When it comes to trading in its most simple form to achieve consistent results you need to be using a plan that allows you to be consistent with actions and that will lead to consistent results. Now to ensure you get consistently good results you want to make sure that through using probabilities of that specific plan that over time you have a positive edge.
However, in the beginning of your trading career and sometimes even when you are slightly experienced it can be hard to follow your trade plan as it requires a specific level of discipline, commitment and trust in the process.
You need to be disciplined in following your plan, rules and principles are what you are using to find setups and reasons to actually get involved in the markets. Discipline will be a force you need when your emotions begin to surface, as they will at some point because we are very emotional beings. Now by using a systematic process we can definitely help to remove emotional based decision making and subjective behaviour but it doesn’t remove our emotions full stop. Because of this at certain times we will be more emotionally charged than other times in our trading career. This can happen for various reasons one example being that you identified a valid trade setup and you wait for your entry reasons to be met but you just miss out on getting what you need to execute the trade.
In these certain situations you will then be tested as you might be tempted to take the trade anyway despite not having your needed entry reasons met, as there could be a lot of different confluences in the market to support your prediction and the market even begins moving in your anticipated direction and because of this you begin to feel the fear of missing out.
F.O.M.O (Fear Of Missing Out) is caused through an increase negative emotions such as; fear, anxiety and panic.
Why do traders feel this way? Simply because they are thinking too short term and putting too much emphasis on that one single trade setup as they forget to realise the market is never short of the same and sometimes even better opportunities.
The traders who react and engage in the markets because of F.O.M.O will never be consistently profitable. As they could be following their trade plan but when they don’t get their entry reasons met, they enter that trade setup anyway, so they lack the discipline not to get involved in that setup.
Now what is very important to remember is that your trade plan and every little detail is used as a filter, to not only find specific market conditions and exploit certain patterns or frequent market moves but for when the market conditions are met you narrow it down even further to ensure you have a higher probability of being right when you do get involved.
Your entry reason is the filter to ensure you get involved in high probability setups but more importantly you filter out other losing trades. The reason we do this is mitigate our losses to ensure that when we do decide to get involved in the markets, we are doing so knowing we stand a chance to be correct in the long term.
So, trading your plan with absolute discipline is vital. Now I never said it was easy, but it is what’s required from you in order to become consistently profitable.
At times you may want to take a setup, but you don’t have your entry reasons met so you can’t, and the market may even go onto achieve what would have been profit targets but what does it matter? Because if you are following a plan the only trades you need and should be involved in are the ones that meet all your criteria.
So, no we can’t get involved in every setup, but we don’t want to be involved in every setup. We only want to be involved in the markets when the odds and probabilities are stacked in our favour.
Now commitment is important because once we start something we need to be committed until the end to see it through to achieve the long term benefits, so we need to ensure we are both mentally prepared and mentally committed for what we are about to do which is use a long term strategy in the markets to hopefully make an ROI.
Why is commitment important? It’s important because there will be times when we want to abandon the process all together when we are taking a few losses or trading through a drawdown. But once we enter that stage of the strategy (drawdown) the only way you can pull yourself out of it is by simply continuing to follow the same strategy that got you in it in the first place and again this is where discipline comes into play.
So you need to be committed to follow your trade plan in both the short-term and long-term perspective of your trading career because at some point you will go through a losing streak and a drawdown will occur but in the long-term we should always come out of that drawdown and back into profits once again.
Think of your trade plan like your partner, there will be times where you both disagree, and things aren’t going how you would like them to be but if you are committed to one another you find your way back to how things were. That is how relationships last and when people aren’t committed to one another then the relationship will end and it doesn’t matter how much one side wants things to work out than the other, you need both parties for it to really work.
The last variable is trust as you need to trust the process because if you don’t trust something then you can’t be disciplined or committed. Trust is the backbone to everything thing in modern society so its crucial you trust your plan by knowing its performance and results in the live markets. When we lack the ability to trust something what happens? We stay away from it and put ourselves in situations to where we would never need to use it.
So why is trust relevant in trading? The answer is because we are trading the markets using long-term probabilities now with that being said we don’t know for certain the short-term outcome, as again we are trading with probabilities and probabilities carry a level of uncertainty.
For example, we have 100 trades and our plan tells us that out of 100 trades, we have 60 winners and 40 losers.
Now where trading becomes hard even for experienced traders is that we never know when them losing trades will come or how many we will take until we have our next winning trade. As we could have a losing streak of 10 trades before we have our next winning trade comes along.
Imagine then tyring to trade and navigate your way through the markets by using a plan but then having no idea what results to expect from that plan. You would not be able to trade through a losing streak of 10 separate trades as you would just abandon the plan believing it doesn’t work, why? Because you have no reason to believe or trust that the plan/strategy can actually make ROI or produce any long-term profits. You would then simply give up before the plan can actually go onto to produce a profit and that is the cycle majority of traders go through in their trading career. Until they either run out of capital to trade with or they just give up entirely and lose all motivation.
So, trust in my opinion is by far the most crucial and important variable to anyone who steps in trading because without it, any chance of long-term success is negligible. In order to gain trust in the process you are using you need find the expectancy in terms of performance for what it is you are using to find trade setups and execute trades.
This will be explained much further in next week’s article.
So, to summarise this article in order to trade the markets and be consistent in your long-term actions for long-term positive results you need to be disciplined, committed and last but definitely not least you need to learn how to trust the process. All three of these variables marry together and are the backbone to any trader’s success and your own personal success.
I hope that you all enjoyed this read!