Holy Grail of Financial Trading

Holy Grail of Financial Trading

Holy Grail of Financial Trading
Holy Grail of Financial Trading

Lets face it, this is a hard fact to swallow that 95% of traders fail. Only 5% of traders make money consistently. Unless a traders is making money consistently he/she is still in 95% of unsuccessful traders. One of the main reasons why traders fail is because they are always searching for a Holy Grail system. A strategy which will some how make them rich and famous. They hop on to strategies one after another. As soon as one strategy stops working, they are on the look out for another one. So what is is Holy Grail of Financial Trading and where is it?

Van K. Tharp’s Trade Your Way to Financial Freedom
book gives a complete account of Trading Holy Grail and where it can be found! He was able to unravel this mystery once and for all.

A trader’s Holy Grail is within himself. It is not some system or strategy. There are thousands of strategies used by successful traders. They do not use the same one. So what makes them successful? It is they themselves. So question is how to find this Holy Grail of Financial Trading? Well, here are some clues:)

  1. Trader’s Psychology is the biggest part in Trader’s success. It is not strategy or system. It is the person inside the trader. A trader should be disciplined to follow strategy day in and day out. There is no strategy which gives 100% results and there will be losses/draw downs on the way. That is when trader’s psychological strength is tested. If the trader understands that losses are part of the business  and treat them as cost of running business like any business, he/she will excel. Small acceptable predefined losses must always be welcomed. They are better than losing capital and accumulating losses. A small loss in a trade tells the trader that it is time to get out. Fail Fast and Move On to Next Thing. Trader must run trading as business. It may be small to start with like any other startup.
  2. Trader must remain calm, objective and indifferent to successes or failures of trades. It is the process which is more important than outcome. A process with positive expectancy repeated over time automatically produces good outcomes. But trader must follow the process objectively. An example will be a machine which has certain fixed input and certain output.  A machine stays objective and keeps on processing. If there is a positive expectancy in the machine processing to produce output, it will generate output. But machine must conduct processing else there is no output.
  3. There is no such word as BIAS in trading world. If trader is biased towards something in a market, the analysis will be biased too. This goes against the objectivity of the process (point 2 above). Biases hurt objective processing and can be deadly. (Read more about biases.)
  4. There is no EGO in markets. Markets represent collective decisions taken by millions of buyers and sellers at a given time. A trader can not fight that. Market runs and can not be controlled by a single trader. There is no point in fighting it. However you can stay with it. A trader must learn to read what market is saying and act upon it.
  5. Have a tested rule based trading plan. Traders mistake trading with trading strategies. Strategies are just one part of trading plan. Strategies tell a trader how to enter and exit positions but plan contains rules which have been developed based on experience while using those strategies. It contains a whole lot more than just strategies. A trader’s trading plan is what a Business Plan is for a business. It must contain all aspects of trading business. For example: Money Management, Risk Management, Position Sizing, Trading Rules, Market Portfolio, Contingency Plans, Equity Withdrawal Plan and lot more.
  6. Traders must have Money Management and Risk Management in their trading plans. They are key to success and grow the business. Traders are often confused between Money Management and Risk Management. Risk Management is about how to protect the capital. Like any other business trading can not survive without cash in the bank. Protecting capital is number one priority. Money Management is all about how to make use of capital in most effective way without increasing risk of losing capital.

Here are some DON’Ts to help along the path to finding Holy Grail of Financial Trading:

  1. Never accumulate losses. Never add to losing positions for averaging.
  2. Never risk more than predefined limits on a single trade. Limits must be well defined and tested.
  3. Never trade without a protective stops.
  4. Never exit a position without a good reason. If there are reasons to enter a position, there must be reasons to exit too.
  5. Never fight the market. Once a position is in the market there is nothing a trader can do about it other than early exiting which will stop the Process which we talked about in point 2 above.
  6. Never enter a position without your own analysis. A trading plan is trader’s personalised business plan. Follow that. If a trade fulfils all rules of trading plan, enter the trade else must not.

Good luck with trading. I welcome your comments and suggestions.

-TradeYodha

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