They say cars don’t kill people, people kill people. The best safety measure is not an air-bag. It’s the bag of air behind the wheel. It’s the same in trading.
Bad trading systems don’t kill accounts, bad traders do. But what knowledge is needed to get a trading license?
As traders, we spend a lot of time on our trading system. We add to it, take some away, sing songs to it and take it to bed at night. Our system is our focus, yet we forget we as traders have to trade it.
It is like the neighbor who spends the weekends waxing his car in his old under 12’s footy shorts. No matter how much shine he puts on that car, how high his shorts ride up, it doesn’t make his car any safer. His car is only as safe as his driving.
The same applies to your trading system. It doesn’t matter how many squiggles, trend lines, wave counts or news feeds you have. In the end, your system can only perform as well as it’s driver lets it.
A better trader makes a better trading system.
Trading and driving
If your trading system is your vehicle into the markets, do you really know how to compensate for the quirks that come with different vehicles? What do you do if it develops a pull to the left, or overheats, or has dodgy brakes? How do you drive it on slippery roads, on windy days, and in different traffic conditions?
Some things to learn for your trading license:
- Learn to accelerate – The first step in learning to drive is learning to go. How to start the vehicle moving. In trading, that means learning your entries, the most studied part of any trading system. It should be a step by step process, just like starting a car is. It is important, but useless if you can’t do the next step.
- Learn to stop – No point pimping your ride if you run it into a brick wall each time you take it on the road. Same with your exits. The most profitable trade only remains becomes profitable when you exit. Know what a winning and a losing trade look like, learn how to exit, and your trading vehicle remains intact.
- Learn to turn – Not all roads are straight. There are twists, turns, and unexpected obstacles. Steering becomes kind of important. Nothing stays the same in the markets either. A system that works one month may fail miserably the following month. Do you know how to steer your system into a different direction? Do you know what a curve in the market even looks like? How good are your systems handling?
- Check your blind-spot – Sometimes you need to get around that straw hat wearing yee hah grand-ma. Before changing lanes, you have to check your blind spot for that pesky cyclist hiding away from your peripheral vision and mirrors. Have you reflected on your system to know it’s blind spot? (they all have them). What conditions should you be checking before placing a trade? What about you as a trader? Before trading a new system do you know your blind-spots?
- Driver fatigue – Stop, revive, survive. Sometimes it is best to just stop and get out for a rest before a micro-sleep sends you off into a tree. Trading is the same, knowing when you as the driver of your trading system is feeling fatigued is vitally important. Fatigue brings on a rash decision, or worse at times, no decision at all and is a fast way to sending your account into emergency. What are your mental and physical clues?
- Learn to park – The general idea when driving is not to stop the car in the middle of the road and just get out. You need to find somewhere to park. Same with trading. You can’t always drop things and run if trading is becoming too hard, too tiring or life is taking you away. Do you have a strategy to ease out of trades and park your account?
I have yet, and may never, master all the above, but it is my aim each day to improve on each point so that I can become a better driver of my trading system.
My system won’t ruin me as a full-time trader. Only it’s driver.