Some key factors that can prevent your success.

Written by Martin Cole
Last updated: Tuesday, 19 April 2007
Supplied by: www.Learningtotrade.com

Here are some key factors that can prevent your success

1. Insufficient funds with which to trade
2. Influencing parties
3. External influences
4. Lack of a well-defined strategy.
5. Inconsistent application of a profitable trading strategy
6. Unwillingness to take a loss
7. Taking early profits
8. Misunderstanding of how markets work
9. Failure to hold confidence in your own abilities
10. Fear of what the market may or may not hold for you
11. Anxieties about your success

1. Insufficient funds with which to trade

This is a personal area that only you can determine.
Guidelines as follows:
Many times we hear that you should only trade with what you can afford to; for me this is the wrong approach and immediately conjures up images of loss.

Is trading your only source of income? If it is then do you need to trade to produce a living income on a weekly/monthly basis? If the answer to both of these questions is yes, then clearly you are placing yourself under a great deal of pressure to perform from day one.

As a guideline to this, I suggest that if you are starting out as a full time trader and this is your only source of income, you should set aside at least 12 month’s expenses in a separate account.

This account will maintain your current standard of living and will prevent you from having to draw on your trading account at an early stage; it will also lift the burden of weekly performance.

2. Influencing other parties

The issues of influencing parties are often overlooked and yet can be an important factor in a trader’s success or failure. Many at this point will not consider that another individual may have an effect, on their trading.

I of course have no way of knowing your personal circumstances. But I would urge you to pay attention, to what is often overlooked in the successful traders profile.

What does your spouse / partner think of your trading? Do they view it as a quality profession or the other extreme, gambling?

Are you the type of person that is affected by the thoughts of those around you? I freely admit that I need to be in a comfortable environment, which is congenial, to what I am doing. I do not feel comfortable, if I am in the presence of someone who is having a bad day.

If you are in a negative environment, then steps should be taken to separate your trading, completely from any influencing party.

We may believe and even convince ourselves that such things do not influence us, but this is often incorrect, better to ensure things are clear in this area at an early stage.

Guidelines for influencing parties
If you are forced to involve another person then explain what you are doing but without intricate detail. It is a fact that the other party will not have exactly the same understanding, of what you are doing.

• If you attempt to involve another person as reinforcement, to your own trading you are setting yourself up for a fall.

• Draw a line, at which point you will not go any further into discussion of your trading.

• Do not involve another person in your trading decisions.

• Do not show anger, frustration, or even elation, in front of another person. It is far better for you as a trader simply to confine it to ‘yes it was a good day’ or if negative ‘It was a productive day in terms of learning’

3. External influences.

This area will be covered in greater detail later in the course, but a few things to consider at this stage are: Newspapers and how they may influence you in your trading.

For example:You have decided, that you are not going to take any notice of the newspapers and you are going to trade based on the evidence that you see before you. As you are sipping your morning coffee, you happen to notice that the XYZ group is meeting today to announce

some new finance measures. Some hours later, whilst at your screen, you see a market action that you are unsure of. This uncertainty will cause the brain to scan all available data sources in an attempt to link this event, to some past event.

In a flash, the article about G7 pops into your mind, and now your are stuck with it. You are now mentally influenced by this story, whether you like it or not and you will find it difficult to trade. Worse still, you may ignore all the evidence you have gathered up to that point.

Interrupting telephone calls that may just mention a little something that is going on today!

Giving your opinion to others about the market: let me explain some of the power that this holds, a friend calls you and asks you what you think of the market and which way you think it will go. In a flash of pride, you proceed to explain XYZ about the market, and why certain things are going to happen. In that one instant you have, unbeknown to yourself planted very firm opinions about the market

within your own mind. Now if the market does indeed do what you said, you are a hero, if it does not, then you got it wrong. But this is not the real issue; the real danger in the above is that the moment you give your opinion, you will be practically unable to change your mind about the market, even as it starts to move against you.

There is no better salesperson than the person who is selling to him or herself; your words will be ringing in your ears and will prevent you from acting on the raw information in front of you.

I have a standard response whenever I am asked that question; I suggest that you use something similar.

To the question, what is the market going to do? You simply reply;  “anything it likes at any given moment” the reason for this is not to be flippant, but to simply not fix an opinion in your own mind.

4. Lack of a well-defined strategy.

If you do not have a defined strategy, this is similar to traveling through hostile territory without a map. If you are simply trading from one point to another you are going to lose over time.

A defined strategy is more importantly a strategy that you have complete faith in and so you will act in accordance with that faith in a flawless manner.

5. Taking early profits.

This is in my opinion akin to a crime being committed against yourself; early profits are taken for a whole host of reasons, some of which are:

• The unwillingness to take a loss.
• Under capitalization.
• Influencing other parties issues.
• Lack of a strategy.

It is no coincidence that I am listing some of the same issues that I mentioned earlier albeit under different circumstances

6. Misunderstanding of how markets work.

If a trader does not have an understanding of the market, then he/she is severely disadvantaged. One simple example would be trading futures, and not knowing about contract expiry.  Traders must have an understanding of the markets and a complete understanding of the particular aspect of the market he/she is involved with. An example of this might be the complete intricacies of how options are traded.

If a trader should misunderstand any aspect of the particular market that he is involved with, then he is placing himself at a distinct disadvantage.

7. Failure to hold confidence in your own abilities.

This happens as a result of not fully understanding what you are doing, if you fully understood what you were doing and felt comfortable doing it, then your ability to hold confidence would be strong.

Let me explain this more deeply: You enter the market based on your pre-defined strategy, you are confident that this is a good trade and all is well, then the trade reacts in an adverse manner against your position. As the trade gets closer and closer to your stop, you feel anxious and even nervous. Now how can this be? Why should you feel these symptoms, if you are committed to your strategy, which you have tested and KNOW that it performs correctly more times than it fails? The answer lies in a couple of key areas.

1. You could be under-funded. As a result of this your confidence in what you are doing is being attacked from another angle. (Fear of loss, even though you know long term your strategy is a winner)

2. You have used a strategy that you have not fully tested. Note* You may have tested this many times, but if your subconscious has not accepted the testing as valid then you will not be able to maintain your confidence.

3. You traded outside your strategy: This might be as a result of trading frustration; i.e. the market has not been supplying you with the means to use your strategy, so off you go on a Hunting for trade’s exercise. On this hunting trip you find something you think is like your strategy, as a result of this you decide to trade. A term I use for this is stepping out of your strategy and is so destructive that you may find yourself in trouble for weeks to come.

Please pay particular attention to the above; it is a crucial component to your success.

8. Fear of what the market may or may not hold for you.

This is strongly linked to the lack of understanding:

As a child you may have been a little nervous of what was under your bed at night, of course now in the rational light of day, you are confident that there was nothing under your bed and of course there was nothing to fear. However even if an adult had told you at the time that there was nothing to fear you would still have had your doubts. This is why YOU as an individual must make the connection between your strategy and a danger free zone. Once you have made this connection and are able to maintain it, your trading will take on new meaning; you will experience a sense of freedom, which will elevate the whole concept of trading to a very pleasurable activity.

9. Anxieties about your success.

By now you should be starting to realise that all these elements we are looking at here are really taking us around in a circle. This is no coincidence as trading is in fact a feedback loop, if you are in this loop as a loser, you will remain so until you discard this loop and create a new one.

Already in a loop?
If you are already trading and are in a losing loop, then you will within this course discover the way to escape it. Or if you are new to trading we are going to make sure that you get into the success loop and stay there. A large part of the latter stages of this course is to equip you with all the tools to do this on a permanent basis.

10. Inconsistent application of a profitable trading strategy.

If a trader has developed and tested a profitable trading strategy, but then fails to act on that strategy he will lose over time. Many traders do not understand how this works; there are several causes that instigate this type of inconsistent behavior.

1. The trader believes that he/she has a good strategy at a conscious level, but on a subconscious level there is conflict.
   This maybe as a result of poor testing of the strategy or disavowal of certain elements of the strategy.

2. Lack of trading capital.

3. Trying to cherry pick trades, this type of action often relates to numbers 1 & 2 above.  Trying to cherry pick, against number one is a underlying conflict in the strategy. Cherry picking against number two is related to the fear of loss.

Note: The inconsistent application of any strategy is often the start of the slide into the losing trader’s loop.
 
The list goes on in many different formats and styles, which are as varied as the individual; these are all signs that you need to be aware of. If you detect that they are creeping in, then STOP and work out why.

11. Unwillingness to take a loss:

Some additional factors:

12. Under funded trading:

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