Ninety per cent of businesses go bust in the first year. Of the remaining ten per cent about ninety per cent of those eventually go bust or the owner just scrapes by. So please do not treat your trading as though it was a business. And you should certainly not think of yourself as a business person - business people are typically not all that bright (read Taleb) and are generally control freaks (I should know I built and sold a successful business).
To succeed at trading you need to be something different. It is well known that business types who turn to trading often do quite badly (as I did during my first five years). Fortunately I’m also very risk averse and so I only traded on a small micro account until I could see that I was consistently successful. In fact I still don’t know whether I will be consistently successful, although the last year has shown significant gains on a real account.. I will need another five years before I can make any claims about consistency.
I see books, forum postings, webinars - you name it, by people who are clearly struggling, but believe that by adopting some business type approach they can turn negative expectancy into positive expectancy. Here in my opinion is a useful approach to trading (although probably not for everyone):
1. Before putting a penny at risk you need to undertake a large research and development project - and it may last several years. (Gann spent ten years in R&D).
2. Be open to every idea - even the ones that are scoffed at or dismissed by experts (such as averaging into a trade). Form your own opinions - the chances are that no one will hand you a working ‘system’ on a plate - it’s up to you.
3. Only when you can forward test a trading strategy and see consistent returns should you consider trading it. Back testing means almost nothing. (Forward testing is the application of a trading strategy/idea to data that you have not looked at before - without modifying the strategy).
4. Only by having confidence in your trading methods/systems will you avoid knee jerk trading. Confidence is everything - if you are not confident you will do silly things - and lose money.
5. Understand the level of drawdown that would indicate your trading systems have failed - and be confident while drawdown remains within limits.
6. Money management - pompous name for a simple idea. Risk about 2% of your account on any trade. It does get a lot fancier than this, but is generally meaningless in the real-world. Without a positive expectation trading strategy money management is mostly useless anyway.
So first and foremost you are a researcher - please do not model yourself on a business person - they mostly go broke. Once you have a positive expectation strategy that tests out consistently on data that has not been seen before then you will almost automatically become confident. Money management (and don’t people love that word ‘management’) is trivial.
A fuller discussion of back testing and forward testing can be found here: http://www.forexfactory.com/showthread.php?t=374498
To succeed at trading you need to be something different. It is well known that business types who turn to trading often do quite badly (as I did during my first five years). Fortunately I’m also very risk averse and so I only traded on a small micro account until I could see that I was consistently successful. In fact I still don’t know whether I will be consistently successful, although the last year has shown significant gains on a real account.. I will need another five years before I can make any claims about consistency.
I see books, forum postings, webinars - you name it, by people who are clearly struggling, but believe that by adopting some business type approach they can turn negative expectancy into positive expectancy. Here in my opinion is a useful approach to trading (although probably not for everyone):
1. Before putting a penny at risk you need to undertake a large research and development project - and it may last several years. (Gann spent ten years in R&D).
2. Be open to every idea - even the ones that are scoffed at or dismissed by experts (such as averaging into a trade). Form your own opinions - the chances are that no one will hand you a working ‘system’ on a plate - it’s up to you.
3. Only when you can forward test a trading strategy and see consistent returns should you consider trading it. Back testing means almost nothing. (Forward testing is the application of a trading strategy/idea to data that you have not looked at before - without modifying the strategy).
4. Only by having confidence in your trading methods/systems will you avoid knee jerk trading. Confidence is everything - if you are not confident you will do silly things - and lose money.
5. Understand the level of drawdown that would indicate your trading systems have failed - and be confident while drawdown remains within limits.
6. Money management - pompous name for a simple idea. Risk about 2% of your account on any trade. It does get a lot fancier than this, but is generally meaningless in the real-world. Without a positive expectation trading strategy money management is mostly useless anyway.
So first and foremost you are a researcher - please do not model yourself on a business person - they mostly go broke. Once you have a positive expectation strategy that tests out consistently on data that has not been seen before then you will almost automatically become confident. Money management (and don’t people love that word ‘management’) is trivial.
A fuller discussion of back testing and forward testing can be found here: http://www.forexfactory.com/showthread.php?t=374498
Irregular
