Sensuality,
2) Seeing what is in the lower ego, not what is in the chart,
3) Acting outside the system,
4) Dealing with causes, not consequences,
5) Not learning from your mistakes,
6) Forgetting that the sat signal is also a receive signal,
7) Forgetting that the buy signal is also a hold signal.
AUTHOR:
Chris TATE
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