December 27, 2018

People fail in trading because they search for certainty which does not exist in markets

As a human being, we are conditioned and trained to search for certainty and have evolved as such. This is for our protection and safety.

But markets are anything but predictable. And when we suddenly come to face with uncertainty, we look for certainty and fail. So people try to look for more certainty, more clarity, more predictability .. we see more patterns, try more indicators or change time frames  etc. One may even introduce effects of planets and moons and so on..

On a even worse level, we seek advice of others while completing forgetting they make the same mistakes and suffer from the same biases as you.

Basically we are seeking some assurance that this has happened in the past and hope that we know it will happen in the future.

Indirectly they are searching for a better success rate and in my opinion these traders are likely to fail every time or never grow up big with their trade position sizes.

The key to profitable trading lies within you while you have looking outside you all along.

I will tell you what has worked for me... I have 2 belief systems.

First that the outcome of any trade is uncertain (or random). This belief will force you to learn to manage losses and accept that nothing is certain or in your control. It will also help stop wasting your time trying to reinvent the wheel or improve a system which needs no improvement. This also means you will be a process or a systems driven trader and not an emotional one.

The second belief is that intelligence is not required to make money in the markets. Any system which generates a success rate of 40-50% is more than enough. You should just have the discipline and strength to cut losses fast and hold to winning positions as long as possible. This is like a casino which may lose small amounts every now and then but over a large sample size they make fantastic money.

This transition from looking for certainty to accepting uncertainty happily can take anything from few minutes to years. But you should be willing to change.

If you are not willing to change, you will be better off investing in index funds (SIP). You will earn far more than what you are earning now (remember it is the process).

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