Truths of Trading

Let’s break these truths down a bit. They are VERY important. 

  1. Anything can happen. This one seems self explanatory but it’s something you need to keep in the back of your head at all times. Every time the market crashed it caught most investors off guard. Relating to the first lesson, we are not dealing with a rational environment. Financial markets, while stable most of the time, can quickly unravel and become unstable. There are an infinite amount of forces working simultaneously in every market at any given time. Regardless of the amount of time/effort you’ve put into analysis, the market can act as irrationally as it wants.

  2. If you have perfected your edge, you literally don’t need to know if the market is going up, down, right or left because you know which signals to look for within individual securities. Now, this isn’t to say you need not pay attention to the overall market, this simply means that trading is simply a probability game. Concepts like right and wrong or win and lose no longer have the same significance.

  3. If we believe in a probability based approach then we are utilizing statistics to figure out where our wins and losses come from. For example, a descending channel within a larger uptrend breaks higher 80% of the time. Therefore, 20% of the time, even though every indicator is telling you the trade will work, it will fail. But if you play the percentages to your favor, in the long run you will win.

  4. An edge aims to create a consistent system to map out your trading style. You’ve accepted that trading isn’t about hoping or wondering if the next trade will work, the only evidence you need to gather is whether the variables you look to are pointing to a trade entry. You focus on very specific credentials in each trade and avoid the “random” at all costs. If you believe in the viability of your edge, you are looking at the same criteria in every trade and recognize the random distribution between winners and losers.

  5. Simply put, every second in the market is different from the last second. Though we notice similar signals over and over, every trade is independent of itself. Our minds are designed to automatically associate anything in the external environment that is similar to something we have seen before, called the automatic association mechanism. In many way it is a positive attribute to have strong association skills, but we must always remember that every single tick in the stock market is different from the last. The less you associate, the more information you will be able use to perceive what the market is offering. 

Do you have balls? 

Share a time when you witnessed something happen to a stock that you never expected to happen? Did you profit from it?


What is your trading edge? 


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