How is it that some traders are very profitable when trading in the markets? And why is it some traders so often fail? Can it be just luck that determines if you are profitable trader or not. Or could it be the system or strategy that a trader is using which determines their success?
A great deal would say that it is the system or strategy that they utilise which in the final analysis decides whether or not they end up succeeding in the market.
All of the systems that are in existence on the internet today will show you how to make money using them. The major question asked is usually how much money will the particular system make for you.
Nearly all of the systems that out there will show you how their system works based on past historical data. And what do you always find at the bottom of the page? A disclaimer clause that states that Historical data does not decide or guarantee future earnings.
So why is it that these sites include this disclaimer clause? It is because they recognise that there are certain factors which they can not control or take into account. These factors are Human emotions.
These emotions are and always will be the key the key to either success or failure in any business sector. And it makes no difference either when you are trading the markets. You can read all the books you want about trading. Purchase the most expensive successful system that money can buy. But ultimately If you can’t control your emotions, you can’t succeed and be profitable in the markets.
That’s why they have the disclaimers clause because the one thing that the author can not control is their contributors or buyers emotions.
There are only two main emotions that every trader will experience at one time or another in their trading career and that is, GREED and FEAR. When these emotions appear it is not how we eliminate them but rather how we act on them. Because they are natural emotions therefore they can not be eliminated only controlled. These emotions drives us to action, thus how we act on them will decide the outcome,whether it be good or bad.
Take anger for instance, when we become angry at someone, we can either say something nasty or we can just go and kick a wall or something. Depending upon which action that we took produced a different outcome or result. So it is exactly the same when trading in the stock market. What we do and how we react determines the end result.
How often have we experienced two to three consecutive losses on our trading activities and straightaway we begin to have doubts. When this happens we are already at the state of fear, we fear that we might lose more of our money and therefore we begin to question that the system which has worked so well before is now not working correctly.
Now on the other hand, when we begin to experience two or three consecutive profitable trades we now begin to feel on top of the world. When this happens we begin to feel that we can start making even more money on the market. So we then decide to start tweaking the system or maybe investing a little bit more capital into the market to leverage our earnings, or maybe begin to take on even more positions. All of which has ultimately made us deviate from our original system which we were using quite successfully. This is when greed has begun to intervene and has taken over our thoughts and actions.
You no doubt would have heard the saying ‘The system is only as good as the person using it’. So if we don’t follow the system correctly either when we are making losses or when we are producing profits. We would in the last analysis be doomed to eventual and certain failure. Therefore to follow the system requires discipline. The discipline to act on our fear and greed when it kicks in, will in the end determine how well we do in the market.
So once again discipline is the key. We must have the discipline to say ‘I have reached my profit target and I should take profits now even though the stock may go higher.’
When greed and fear rear their ugly heads, there will be many examples when we shall have to make a decision as to whether to enter or exit the market. These are the two most important decisions you will have to take in order to succeed in the markets. The discipline to follow the system diligently no matter what happens in the market place.
So remember that no matter how fantastic the system is, the only sure way to lasting profits in the market depends entirely on your discipline to overcome your personal emotions and to follow your own particular system scrupulously.
Chris Strudwick is a successful share trader on the Australian Stock Market Visit his weblogs at both http://www.asxnewbie.com AND http://www.aussie-retiree.com/ for more free articles and useful information about the stock market.