Know that Market Experts aren’t Magicians
Some of the experts that try to predict the markets actually make money trading
the markets; however, they don’t make money because they have predicted the
market correctly, they make money because they have traded the market correctly.
THEY DON’T PROFIT FROM THEIR PREDICTIONS
There is a huge difference between trading correctly and making an accurate
market prediction. In the final analysis, predicting the market is not what’s
important. What is important is using sound trading practices. And if sound
trading habits are all that is important, there is no reason to try to predict the
markets in the first place. This is the reason strategy trading makes so much sense.
THEY HAVE LEARNED TRADING DISCIPLINE
I have watched many market gurus continually make incorrect market predictions
and still break even or make a little money because they have followed a
disciplined approach to trading. More importantly, they used the exact same
principles that I will show you how to use in creating your strategy. It is these
principles that make the money, not the prediction.
To be a disciplined trader, you have to know how and why to enter the market,
when to exit the market, and where to place your money management stops. You
need to manage your risk and maximize your cash flow. A sound trading strategy
includes entries, exits, and stops as well as sound cash management strategies.
Even the market gurus and famous traders don’t make money from their
predictions, they make it from proper trading discipline. Over the years, they have
learned the discipline to control their risk through money management. They have
learned to take the trades as they come, and not forgo a trade because they are
second-guessing their strategy or the market. These are the same practices that you
will learn to include in your trading strategy.
THEY PROFIT FROM SOUND CASH MANAGEMENT & RISK CONTROL
Sound money management and risk control are the keys to being a profitable
trader. I will say over and over again, it is not the prediction or the latest and
greatest indicator that makes the profit in trading, it is how you apply sound
trading discipline with superior cash management and risk control that makes the
difference between success and failure.
I often tell the story of the great fish restaurant that opened up just down the
street from my office. It opened with great fanfare and was ranked in the top five
restaurants in the city. The food was outstanding. But it only took a little more
than a year and this great restaurant was out of business. Why? Because the key to
running a good restaurant is not the food…it is cash management and risk
control. It is making sure your business is run efficiently, keeping your costs (risk) in control, and managing your staff effectively. If you believe that the taste of the food is what makes a great restaurant, think of how great the food is at your favorite fast food restaurant. But, someday, watch how well that restaurant is run.
Just as in the restaurant business, the key to profits in trading is not in the
prediction or the indicator, but how well the trading strategy is designed and
executed. The ability to achieve risk control and cash management will make the
difference between a successful trader and an unsuccessful trader. If you ever have
the opportunity to watch a successful trader, you will see that they don’t worryabout where the market is going or about predicting when the next big move will
take place. They aren’t looking to tweak their indicator. They are worried about
their risk on each trade. Is the trade being executed correctly? How much of their
total account is at risk? Are the stops in the right place? And so on.
THEY DON’T HAVE SUPERIOR PERFORMANCE NUMBERS
If you want to have some fun, look at the performance of a successful market
expert, one who is known for his or her market predictions and trading expertise.
You will find that their performance numbers really aren’t any better than an
average trading strategy. The percentage of profitable trades, the return on the
account, average profit to average loss, number of losing trades in a row…all of
these trading parameters are within the average trading strategy performance
parameters.
Why is this? Because you can’t predict where the market will go and when it will
move. But if you use correct strategic trading disciplines, you will make money
whether you try to predict the market or just trade a good strategy. You might as
well save yourself a lot of time, energy, and mental anguish and trade a good
strategy.