What detours must be taken to become a successful trader?
Everyone who enters the trading world, whether prepared or not, will inevitably take some detours and pay tuition to the market. This is unavoidable; it's just a matter of degree.
However, this is where the differences among individuals become apparent. Some are willing to think and learn, thus avoiding many pitfalls in their trading. Others, on the other hand, may blindly test their luck with their hard-earned money, and once their gambling instincts are triggered, it's like water spilled that cannot be retrieved.
I myself have taken many detours, and they were significant, almost to the point of financial ruin. At that time, it was due to my ignorance about trading and the fact that information did not flow as quickly as it does now, which led to the disadvantage of "ignorance."
The era is different now, with information everywhere, and many people are willing to share their experiences and painful pasts, which is a good thing. Let me discuss some of the issues we are likely to encounter in trading.
We are likely to overestimate ourselves.
Some may take issue with this point, and I was once among them. I happened to catch a few market trends and made several times my money. Instead of attributing it to luck, I believed I had a keen eye and a natural talent in this area.
So, in order to make more money quickly, I increased my positions. Little did I know that as my positions grew, so did the psychological pressure. Sometimes, even the slightest market fluctuation could lead to significant losses, causing great distress and sleepless nights. Not only did I lose all the money I had made, but my principal was also dwindling. There were times when, after losing 30%, I couldn't bear it any longer and closed my positions, only to see the market rebound, which was particularly painful.
Moreover, with 27 direct and cross currency pairs in forex, plus gold, crude oil, and stock index futures, there were dozens of varieties I wanted to trade at the time, and the market trends were dizzying. During the busy European and American trading sessions, there were trading opportunities everywhere, and sometimes I didn't even have time to eat or drink. Since I was trading short-term, I often made mistakes with the wrong currency pairs, incorrect direction of trades, wrong positions, and misplaced stop-loss orders, resulting in a chaotic and loss-filled day.
The more I lost, the more anxious I became, and the more anxious I was, the more disorganized my trading became.
Reflecting on the past, even now, after more than a decade of trading, I still don't have the ability to handle dozens of varieties simultaneously, especially with short-term trading. At that time, I was truly overconfident and ignorant of my own limitations.The trading industry is different from other industries; it appears to have rules, but in reality, it is chaotic and relies entirely on self-discipline. Many professional traders are also active in this field. The difference between us and them is not the level of trading skills, but the strength of self-restraint.
So-called trading skills can be learned over time. By reading books and studying market strategies with great focus and depth, one can become proficient in just a few months to half a year. The real difference lies in one's mindset.
Therefore, never overestimate your abilities, especially for our male counterparts, who are naturally more prone to complacency. Sometimes, after making a few good trades, we might become overly confident. It is crucial to have a clear self-awareness, to understand one's psychological tolerance, and not to be reckless. Steady and gradual progress is more important than speed.
We are also very prone to a mentality of luck, mistaking wrong decisions for right ones.
Trading requires rules. When we make mistakes, we must cut our losses instead of letting them develop. Sometimes, we might hold onto a losing position once or twice, and the market might turn around in our favor. At such times, we develop a mentality of luck, thinking that as long as we don't cut our losses and have enough capital, we can recover. After all, the market often fluctuates back and forth.
However, when we have this mentality, we are bound to encounter a one-way trend that does not turn back. Watching the market rise or fall continuously every day can be very stressful. The more it falls, the more we try to average down, and the heavier our positions become until we run out of capital.
Eventually, when the market falls without turning back and our capital is insufficient, we face a margin call.
At this point, we truly fall into deep self-doubt. Why did we face a margin call this time when we were able to recover and make a profit in the past? A single margin call can wipe out all previous profits and even the principal, leaving us feeling foolish.
This is a pitfall that most traders have experienced. Not cutting losses is a mentality of luck, especially in the forex or futures markets with leverage. If you apply any trading strategy to historical data without setting a stop loss, over time, it will inevitably lead to a margin call, without exception.
This is because your capital is not infinite, but the market can fall indefinitely. It's like the law of large numbers; competing with the market in terms of endurance, our chances of winning are always below 50%. Therefore, do not compete with the market, as we have no chance of winning.The correct approach is to set proper take-profit and stop-loss levels, adjust the profit-to-loss ratio and win rate, and capitalize on the fluctuations in the market to make money.
Therefore, the most frightening aspect of trading is not the losses you incur, but the mistaken understanding of the market that arises from some fortunate profits. This kind of perception is difficult to correct, and sometimes when the path is taken wrongly, it leads to endless losses, which is truly the most terrifying.
There are many detours in trading, but these two are essentially encountered by everyone. If you have already encountered them, it's appropriate to pause, analyze yourself, and reflect on the past. Once we correct our trading perspective, we can continue moving forward and avoid making bigger mistakes.