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Ground Rules For Staying Grounded

With 2019 drawing to a close it’s an opportune time to remind you of important ground rules for staying grounded to ensure you are a profitable trader.

In the heat of the moment sometimes we can deviate from these rules, especially discretionary traders. However, even a slight bending of our rules will catch up with us eventually.

The ground rules for staying grounded don’t have to be complicated; they need to be followed.

Some of the classic pitfalls:

  • trying to pick tops or bottoms.
  • throwing dozens of oscillators onto charts in an attempt to outsmart the market.
  • trading during less than ideal conditions when we should be standing aside.

Making money has everything to do with emotional control. Mental discipline, a repeatable rules-based process, topped off with position sizing and risk management are all required.

Successful trading has little to do with predicting the future.

Trading success also has little to do with economic data, the yield curve or other random pieces of fundamental information. These things may affect markets at some stage within the macro picture but timing trades for profit around these factors is a losing battle.

Being focused on price action is the purest form of trading.

Price never lies.

And yes, it needs to be kept simple.

Technical trading via pattern breakouts, price-volume analysis and Elliott Wave can all have an element of shorter-term predictability that we can profit from. Then if a sustained trend happens to develop from there, we ride it.

Predicting longer term trends from the start is almost impossible. Statistically there is a 70% chance you’ll be wrong.

To profit from a trade you must first capture a trend. Have no preconceived idea on how long that trend is going to last though.

Jump on when conditions are right, then jump off when the trend is no longer your friend.

Merry Christmas everyone, and here’s to a prosperous 2020.

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