NOT Rocket Science

I once received an email from someone who was literally a rocket scientist. He said: “Rocket science is not rocket science. Trading is rocket science!” I explained to him that his difficulties stemmed from the fact that he was trying to interject logic and reasoning into the equation. These things might help to get a rocket off the ground but don’t always apply to trading.

It’s not just rocket scientists that struggle. The same often holds true for doctors, lawyers, automatic transmission mechanics, and any others who are highly skilled or educated. It’s not your fault. In fact, once we get deep into trading psychology, you'll discover that you may have had years and years of “bad training” for the markets. This can be easily undone. So, if you're smart, don't worry. You're not doomed! You’re just going to have to accept the fact that logic doesn’t often apply. Once you understand how markets actually work, then you just have to be willing to follow along.

Trading is far from easy but it's not nearly as hard as many try to make it. The mechanics are actually quite simple. In fact, it never ceases to amaze me how the simplest of concepts can work quite well in real markets. This inspired me to trademark “Trading Simplified.”

There are two ways to become a successful trader-an easy way and a hard way. The hard, and very expensive, way is to abandon the basics and try out numerous methodologies that seem to be “too good to be true.” And, then later find out that they truly are too good to be true. This journey can take years and provided that you don’t go broke and/or give up in frustration, you reach true enlightenment when you return back to the basics. 

So You're Not Selling The Golden Goose?

If someone had a goose that laid golden eggs why would they sell it? Good question! If you're like me, you've probably ended up on a few marketing lists. And, like me, you probably get emails daily with inflated promises. Here are just two of my favorites:

“Make 10-million in 10 minutes a day” 

“Make 2-4% every day.”

Obviously, “make 10 million in 10 minutes a day" is complete and utter BS but, how about 2%-4% every day? Well, with simple compounding, a $10,000 account would be worth between 1.4 million and 181 million in less than one year. That’s returns in the 14,000% to 1,800,000% range. Again, these claims are slightly exaggerated-sarcasm implied. And, if they were true, why would you tell anyone?

The Trader's Dilemma

"You cannot predict trends but you can follow them forever" 

Dave Landry

Predicting the markets is akin to predicting the weather. Only short-term forecasts are viable. If it's cloudy and thundering there's a good chance that it will rain soon but you don't know if it will be raining this time next week or next month.  

Short-term trading has higher accuracy and the risks are generally lower. Unfortunately, gains are often limited. Big trends take time to develop. And, the really bad news is that something bad can still happen. Trading where the gains are limited and the losses are potentially unlimited is a recipe for disaster-with ANY methodology.

The real money is in longer-term trading. Unfortunately, so is the risk. The longer that you're in a market the better the chances are that you will get soaked. We all read about these famous long-term traders, but a quick Google search shows that many of them subsequently blow up.

This creates a dilemma. Short-term trading has its problems as does longer-term trading. In order to be successful trading, you must control losses while still allowing for the potential for longer-term gains.  So what's a trader to do? Both! It doesn't have to be a mutually exclusive decision. You truly can have your cake and eat it too by trading for both short-term AND longer-term gains. Through proper money and position management you can take short-term profits just in case the trend is a short one but stay with the remainder of the position should it turn into the mother-of-all trends.   

I Have Some  Good News But First,

The Bad News

"We have found the enemy and he is us"

Pogo

The bad news is that we’re simply not made to trade. This is on both a psychological and a physiological basis. The things that are keeping you alive and making you successful in your career are detrimental to your trading account. Once you accept these facts you'll instantly be able to identify the bad-for-trading behaviors and take simple steps to correct them.  

When, not if, you find yourself struggling with your trading, it could have absolutely nothing to do with you. During these times you must identify anything in your life that has nothing whatsoever to do with trading that could be coming between you and your success.  Correcting these things in your life will vastly improve your trading.  

Trading is not easy, but it’s not nearly as difficult as many try to make it. Simple techniques can actually work quite well in real markets.

Since the only way to profit from a trade is to capture a trend, focus on identifying trends and then looking to get aboard them.

All trades, even good ones, eventually end badly.  Further, trading is unfair because the percent to recovery from losses grows geometrically. Considering these two inescapable facts,  you must have a solid money and position management plan in place that limits losses while still allowing for unlimited gains. 

Beginner’s can skip the Holy Grail hunt by learning and sticking with the basics until they become successful. More seasoned traders who find themselves struggling must return to the basics until they regain their confidence.

The greatest methodology in the world is useless without the proper mindset to follow it.