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Last month I was reading a thread on forex factory. An aspiring trader who had just started demo trading was talking about some trades that he'd made. Even though he was only demo trading he was getting very emotional about them. When he lost a couple of trades it bothered him a lot. Some of the more experienced traders told him he had no chance if he was going to get so emotional about demo trading. What would he be like if he was trading with real money? He'd be an emotional wreck. He was told to read a book called "trading in the zone" by Mark Douglas to learn more about trading psychology.
I decided to check it out too. Anyway, I read this book and it's by far the best book on trading I've ever read. In fact I'd say it's a must read for any aspiring trader. You won't find any trading systems or anything like that, as it's purely to do with trading psychology. 143 pages. It goes into great detail on the type of mindset most traders will have, and how this mindset comes about. It then goes on to explain why this type of thinking will sabotage your trading. Finally, it explains exactly how a winning trader thinks, and how to acquire this type of mindset.
It changed my perspective on trading in a major way. See, when you go on a losing run, sometimes it's easy to think that the market is against you personally. Like every position you take, the market will do the opposite just to screw you. In the past, whenever I've talked about trading, written about it, tweeted about it etc I've spoken about trying to beat the market. Defeat it. Break it down. Conquer it. Like it's an enemy. Like it's against me. It's not. The market is neutral, although I'll still continue to use speak of the market as an enemy for dramatic effect and entertainment. There are millions of traders all over the world and each trader will have his own opinion of the market. The market can't possibly know the opinion of each and every trader, and even if it did, it couldn't please everyone. All it does is provide opportunities, and it's up to each individual trader to be open to these opportunities. If the trader is thinking in the right way, he'll see the market objectively as it is. Otherwise, he'll be thinking emotionally. The only thing to "defeat" or "conquer" is my own mind, not the market. The other thing to accept is that there are so many things that affect the market that you don't have to be correct. You don't have to be right, or be a great analyst to make money.
Anyway, read the book, you won't regret it. The only criticism I have is that it waffles on a little bit too much at times (I know a bit like this post), but it's only a minor annoyance. There's one very good casino analogy in this book which for me was like a Eureka moment. I'm sure you've heard many people say "trading is gambling". Here's the thing. Blackjack is gambling. So is poker. So is roulette. When the casino plays these games against the customers, the casino is gambling. The casino is not guaranteed that it will beat me in a game of blackjack. However, the casino always makes a profit in the end. Year after year, without fail, the casino will make a profit. Why? Because the casino has an edge. That's the contradiction here. Each game of blackjack is a risk, because you don't know if you'll win or lose, but in the end, profit is pretty much a certainty for the casino because of the edge. Trading is no different. You need an edge. Once you have that edge you need the right mindset to follow that edge through objectively. Then you become a consistent winner. You don't know if a single trade will win or lose, but you must be supremely confident that in the end, you will end up with profit.
That makes it sound pretty simple, but it's not as easy as I make it sound there. Still, the way I see it is that if you want it badly enough, you can make it work. Anyway, enough about the book, let me give you an update about my trading.
So as you know, January was a profitable month for me, while Feb and March were not. Been following the same systems I've back tested. Back testing produced great results (although there were periods of drawdown). The same results have not been replicated in real trading. One of my systems has worked great in real trading, but the other one not so much, With back testing I had a win rate of around 40% at 2:1 RR with this particular system. Now in real time I must have made around 50 trades since, with probably around 15 winners and the rest losing. Maybe it's not a large enough sample size. Maybe I just need to stick it out. The thing is though, I'm not 100% confident, and therefore it's best to go back to demo trading that system. I've only been risking 0.5% per trade. Had I risked the 2%? I'd have probably been driven to heavy drinking
by now. The drawdown is a bitch. Again, this doesn't mean there's anything wrong with the system, it just means that at this point in time, I can't be doing with heavy drawdown. It's just stress that I don't need.
So that system will be demo traded for now, while for live trading I'll go back to the J16 method of trading. J16 is is a thread on forex factory, started by a user called James16.
http://www.forexfactory.com/showthread.php?t=2331
The thread is all about price action trading using discretion. It encourages being very picky about trades, thus having a high win rate. I've used it in the past with some success, but now it's time to get serious. The thing is, because it encourages traders to be picky, the win rate will be higher. This breeds confidence, which is just what I need at this point in my trading career. Ton of info in that thread, and very good advice from experienced, consistently profitable traders. Trading "systems" will never be fool proof. There is no holy grail. Mechanical systems sound appealing but if you know price action and learn to use discretion, you can use it under any market conditions, and it'll serve you well for the rest of your trading career. Can't say that about systems.
Anyway, this post has been too long as it is. Here's the link to "trading in the zone" by Mark Douglas
http://www.amazon.com/Trading-Zone-Confidence-Discipline-Attitude/dp/0735201447/ref=sr_1_1?ie=UTF8&qid=1365021191&sr=8-1&keywords=trading+in+the+zone
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