Trading consistency will be preceded by Execution Consistency.
There is always a gap between the analysis and actually executing the trade.
This is the difference between how you believe to act under certain situations
and how you actually act when time comes
Execution consistency is all about Decision Making. As
traders we are continuously making decisions. Being consistently profitable is
becoming better at this decision making skill. The most important and the most
difficult thing in trading is to achieve execution consistency
Before we start working on Execution Consistency, we need to
ensure that our trading method is robust. Trading method is the foundation on
which the whole thing is built. This foundation must be rock solid and weather
proof. In my humble opinion, the load of the entire structure rests on the
three corner stones. These are Location, Direction, and Exit. Unless you have well researched
and proven methods on these aspects you are not going to make any progress.
Location.
There are tons of materials available on the Internet about trading.
If you go through this you can find that 90% of the material is about
identifying the right location to trade. Fib, Gann, EW. MAs , Support and Resistance
are all efforts to identify these high
probability locations. All the oscillators and indicators are doing the same
thing.
Direction
Once you identify a high probability location, the next task
is to identify the direction in which the trade is taken. A funny thing I have
noticed is that people are very rigid and not flexible on direction. For
example if they identify a location below the current price, they assume this level
will give support and try to go long. They are trying to dictate the Market.
Exits
Once you enter a trade, you need to exit it. It could be
either at a profit or at a loss. You need to exit where your original premise
gets invalidated, sticking to solid money management principles. Profitable
trades should be managed without giving back much.
I believe we have a well defined method in respect of all
the three aspects. What we need is to trust the method and work on execution
consistency. We are many laps ahead of our competition. Believe me, 95% of the
people are still struggling to find the right locations to initiate a trade. If
you have doubt, read our trading forums and blogs..
Superbly written ST sir. Even after identifying right location, there are bigger challenges behaviour modifications, tackling greed n fear etc.
ReplyDeleteMore or less I am able to identify location but incurred frequent losses (expenses, as u put it) due to various behavioral reasons; jumping the gun, letting profits run into losses, taking lucrative but less probablity CTs n similar others reasons.
Off from trading for almost a month,just analysing the market, though getting my confidence back...but I know locations and patterns are more clearer in hindsight or when we are not actually trading :)
Anurag
ReplyDeleteThe root cause of the problem is not Fear, greed or indiscipline. It is uncertainty. Human mind hates uncertainty and will override all the rational thinking. That is why locations and patterns are more clearer in hindsight or when we are not actually trading
Taming the mind is not impossible. it may take some time.Most of the people will not stick they will blame the method and flirt.
The grass looks always greener on the other side.
ST
Rightly said sir, that actually is the cause. We have been trained all through our life to be sure (doubly sure) before taking actions, and trading is altogether a different game. I am working on that aspect, there is progress though very slow (unlearning is not easy), but definitely things are improving.
ReplyDeleteFlirting with methods/strategies will never let us go to next level of challenges that lies with our beliefs and thought processes, which I may say are bigger than finding a method that provides us an edge that suits our trading style.
Though you keep on posting amazing articles on behavioral aspect of trading as well, but will request you to provide more guidance on the same.
Hi ST:
ReplyDeleteGood article ST. Well written and you are absolutely right location is important and the uncertainty creeps because of too much of time spent to fish for an entry point to trade.
Vinod
Vinod
ReplyDeleteThanks
ST