Module 12 Innerworth — Mind over markets

Chapter 105

Increasing the Odds of Success

Trading is one profession where you often find yourself working against the odds. Not just anyone can walk in off the street and start making consistent profits. It takes practice, skill, and proper mindset. Unless you take evasive action against adverse market forces, you may fall victim to overwhelming odds. But skilled traders know how to put the odds in their favor, and you can too. Here are some steps you can take to increase the odds of success.

One skill you must learn is to carefully walk a tightrope between self-doubt and overconfidence. Trading brings out both feelings, and it is often difficult to find the right balance between these two extremes. You may be optimistic at first, but you’ll soon find out that trading can be difficult. The markets are unpredictable and a winning streak can turn into a losing streak in the blink of an eye. It is easy to become disappointed and consumed with doubt. But it is vital to not become too pessimistic, otherwise, you’ll never be able to pick yourself up and try again. What usually happens, though, is that you become overly arrogant to protect your ego.

You may try to psych yourself up and try to beat the odds. Thinking optimistically can be useful at times, but you must use your optimism effectively. Don’t arrogantly think you know how to trade before you’ve built up the necessary skills. Don’t take unnecessary risks and think that you can beat the markets with sheer will. Persistence without the proper amount of skill will get you nowhere. You must study, practice, and learn in order to build up the necessary level of skill to trade consistently. Set learning goals, rather than performance goals. In other words, reward yourself for learning techniques at first, and when you’re ready, you can set an overall profit goal.

It’s vital that you acknowledge your risks upfront. Trading involves risk and you better learn to admit it. Traders try for the big profits, and they are ready to take the risk and responsibility. However, the difference between the professionals and the amateurs is that risk is carefully managed. Since you’re trying to capitalize on winning odds, it’s vital for your survival to anticipate a string of losing trades. That means looking at the risk to reward ratio before entering a trade, making sure that you have a large enough account to take the risk, and if you don’t, stand aside and wait for a trade you can take. Risk management is a trader’s secret weapon, and you must use is to survive over the long haul.

Finally, you must use reliable trading strategies. This is so much easier said than done. Obviously, you can’t expect to profit if your trading strategy is flawed. But it is hard to know when it’s flawed or just not working because of less than optimal market conditions for that strategy. All the trading books and experts warn, “Don’t abandon a trading strategy prematurely.” It’s not wise to jump from strategy to strategy, but what’s “prematurely”? Based on probability theory, even a winning strategy can produce a string of losers and a severe drawdown, so sticking with a sound strategy too long when it’s not working is going to wipe out your trading account.

So again, we’re all walking a fine line. Perhaps the best you can do is decide how much of your trading capital you will risk on the strategy upfront, and if you lose that predetermined stake, just move on. Trading is challenging and unless you are prepared, there are forces that put the odds against you. With the right mindset and proper risk control, however, you can move the odds in your favor, and achieve consistent profitability.

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