Trading Success Formula

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trading success equation

When I hear from traders, which generally means emails about trading success, there are a few things I am in tune with. These “things” help to make it is easy to spot the ones who are worth the effort (in my humble opinion) to spend the time responding with a well thought out response to whatever questions they have asked.

Which leads me to state that it is the questions that are asked that determine my response level.

When I see questions such as “how much do you make”, “is it easy to trade” or questions along those lines, I personally tune out. Those types of questions will have answers that will have nothing to do with your ability to find any level of success trading.

Much preferred are questions about risk. I like those questions because keeping your eye on risk can help ensure some longevity in this business.  In fact, describing yourself as a risk manager first will help you keep the importance of risk management in the front of your mind.  Without a professional approach to managing your risk capital and trade management, the risk of ruin will always be lurking in the shadows.

The questions asked however are only a part of the equation of trading success.

 

The Success Formula Is About Attitude

For me, the main player in the success formula is attitude.

Without question, attitude plays a massive part in the ultimate success for someone looking to tackle the markets (it can be argued that to tackle anything, attitude is a key player). There is actually a formula that I saw years ago that is imprinted in my mind. I want to share it with you because not only does it give a clear measure on how to achieve success…..but also how to measure yourself on that path.

Success=A(LTV+D+E/T)

In this post, we are going to look at the first two variables inside the brackets.

LTV is Long Term Vision.

What this really means is that you have in place a mindset of the long journey. You are not the one looking for home run trades this week or next. You are not looking to make a million dollars in a year like some of the ads on the internet state.  You have accepted that simply breaking even is a step in the right direction and that profitability could still be months (or years) away.

You fully understand that trading is a business that can provide a lifestyle that many only dream about.  You know you can trade any place (well, almost) in the world. You know that it offers time with your family and allows you to focus on what is truly important in our lives.

You also know that it will take time. After all, it takes a doctor, lawyer or any other high paid profession literally years to make the big bucks. All those years are spent training and perfecting. Moving up the ranks.

LTV is about realistic expectations.

It is about knowing you can possibly blow up your account. At the very least, you know you will make rookie mistakes (even the professionals still make errors) and will have losses….perhaps a string of them.

You WILL lose money.

That however does not deter you. You EXPECT to lose.  You actually expect to lose on every single trade which forces you to risk a percentage of your account that will allow you to withstand the string of losers that will come.

The truth is most people fail.  The only way to truly fail is to quit and there are plenty of stale accounts sitting on the brokers books that people just gave up on once the balance was minimal. Most traders don’t make enough to support themselves but it is extremely possible to add a nice additional income.

You expect success (I mean with certainty) but also expect some pain along the way. Knowing that it will be bumpy but are committed anyhow, can sustain you through the rough patches.

Remember though, TRUE commitment is rare in life.

D is for Discipline.

Google the true meaning of that word and one thing that will stand out is that at the core of discipline is rules. There are rules in trading and many of them are set by YOU and your method.

  • The discipline to follow the rules of your system.
  • The discipline to follow money management practices to proven an account blow out.
  • The discipline to work on the psychology of trading and working out the demons that affect all of us.

The biggest thing I find in terms of discipline is that traders have a strong inability to be consistent with the trading rules of their system. They want to out think their method and the markets instead of following what should be a positive expectancy system of trading.

Failing discipline will have you taking marginal trades with too much risk. It will have you taking revenge trades and allow greed and fear to run your trading business which usually means running it into the ground.

Without discipline, you will not have a chance.

In my next post, we will wrap this up. In the meantime, go over the two topics above and see where you fit into them. You may find you are not giving yourself enough time OR your expectations for your experience level is just not based in reality. You may find yourself doing foolish things in your trading that are outside your rules.

Start working on those.  See where you stand by writing out both of them and give yourself an honest evaluation.

PART 2 >>


Since many traders like to use indicators (usually the wrong way) for their trading method, Netpicks has put together a free and vital “Indicator Blueprint” to put you on the right track when using an indicator for your trading decision.  Get access to the PDF and videos by clicking here.

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CoachShane

Trader at Netpicks
Shane his trading journey in 2005, became a Netpicks customer in 2008 needing structure in his trading approach. His focus is on the technical side of trading filtering in a macro overview and credits a handful of traders that have heavily influenced his relaxed approach to trading. Shane started day trading Forex but has since transitioned to a swing/position focus in most markets including commodities and futures. This has allowed less time in front of the computer without an adverse affect on returns.

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