Today’s post is about how you can overcome what are
probably the three biggest issues for traders, all
in one fell swoop and without risking a dollar in
the markets.
It’s a little long, but well worth a few minutes.
I just received an email from a client talking about
a signal service, and here’s what it said:
“My problem is that I don’t trust other people to
give me direction.”
I’ve heard similar comments about trading systems.
As I reflected on that, it occurred to me that this
really is one of THE biggest issues that traders
have – issues that cause them to lose money.
Q: What is a top challenge for traders?
A: Discipline.
Q: But why do traders have such a hard time sticking
to their system?
A: Because they don’t trust their system to give them
the proper direction all the time.
Q: Why don’t they trust their system?
A: One of two reasons. Because 1) they never really had
complete trust in it to begin with or 2)that trust has
been broken in the past and has not been sufficiently
rebuilt.
Here’s what happens.
A person may trust a system, so long as it is picking
winners all the time, with a losing trade here and there,
but as soon as a losing streak (drawdown) occurs and it
continues past 2 or 3 trades, that trust rapidly wanes.
Same goes for a signal service. You may have a great
signal service, giving you valid entry and exit signals,
but as soon as a few losers are hit (sometimes it doesn’t
even take very many), now you become fearful that it is
going to continue losing you money.
What even worse is when you decide to start modifying
your system on the fly, and hit some losing trades. Now
the temptation to blame the system (consciously or sub-
consciously) is very strong.
Worst of all, it happens quite often that traders will
give up on their system or service right before it hits
a winning streak – just what you’ve been waiting for.
It happens so often that a trader will follow their
signals into a drawdown, then right when they need to
stick with their system because it’s due for a winning
streak, the trust, confidence and discipline are not
there to fully capitalize on it.
They deviate and then kick themselves because they saw
the signals, didn’t follow them and then left money on
the table.
So what do you do about it?
How do you go about building that TRUST that will give
you the CONFIDENCE to have the DISCIPLINE to stick to
your system, especially when you need it the most –
during or after a drawdown and the signals will give
you the winners you’ve been waiting for?
One word: PROOF
You give yourself proof.
But…
You do need to do it properly to truly build the trust.
Here’s why.
If you only look at your current trade data, unless
you’ve been following your signals to a tee, you will
have information that doesn’t give you a true picture
of what your system can and can’t do – particularly how
well it performs regarding drawdowns.
So, the right way to do it is to back-test your system
or signals where you can see how the signals perform
when they aren’t deviated from – what they do under ideal
conditions if they WERE traded with the proper discipline.
This way you will have proven to yourself with real
market data that your signals are sound and that you CAN
TRUST them.
When you can take the profit/loss data and run the metrics
on it, then you KNOW that you’ve got something that works.
When you KNOW something works, you can then TRUST it. You
can then have CONFIDENCE in it and have the DISCIPLINE to
stick with it – when you need to.
Just looking at the bottom line isn’t enough though.
You need to know what to expect in the future and that is
why the critical metrics that tell you what makes it
RELIABLY profitable are so important. Metrics like:
* Percentage of winners
* Profit-to-loss ratio
* Real reward-to-risk (most people say this backwards)
* Your average return per trade
This last one is huge!
Your average return per trade (profit or loss) when all
trades are included in the calculation is what really
makes the difference regarding trust, confidence and
discipline.
As an emotional safeguard, backtesting an existing
system and forward-testing (in a demo-account) is what
gives fund managers and high-profile traders their real
edge. Why?
Because they always KNOW WHAT WORKS – they prove it!
How can you do the same without getting over-whelmed?
I created the Trading Performance Analyzer exactly for
this purpose. It is simple, user-friendly and printer-
friendly and made to give you the proof you need to
have the trust and confidence in your system you need
to stick with it and make money from it.
Best of all, you can use it for signal services as well,
so long as your source has a specific system that they use.
You can see how easy this is by viewing the videos that
are on this page,
http://insideouttrading.com/tpa/
Take a look right now. You’ll be glad you did.
I’m here to help!
Cheers
Brian
http://insideouttrading.com/tpa/
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