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Psychology and Money Management

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Millionaire in 10 weeks & Conversation with broker

  #280 (permalink)

Detroit MI/USA
Trading Experience: Advanced
Platform: Tradestation
Favorite Futures: All Futures
Posts: 13 since Sep 2017
Thanks: 3 given, 30 received

Saying I came from TradeStation forum where the Elite is... "pffff" TOTALLY discarded here.
- Posting Performance Report which is pure stats... "pffff" TOTALLY discarded here
- Saying that I spent 14 years of my life looking at the best setup to come back to the market... "pffff" TOTALLY discarded here
- Coming up with a Restrictive Indicator that does NOT LAG ... "pffff" TOTALLY discarded here

Merlin it is great you have come this far and you should be commended for having the tenacity and determination of trying to tame the beast known as “the market”. You have your market data organizer in the form of your indicator (possibly 20% of the puzzle), get your strategy together in the form of absolute rules that you NEVER deviate from (that’s maybe another 20% of the puzzle, but is only 20% when you are executing it flawlessly with no deviation from your rules that have been written down on paper) and the largest and most difficult part of the puzzle is controlling yourself and your mind which is 60% of the puzzle. The last piece is the most important, complex and challenging and is the piece that most unsuccessful traders can never master and I’ll try and explain what I think is a big reason of why they cannot master it.

If and when you automate your system in order to get to the 20% flawless execution, and you do all these amazing back tests on the strategy that show stellar results, there are a few hidden traps. Some of those, as many experienced traders/programmers in this thread have already stated relate to backtest results not translating well to live trading for a host of reasons. BUT in my opinion, even though backtesting is vital and important, it lulls traders into very secure thought processes that are unlike the processes that are operational when the right side of the chart is moving in real time. We review backtest results with awe and excitement and our minds gloss over the grainy detail of the backtest report. We concentrate and focus our minds on all the winning trades, when we should really be doing the exact opposite - analyzing, in exquisite detail, the losing trades. We change, optimize, rework the settings to squeeze that bit more out of the profit column, while ignoring the losers. And it is those losers lurking in the dark that are the cause of traders not being able to cross the threshold from losing trader to winning trader.

When you hit the “live” trading switch, your survival mechanisms kick in immediately and you are now in a totally different environment. Real cash is on the line. This is your moment, you are on your way to your first million. However, when your first “uncomfortable” drawdown starts to appear (or you start experiencing one of the known consecutive losing streaks that the performance report documented) whether it’s the first trade or 10th trade (seems to usually be the first trade haha), your Adrenalin kicks in and you start rethinking, your heart rate increases, you start second guessing (even though you have done extensive backtesting and you KNOW your system/strategy makes money) and it is at this exact point in time where potentially successful traders are born. You need to remember this, have this emblazoned in your psyche as this will be your life changing moment. I don’t want to make it so melodramatic, but it should be as damn dramatic as possible. One might think this should be an easy threshold to cross based on all the hard work one has put in to get to this point, but all the work prior means nothing as that work has not managed to include training the mind, the largest piece of our puzzle. By known statistics, only a small percentage of traders can actually master this threshold, and yes, mastering it is what is exactly required. This threshold is visited on every trade you take, and the more you are able to master it, the less effect it has on your survival mechanism, and the more of the 60% puzzle starts falling into place. When mastered, trading becomes stress free and actually fun. You have to reach a point where no trade, ever, results in any negative emotion, no matter what the outcome of the trade.

If you can accomplish this Sir Merlin, your dream of making your million will absolutely come to fruition, and you will join the very small percentage of traders who have been able to really control themselves.
So you have your first baby step successfully navigated (your indicator), now go and knock the rest out of the park.

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