Your Personal Trading System: Part3
What you learned from the previous two parts:
Trading is a complex and challenging activity that involves both understanding the market and having practical experience.
By using a demo account or paper trading, traders can practice their skills without risking real money.
Through paper trading, traders can try out different strategies, learn about market dynamics, and find the best trading style for themselves.
It is important to have discipline, perseverance, and self-awareness to succeed in trading.
It's important to know your strengths and weaknesses in trading.
Weaknesses can be a normal part of human nature, but focusing on them can trap a trader in mediocrity.
Traders should focus on developing their strengths, such as quick thinking, analytical skills, adaptability, and inner peace.
Focusing on strengths can lead to outstanding achievements and self-confidence.
Traders can work on keeping their weaknesses at bay through processes and rule-based trading.
Hi!
How’s your trading journey going? Did you start with your homework described in part 2?
Let me know in the comments if you have questions or if you need help finding your trader path!
Info:
I will be on vacation next two weeks enjoying time with my family. You will probably get my next newsletter in two weeks.
Content:
Develop your skills and change competence
Financial markets tend to change frequently. They are complex, and unpredictable by nature. Rules and correlations that worked for years may not be valid anymore next week.
Shocks from outside the system can trigger disruptive technology changes. Innovations could completely change the markets in the future.
One example for me was the lockdown which lead to a fast digitalization of economic processes.
2020 turned on its head much of what experienced players in the financial markets had experienced in the past. Traditional valuation benchmarks of the stock markets seem to have been overridden.
I see a decoupling of the valuation of the stock markets from the real economy.
Billions intended for rescue programs from central banks and governments have triggered a glut of liquidity that has flooded the financial markets.
The free play of market forces or the control function of prices seems to have been undermined for now.
Exceptional hard times for traders.
What does that mean to you as a trader/investor and why should you care?
For example, if you are a position trader or swing trader, you can no longer rely on traditional analysis. In the longer term, the excessive overvaluation in some sectors will correct itself but it may take several years.
If you have a shorter investment horizon, you should take other criteria into account when it comes to your trading strategy. For very short-term oriented traders (e.g scalpers and day traders) fundamental analysis plays a subordinate role.
What do I wanna tell you with these examples:
Change is the only constant and markets are constantly changing.
And you have to change too if you want to continue being successful at trading.
If you stand still, you will be left behind.
You are forced to develop your skills, strategies, plans, and criteria every day.
It required a high degree of flexibility and adaptability on your part.
But that’s your only choice
So remember:
Don’t fall back to old patterns
You need solid processes and routines against emotional overreaction
You need to be flexible and continually adapt your trading to changing market conditions
It’s your task to continually design your change process despite any setbacks that might occur
Processes are your shelter in the storm
If you want to be successful in the long term you need smoothly functioning processes. You also have to have clearly defined goals and criteria.
You need (self-developed) processes and withstand the temptations to jump right into the market.
Many traders are afraid of the effort required to include fixed structures and practice their processes. However, if you aren’t fully convinced you know what you are doing, you’ll lack the motivation and emotional strength to pursue your goals.
You will end up half-heartedly following the trading plans and strategies and you won’t learn from your mistakes.
Humans only change when they’re ready for it. A willingness to change usually comes with the realization that something has to change. Crises are an opportunity for change. Crises shatter your foundation and force you to act.
In my experience, traders understand what is required of them only after they have experienced large losses. Unfortunately, in the trading world, only those painful experiences motivate and move traders to undertake serious change. But it does not have to be painful. Don’t go the path of pain. You could be an exception.
Let’s see how we can develop this process for you in my next newsletter.
In my next newsletter, I will cover:
How to define your processes and criteria for trading