5 Things that Traders Must Learn to Accept

While my journey to be a market wizard continues, here are a few things that I feel are important.

1. Market is Random

Think about this.

If you are a London banker and you want take a sell position in the Gold Futures because of fundamental reasons, you can do it by placing an order with your broker at a certain price. That order can be taken by a trader sitting in Sydney, representing a hedge fund, who believes your price is suitable for him because of Technical reasons. With that combination, the price moves.

As a trader in London, you have no way of finding that out in advance. Hence, anything can happen in the financial market, for any reasons and it can sometimes turn out to be a complete surprise a.k.a. Random.

2. Risk

As mentioned in Pt 1, the market is random and there are many areas that are unknown or that is beyond our control. Being able to accept Risk is to be able to accept these unknowns. Above and beyond that, you need to be able to manage What You Don’t Know by controlling what you know.

Traders need to embrace risk by making a conscious effort to take calculated risks. The more you expose yourself to risk, the more you will feel pain but if you arm yourself with the right tools, in the long term, the rewards will be greater. As Curtis Faith (taken from his book) says it:

“… when equipped appropriately, even the most risk-averse person can embrace and profit from risk…”

3. You Don’t need to Know Everything to Make Money

Again, as mentioned in Pt1, the market is random and you will never learn enough to anticipate every possible movement that the market will take. Predicting which trade the next trader will take from a different continent of the world is also not something that can be learnt.

As Mark Douglas says it (taken from his book), traders need to accept that they do not need to know everything and can still be profitable. Instead of learning more, what traders really need to know is:

a)      the odds are in your favour before you put on a trade;

b)      how much it's going to cost to find out if the trade is going to work;

c)      you don't need to know what's going to happen next to make money on that trade; and

d)     anything can happen;

4. Mental Analysis is More Important

Well, in my view, that’s the key to trading success. However, having to ability to get there when the market place is so noisy and our internal mental state is so fragile (at least for some) will require some extensive amount of work.

Once you’re able to achieve that, trading becomes easy. So easy that you’ll wonder why didn’t you start working on mental analysis any earlier?

5. Every Moment in the Market is Unique

Unfortunately, there is no such thing. Traders need to learn to accept that, while the financial market is random, every moment of it is unique.

We all know that the market offers plenty of opportunities. However, the key is not to focus on when the opportunities will arise. Instead, traders need to focus, not in the past or the future, but in the present. Traders need see and be clear to recognise that every opportunity flow, every trade set up, every market pattern and, hence, every moment is independent of each other.

Thank you.

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