Updated: Mar 25, 2022
Personal psychology, money management, and system development are the three components of trading.
Trading psychology accounts for roughly 60% of success, while position sizing accounts for another 30%, leaving about 10% for system development.
Furthermore, most traders overlook the first two areas and lack a proper trading strategy.
That is why 90% of them will fail.
I've done substantial modeling in all three domains over the years, and I now slightly disagree with the above conclusions.
To begin, I would claim that trading psychology is responsible for 100 percent of trading success. Why? Two discoveries led to this conclusion.
To begin with, people are often designed to do things incorrectly. They appear to have inherent biases that lead them to perform exactly the opposite of what is required for success.
If you are the most important factor in your trading, for example, you should devote the most time to improving yourself.
The vast majority of the people, on the other hand, completely disregard the "you" aspect in their success.
Examine the checklists in this section that pertain to successful trading. If you've worked substantially in all of the areas above, you're most likely a successful story and a rare find.
Second, every task I model necessitates the discovery of the relevant beliefs, mental states, and mental techniques.
Because all three parts are essentially psychological, it's difficult to avoid the conclusion that everything is psychological.
I currently believe there are five components to successful trading:
1. The first is the trading procedure. The things you must do daily to be a successful trader.
2. The wealth creation procedure. Examine your financial relationship and why you have or don't have enough to trade with. Most people, for example, feel that having the most stuff wins the money game and that they can have it all right now provided their monthly payments are low enough. This means they have no savings and are in debt. If this describes you, it also suggests you lack the financial resources to trade.
3. To guide your trade, create and maintain a business plan. Trading is a business in the same way that any other industry is. The admission requirements are much simpler, as you only need to put funds into an account, sign a few paperwork, and begin trading. The entrance criteria for effective trade, on the other hand, necessitate mastery in all of the areas listed here. That needs a great deal of dedication, which most individuals lack. Instead, they want trading to be simple, quick, and lucrative.
4. Making progress on a system. People frequently believe that their system is the key to identifying the best stocks or commodities. In actuality, one of the least significant components of successful trading is getting into the market. The aspects of a money-making system are establishing your objectives and exiting a job.
5. Position sizing according to your goals.
Now think about it...
Ask yourself the following questions based on the five components of successful trading:
How well have I mastered the discipline of daily trading?
Do I start each day with a daily self-analysis or a mental rehearsal?
Why not, if not?
Is there enough money in my account for trading to be profitable?
If you don't, you'll need to work on yourself and your wealth-building strategy.
Is there a viable business plan that I can use to drive my trading? You're not alone if you don't. Only approximately 5% of traders, we believe, have a written business plan. On the other hand, you may have heard that only approximately 5% to 10% of all traders are truly successful.
Do I have a well-thought-out set of objectives to govern my trading? The majority of folks do not. How can you create a system to achieve your goals if you don't have any?
How much thought have I given to the "how much" consideration: position sizing? Do I have a strategy for sizing my system to meet my goals? Position sizing determines whether you achieve or fail to achieve your goals.
How much time do I devote to self-improvement? You must overcome your psychological concerns and create the discipline required to carry out the above-mentioned activities, which are required for success.
The points mentioned here should give you a good idea of what you'll need to trade successfully.