The whole point of trading and investing is looking for a way of consistently making money over the long-term. I do not know other way to make money in the markets.
This is why I hold most of your positions 7 months on average, what really gives me an edge trading the markets and what in the end makes a trader successful, over the long-term.
The biggest obstacle we will encounter in trading is our ego and greed and these two needs to be removed from our analysis.
In trading, half is logic and half are emotions, and these are managed with psychology.
How? With a trading system designed in a way that fits your personality.
John Paulson – Stay calm, make money
Components of a trading plan
- When to enter/exit a trade.
- Stop loss placement (Risk Management).
- Position Sizing.
- What to trade (US Stocks, Forex, ETFs…).
- Time frame.
Applying a fully understood trading system that fits your personality and keeps you as stress free as possible should be your number one priority.
Without a proper mindset in trading psychology, you won’t be able to face drawdowns, volatility, setbacks and eventually you will give up on your trading. Trading is a long-distance race, not a sprint.
I have been a consistent profitable trader for years because I am disciplined.
I follow the system without question, a system that has been backtested, and proved profitable where entries, exits, stop losses, position size and risk management rules are clearly defined and thoroughly followed.
In my case, it is pure technical and quantitative analysis.
This means that entries and exits are based on technical indicators like support and resistance levels, moving averages, market timing curves and some others in-house indicators.
I trade based on quantitative signals. For example, when a certain number of indicators reach some levels, when custom moving averages and market timing curves behave in a specific way, etc.
These are not opinions, these are facts, quantifiable ones, I trade the signals, not my opinions.
No matter how much you want to believe you can predict the future, you can’t, if you are accurate when forecasting an outcome, acknowledge that it’s a coincidence and nothing else.
The entire work of some traders and portfolio managers will be just entries, exits and position sizing. For me, this is just 50% of the work. The other 50% is Trading Psychology.
TRADING 101 : 50% of trading is the control of emotions
Gordon Gekko – Wall Street (1987)
These are the psychology rules that I follow when trading:
1. Filter out the noise
The signal is the truth, the noise if what distract me from the truth. The more I focus on what matters and avoid noise, the better your odds of staying calm and becoming a profitable trader.
2. Mindfulness
I observe my thoughts and circumstances without any emotional prejudice. A mindful person is concerned with what is happening around him and filters his actions through logic, reason and the goals he wants to achieve.
3. Trade in the PRESENT
The past is over and the future does not exist yet. All you can do is focus on the present moment.
Learn from past mistakes and accept them as life lessons. Sometimes are expensive but will prove to be valuable.
4. Self-Control IS KEY
The best way to help yourself control your impulses is by having clearly defined goals and a vision of your future.
Delay immediate gratification: when impulses are not controlled, people trade their goals for the immediate desires, and money is transferred from those who can’t control their impulses to those who can.
My ability to stay calm will be determined by how good I am managing losses, lose fast, win slow and move to the next opportunity.
5. uncertainty IS YOUR FRIEND
Understand the randomness of the short term results and understand our long-term edge to stay calm in the face of uncertainty.
A good trader is an expert at managing uncertainty, they win because they are certain of what they will do, when faced with uncertainty.
In trading there are no guarantees, only probabilities, the more unknowns you can remove, the lower your stress level will be.
To remain calm, one of the things I do is limit losses using stop loss and measuring position sizing. By limiting total capital at risk, I remove much of the uncertainty. At any given time, I know that the max I can lose is 4% of all my accounts.
Edit: *Read “Antifragile“, by Nassim Nicholas Taleb, it is a life-changing book that will help you during your trading career. This is the number one book that made the list “5 Books Every Millennial Entrepreneur Should Read“
6. ego CAN BE your worst enemy
Ego can be a good thing because it provides you with self-confidence necessary to execute entries and exits properly, but it is necessary to understand your own limitations and have a realistic assessment of your abilities.
Keep your ego in check, follow your plan regardless of how you feel.
7. LOOKING BACK SHOULD ONLY TEACH YOU LESSONS
It is a waste of time to look back guessing what you should have done.
If you are trading your plan based on your system, your actions are based on discipline, you should not have regrets, the only regret should be loss of discipline.
You can’t relive the past, but you can learn from it. This is one of the greatest skills a person can possess.
Learn where your weaknesses are and work hard to improve them, stop repeating the same mistakes over and over.
8. if angry, something is wrong
You are punished or rewarded based on the quality of decisions you made, there is nothing to be angry about.
Trading small is the best way to manage anger, which is usually associated with a large loss.
This is why your number one priority is trading a system that fits you, the worst case scenarios should be something you can handle, first is survival, second is profitability.
9. THE GOAL IS TO BE HAPPY
Trading for a living with a small account will not be much fun, but trading for rent month after month is a recipe for disaster. Find your balance.
Your goal should be financial freedom, independence and fun, and trading should take you to your ultimate goal, happiness. You must do what is best for you and your lifestyle.
10. TRADING IS NOT YOUR LIFE
Greater effort does not always mean better results, it’s doing the right thing, at the right time, in the right way that creates results.
Diversify your life with friends and family, entertainment, etc. Losing trades won’t seem so bad.
Remember why you started trading, it was to have a better life, not a worse one. When it’s time to work, then work, but when it is time to relax, do that.
“When mistakes stop being negative and become life lessons, the only thing that separates you from success is time.”
Please feel free to email me at jay@valdour.com with any question or feedback, I answer all the emails.
