We’ve mentioned the 3 Ms of trading many times in our blog and various articles; however, it’s worth repeating what they represent for the many new traders who may have stumbled upon our blog. The 3 Ms are; mind set, method and money management.
There is a tendency to attempt to rank these essential disciplines and attempting to do so, amongst a group of traders, will often provide interesting results. For example many will rank method the highest, the rationale being that you may have developed superb money management skills and have a sound and robust mind set attuned to our business, but unless the method ‘works’ you’ll still lose money.
Others will rank money management highest, including this author, as without it you simply can’t survive and even a 50/50 win/loss strategy can be profitable IF the money management is tight. Finally there are those who’ll rank mind set highest, the belief being that unless you get the method and MM right your mind set will be fragile and as a consequence your overall trading strategy will fail. However, the counter claim to this is that your mind set is simply a consequence of getting the first two elements of MM and your method right, the right mind set doesn’t lead to the right method, or instilling sound MM discipline into your trading habits and overall trading plan, it’s simply a by-product of the other two disciplines and elements working.
But let’s not lose sight of the fact that most successful and profitable retail, or institutional traders will agree that there’s a direct relationship between the 3 key critics success factors. We could imagine drawing a circle and placing each ‘M’ equidistant from each other plotted on the circumference with arrows pointing in both directions around the circle. The correlations between all three are without doubt there for all to see.
There’s a fascinating aspect to our mind set that could add weight to the claims made by many traders that it ranks highest; we can sub divide it into several micro sections to ‘super-analyse’ it. For example there’s a list of destructive traits that can be detrimental to our mind set that if we can’t control could be extremely damaging to our overall levels of success and it’s these that we intend to concentrate on today. This is by no means a definitive list and as always we’d welcome contributions by way of the comments section, should anyone care to add other destructive trading traits to our list. We’ll also offer up solutions and prescriptions as to how these negative traits can be dealt with.
This negative emotion will eventually be eradicated from your trading once you defer to the trading plan you’ve spent a considerable length of time creating and you finally begin to accept the possibilities for profit only exist on the basis of probabilities. We can’t force profit from the market, we can’t organize the markets to frame our beliefs and prejudices. We can only take what the market offers up. And if we have a pre-determined target, as a percentage of our account growth, set modestly and moderately, we’ll never be left disappointed regarding the profits we make.
What are we afraid of; the fear of missing out, the fear of pulling the trigger when our high probability set up occurs, the fear of not being able to take a living from the markets? We have to accept our limitations; we can only operate within the markets we see delivered. Our only real fear should be violating our trading plan. Don’t violate it and any fears should recede.
It’s easy to become envious of others profits that we see published on websites, forums or blogs. However, unless you’re a broker, actually witnessing the profits made, then all claims should be taken with a pinch of salt. People are generally predisposed to exaggerating their stature and performance on the internet and in particular where trading is concerned many will have an agenda when making wild claims. Therefore if envy is an issue it shouldn’t be. However, if we witness genuine proven performance above the norm then we should embrace it, applaud the achievement and perhaps look for clues as to how our own performance could match it.
Should not exist if we are working to and with a high probability set up. The market will simply come to us and our set up. Similarly taking profits will be determined by the measures we’ve embedded into our plan and input into our trading platform.
We should have no concerns with regards to this eventuality, firstly, we should never miss a set up and secondly if we do, particularly on a swing trading basis, we can still enter the market. There are many times, within the scope of our trading plan, when we can set second entry points and these opportunities should be based on extra confirmation. For example, in our ‘second bite of the cherry’ we might wait for the MACD and DMI to trigger as part of the cluster of indicators we rely on to enter the market. In theory this should make our trading decision more secure, despite entering later than we’d have preferred.
Revenge and revenge trading
The market is an unemotional and incredibly rational and efficient organism, it has no emotions. Within that $5 trillion a day turnover business your loss or gain won’t be missed, withheld or celebrated. In short no one cares expect you. The quicker you develop an emotionless robotic attitude towards your trading the better. There is no revenge to be had in this market by reversing your trade direction when you’ve got it wrong. You simply close your poor trade and wait for the next opportunity.
I know better than the market
What we know, or think we know about the markets, has no relevance on the performance of the markets. We don’t need to know what’ll happen next in the market in order to make money. We need to let go of our pre-conceptions, prejudices and confirmation biases and react and adapt to the fundamental decisions and high impact news events that eventually manifest as price action on our charts.
Just this once
Never deviate from the trading plan, the retail trading world is littered with traders’ who bitterly regret taking that one trade that inevitably loses. What’s also evident is that even if the one off trade works and results in profit we quickly begin to despise the feeling of trading outside the scope of our trading plan. Never take a punt, never violate the plan.
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