Money Management, Trading Strategy and Psychology
Let those words sink in for a few minutes before you continue. There is no secret. Anyone who tells you they know of such a Money Management secret is trying to separate you from your hard-earned money. They’re scamming you.
Doesn’t it feel better to know that? Doesn’t it feel liberating? It should, because now that you know that there’s no deep, dark investing secret to be found, you can avoid those scammers and their promises of guaranteed profits and start focusing on the stuff the really matters.
Here’s another way of looking at it: If you follow American baseball, then you are no doubt aware of the notion of the batting average. The very best players in the league will have a batting average somewhere around 0.300. That’s actually an incredibly good batting average. What it means is that when the player in question goes up to bat, he actually hits the ball about 30% of the time.
Looked at another way, you could also say that about 70% of the time, the best players in the league FAIL! They swing and…miss.
Most human endeavors are like that. Success is a rarity. Failure is commonplace.
Even the best investors on the planet have more losing trades than winning ones, by a wide margin. You’re going to be no different.
The difference between successful traders and unsuccessful ones comes down to two things: Understanding the fundamentals and persistence.
Since you already know you’re going to fail more often than not, the first question is what can you do to improve your odds of success.
It’s a fair question, and it comes down to three things:
1) Understanding analytic methodologies (both technical and fundamental)
2) Understanding money and money management & having a coherent trading plan
3) And Understanding the psychology of trading.
The first of those points will be covered in other courses. We’ll be taking a closer look at the other two in this course, but what do those things mean?
The most fundamental element of becoming a successful trader is to develop a coherent trading strategy, because it is the thing that ties all the elements above together into a cohesive whole. Your trading strategy (whatever form it ultimately takes) is comprised of the following core components:
• Your knowledge and experience, backed up by a growing familiarity with analytic tools
• Sound money management skills
• A rules-based system that has been tested and verified
• A risk-management system that includes rules for cutting your losses (exiting losing trades quickly) and letting profits run
• Managing yourself and understanding the psychology of trading. While this encompasses a number of things, the biggest and most important are:
o The discipline to stick with the plan you have opted to follow
o And the patience to wait for the “right” trading opportunities to present themselves (i.e., those that align with the parameters of your trading plan)
A great number of novice traders believe that analysis is key. That only if they master this or that analytic methodology, they’ll magically achieve perfect success.
If only that were true. The reality is that all of the factors we mentioned above play an important role in contributing to the likelihood of your success, but none of them guarantee it. Our primary goal here will be to help you align as many of the above factors as possible in your favor so as to maximize (but not guarantee) your chance of success.
If that sounds good to you, let’s get right to it!
Take the Money Management Course