Last updated on April 29th, 2020
In the words of George Michael, “You gotta have faith”.
Even though George was probably not a trader, he seems to understand the power of faith when you are seeking anything in life.
When I say anything in life, trading success is not excluded.Of course having faith does not dismiss the fact that trading is about probabilities and your ability to have a true statistical edge in the market. But success is also a mental game (this applies to many things in life as well) where those with determination and “faith” will have a better chance of obtaining their goals then those who don’t.
Faith In Trading
I think there are three items that you must have faith in if success in trading is something you desire.
1. You must have faith in your trading system/method
It does not make a difference if you trade a naked chart using patterns or a complete trading system that includes indicators and calculators. You must be able to execute when a setup occurs in accordance with the trading plan that you have established. Second guessing every signal that falls into the category of a legitimate trade takes away your ability to execute.
If you start choosing which trades to take and which to skip, you are no longer trading the plan that was set.
Assuming the way you trade does have a statistical edge, by not having faith and then exercising discretion, you take away the edge.
How do you cultivate faith in your system?
The first step is to really understand everything about the system you are trading. You have to know at a glance:
- if there is a setup
- where to enter
- where to exit
- where do you get out if proven wrong
You have to know all of this and be able to push the button when the opportunity to trade presents itself.
Your trading plan must be ingrained in you so that whatever occurs, you have a tested way to deal with it.
While back testing does not guarantee future results nor trading success, you will be able to verify that yes, this system has historically been a winning system. Forward testing teaches you to implement the trading plan in the markets of today and can help verify that the method the system employs, is still viable.
Once you have proven the system to yourself, your job is to implement the plan.
2. You must have faith that how you manage your account is paramount.
I use a fixed % of my account on every single trade. The amount risk is low enough that barring any outlier event, I can withstand many losses before the account draw down becomes critical.
Over the years, I have understood that placing larger bets on a “sure move” generally means I will be topping up my account in the near future.
You should have the faith that proper risk parameters, while using a system that has a statistical edge, will keep you in the game.
On the other side of the coin, have faith that if you are reckless with position sizing, you will have a short lived career.
It would also be fair to include faith in how you manage your trades in this section. Where you exit and how you manage your stop has a direct relation to your success or failure. Know that every time you move your stop or take partial/full profits, that it is the proper action to take because over a large basket of trades, it keeps you profitable.
3. Have faith that you will succeed
There is no sense in starting anything if you don’t have the belief that you will succeed. Your success in trading is dependent on your ability to follow the plan that shows a statistical edge in the market. You’ve done the needed work to understand all the parts of your trading system. You have proven to yourself that it is a viable trading system and now you must have faith that you can execute and find success in trading.
What Are Traders Missing?
Over the years I have found that while many have number 3, they have not put in the work required to truly have 1 and 2. These are the people who buy a trading system on a Monday and then start using a live account on Tuesday.
These people expect that a week is long enough to truly master the method of trading and they now posses the execution skills needed to take full advantage of the edge (not to mention a complete handle on the mental aspects)
All of those who have found huge success in trading have put the time in, failed, retooled, and tried again. Read the Market Wizards books and you will see that none of them became an overnight success. It took years of trading and years of dealing with the mental aspects of trading before they found the success they now have.
- Do your homework and learn your method so well that you could teach it.
- Do your testing so you are confident that you can execute when your edge signals a trade.
- Ensure you keep one eye on your trading account so you can withstand the learning curve.
Most of all, let time and being exposed to the market give you the experience and competence you will need to fulfill your dream of being a profitable trader.