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In today’s episode, you’ll learn the top 5 nemeses you must avoid if you want to be a winning trader.
So tune in now to find out…
Hey, hey, what’s up my friend?
In today’s episode, I want to talk about 5 things you must avoid if you want to be a winning trader.
1. Avoid having expectations on the market
Forget about saying stuff like:
“I want to make $50 every day from the markets.”
“I want to make 500 pips a week.”
“I want to make 10% a month every month.”
Forget your expectations because the market doesn’t care what you want out of it.
And if you think about this, every trading strategy that works exploits a certain pattern in a market. For example, trend-following exploits trends in the market. Does it mean that I’m going to make money every month trading trends? Of course not.
If the market doesn’t trend, I don’t make money.
And it’s the same for your strategy. Maybe you’re trading mean reversion in the market. If the market doesn’t mean revert, guess what? You’re not going to make money.
So the key here is – don’t have expectations on the market.
You should have a plan to follow so you’ll make as much money as possible during times when the market conditions are favourable to your strategy and to lose as little money as possible during your drawdown by practising sound risk management.
That’s what you should focus on and not having expectations on the market as though it cares what you want.
2. Avoid system hopping
So this is a big one for traders who are just getting started in this business.
Because I know the way we’re brought up is such that whenever we make a mistake, we’re taught to stop doing it and to find a solution to do something else.
But in trading, just because you have a few losses, doesn’t mean that’s a mistake. That could be just part and parcel of trading. If you’re hopping around from trading system to trading system, then your trading would be all over the place. You’re not going to find consistency.
And if you don’t have consistency, needless to say, your results will be inconsistent.
My suggestion is to stick to one system, one methodology. Execute your trades consistently with a sample size of 100 trades. After you have a sample size of 100 trades, then you can conclude whether this works or not.
If you’re taking 3 trades on a breakout system, then 5 trades on mean reversion and then 6 trades on counter-trend, your results will be all over the place because you’re trading too many different systems.
So be consistent and have a decent sample size of trades before you come up with anything conclusive.
3. Avoid wanting to be spoon-fed
As I educate and share stuff with traders, I often get questions like:
“Which is the best moving average, should I use the 20-period moving average or the 55-period moving average?”
“Hey Rayner, when I trade breakout is it better to trade a 52-week breakout or the 50-week breakout?”
“Hey Rayner, this particular trading system does it work for the crude oil market or does it work for the NIFTY or does he work for the A50?”
“Hey Rayner, which indicators suit trend-following?”
These boggle my mind because if you expect to be spoon-fed, then how are you going to find success in markets or anything in life?
When you want to find success in trading or anything in life and business, you have to be willing to do the work. You have to verify. You have to validate to find out whether something works or not.
You can’t just take my word or some guru’s word for it because we might be wrong. We might have a hidden agenda to lead you down the wrong path and maybe to eventually make you sign up for our courses. You’ll never know.
That’s why you should never take anything at face value. You always verify. You always validate. You got to do the work.
Don’t expect to be spoon-fed. If you expect to be spoon-fed, then you’re going to lose like 90% of the traders out there who expect to be spoon-fed.
If you want to be different, take things into your own hands, do the work, validate, verify and never trust anything or anyone.
4. Avoid complexities
This is a big one for me as well.
In recent years, I’ve developed my own systematic trading strategies and I find that those strategies that are robust and those that work well are relatively simple.
I can explain it to you over a few lines, 3 or 4 lines, and you’ll have a good idea of what the strategy is about. And as I add more indicators, filters or criteria, the strategy tends to break down.
So this was an “aha” moment for me as well. if you want to be a winning and profitable trader, you want to have strategies that are relatively simple. Something that you can even explain to a 12-year-old.
If your strategy is too complex and needs to fulfil many criteria like these:
- Needs to have this crossover
- RSI needs to be oversold
- Trades must be entered on a Friday
- The market cannot move more than 100 pips a day
Chances are, the strategy is not going to work in the long run.
It must be backed by logic and be relatively simple. Then these are the strategies I’m keen to trade as it usually would work in the long run.
So number 4 – avoid complexities.
5. Avoid stuff that automates things for you
Avoid things like expert advisors, copy trading, and signals services. These things that “do” all the hard work for you – don’t really work.
Because again, you have no idea how these systems of black-box algorithms work. Even if does work, when a drawdown comes, you’re not going to be convinced to stick to those systems.
So forget about outsourcing or delegating your trading away. If you want to do that, buy an index fund and do something that’s more passive.
Don’t try to automate or delegate your trading to something that you don’t even know, you don’t even trust, that you can’t even verify or validate.
If you really want to go down that path, buy an index fund and hold it for the next 40, 50 years. Chances are, you’ll make more money compared to signing up for signal service or copy trading.
With that said, I’ve come towards the end of today’s episode I’ll talk to you soon.