Guest post by Matt at TradingParadigm.com
Does Acquiring Market Knowledge Equal Consistent Profits?
Many novice traders think that learning technical & fundamental analysis in order to be a good market analyst is the only factor involved in achieving consistent trading success. As a result, those traders get hung up on reading the most popular trading books, studying charts, and making predictions.
All of this studying and forecasting seems overwhelmingly important until it comes time to actually put those forecasting skills to the test, and that’s when the game completely changes. With real money on the line, the psychological impact of live trading kicks in, which has a tendency to chew-up-and-spit-out even the best analysis, forecasts, and predictions.
At this point, if you have failed to train your mind in order to effectively operate within the market environment, you are now highly susceptible to self-sabotage. Your initial trading plan becomes an afterthought as you obsess over every tick for or against your position. Before you know it, you’ve removed your stop, doubled-up on the losing position, and are now on the verge of a panic attack – hoping and praying for a major rebound just to be made “whole” again.
On the surface, trading can seem so simple: “buy low and sell high”, “cut your losses fast and let your winners run”, and the list of axioms goes on and on. But your ultimate trading success depends immensely on your ability to dig much deeper than that. In other words, you have to have an uncommon level of personal depth that allows you to overcome your own destructive thoughts, emotions, and behaviors.
If “just money” was on the line with every trade, then trading would be much easier. But it’s more than just money. It’s everything you have attached to it as well – your ego, values, and dreams. When you win on a trade, it validates you – you finally receive the money, status, and recognition you deserve. But when you lose on a trade, you’re a complete failure – you’re the worthless reject everyone always thought you would be. You bounce like a pinball from euphoria to dejection based on the result of every trade.
This is exactly how most trader’s journeys transpire. But this rollercoaster ride of emotions is clearly not an effective and sustainable approach. You acquire some basic knowledge, do some live trading, get dreadful results (both emotionally and financially), and ultimately end up quitting.
But it doesn’t have to be this way. Fortunately, a constructive turnaround can take place by applying the success formula to these 2 core components.
So, What is the Success Formula?
Is it Knowledge = Consistent Profits? Nope, that’s not it
Is it Knowledge + Action = Consistent Profits? Closer, but still not it
The Success Formula is…
Knowledge + Action + Feedback + Better Action = Evolution
The secret to achieving consistent trading success is applying this formula to both your system and mindset. After enough iterations of “Feedback + Better Action” in order to refine your process, eventually consistent profitability will be reached.
Like we discussed earlier, the majority of us acquire some market knowledge thinking it’s the key to success. Then we apply that knowledge by placing some trades. Usually, those trades don’t turn out so well. Even though our own thoughts, emotions, behaviors, and even the market itself are all offering us feedback, we usually misinterpret the meaning of it or fail to recognize it altogether.
In many cases, we determine our initial trading woes to be a lack of market understanding. So we turn back to the books and charts, trying to make even better predictions than before. But in doing so, we miss the critical message that the market is trying to reflect back to us. Countless traders unproductively cycle through the “Knowledge + Action” phase for years while misinterpreting the feedback, never being able to take new, better actions.
Once we recognize that we’re attacking the market with an improper mindset, then we can finally make strides to evolve. Instead of fighting the market, we can be in harmony with it. Instead of making trading an afflictive experience, we can make it enjoyable. These incredible changes start with self-awareness.
As mystical as it sounds, most traders endlessly struggle by failing to align their mindset with true market characteristics. Many doctors, lawyers, and other highly-regarded individuals enter the market thinking that they already have what it takes to be successful. But external success doesn’t necessarily translate to the market environment. Never forget that competence depends on context.
The market doesn’t care about your past successes, certificates/degrees, or IQ. In fact, it doesn’t care about you at all – it’s completely impersonal. This might sound harsh to some people, but also provide an amazing opportunity for others. All that matters within the market environment is having a statistical edge and being able to capitalize on that edge. When you boil it down, trading success is really no more complicated than that.
Conclusion – Use the Success Formula to Your Advantage:
In the end, trading is the ultimate activity for mental growth and development. In order to be successful, it requires you to face your own attitudes, beliefs, and perceptions on money, risk, certainty, competition, and being wrong, among other things. These topics tend to produce strong emotions within us – emotions that can cloud our thinking and disrupt our behaviors.
If you are human, chances are you fall into at least one of these categories: you obsess over money, hate risk, crave certainty, avoid competition, or detest being wrong. Yet all of these attitudes are in direct conflict with the mindset required for generating consistent trading success. This means that operating within the market environment will require internal changes.
So listen carefully to your thoughts and emotions while actively trading, and take note of your behaviors. Are they rational or irrational? Planned or impulsive? Then connect that information to your results. What feedback is the market providing you? Are you being rewarded for rational/planned behaviors and punished for irrational/impulsive behaviors?
Over time, this data can help you replace your destructive thoughts, emotions, and behaviors with more constructive ones. Remember that your own brain, as well as the market, provide constant feedback loops – endless opportunities for continuous improvement, transcendence, and the pursuit of excellence. You just have to possess the appropriate level of self-awareness and objectivity to hear them.
Overall, operating within the market environment can be one of two possible things: It can be an emotional and financial nightmare if you let it. Or it can be the greatest possible opportunity for emotional and financial development. The choice of how you utilize it is entirely up to you.
About The Author
Memorable Lines From This Post
Your ultimate trading success depends immensely on .... an uncommon level of personal depth that allows you to overcome your own destructive thoughts, emotions, and behaviors
If “just money” was on the line with every trade, then trading would be much easier. But it’s more than just money. It’s everything you have attached to it as well – your ego, values, and dreams.
The Success Formula is… Knowledge + Action + Feedback + Better Action = Evolution
Once we recognize that we’re attacking the market with an improper mindset, then we can finally make strides to evolve. Instead of fighting the market, we can be in harmony with it.
The market doesn’t care about your past successes, certificates/degrees, or IQ. In fact, it doesn’t care about you at all – it’s completely impersonal.
All that matters within the market environment is having a statistical edge and being able to capitalize on that edge. When you boil it down, trading success is really no more complicated than that.