As traders we must recognise that there is a degree of unpredictability about the market.
Evidence shows that changes in sentiment although often linked to specific events have a degree of speculation attached to them that may be altered with any one piece of information at any time.
Trading systems providing clear entry and exit criteria based on what is considered to be sound trading practice should in theory for the most part protect the capital when an investor idea moves in an unexpected direction.
It seems logical to have some contingency planning in place as part of this trading system to offer guidance when an unpredictable and so unpreventable sudden severe movement in price occurs to have an objective method of managing such a situation as failure in good decision-making in these circumstances will often compound the associated loss. This may have on-going psychological implications for future investor behaviour.
However, this is not the major cause of poor trading outcomes. More commonly the majority of investors fail to meet expectations or potential due to preventable trading errors in the implementation of systems.
The major damage to trading capital is often caused through failure in appropriate exit, although this is rarely the major focus of many investors where entry is the focus. Having said this it is prudent in the aim of growth as a trader to address all components including exit, entry and sizing decisions if one wishes to tackle preventable trading errors.
The majority of trading errors occur with one of 3 fundamental errors.
1. No such system is in place – Type 1 error
Cause
Cause
Evidence shows that changes in sentiment although often linked to specific events have a degree of speculation attached to them that may be altered with any one piece of information at any time.
Trading systems providing clear entry and exit criteria based on what is considered to be sound trading practice should in theory for the most part protect the capital when an investor idea moves in an unexpected direction.
It seems logical to have some contingency planning in place as part of this trading system to offer guidance when an unpredictable and so unpreventable sudden severe movement in price occurs to have an objective method of managing such a situation as failure in good decision-making in these circumstances will often compound the associated loss. This may have on-going psychological implications for future investor behaviour.
However, this is not the major cause of poor trading outcomes. More commonly the majority of investors fail to meet expectations or potential due to preventable trading errors in the implementation of systems.
The major damage to trading capital is often caused through failure in appropriate exit, although this is rarely the major focus of many investors where entry is the focus. Having said this it is prudent in the aim of growth as a trader to address all components including exit, entry and sizing decisions if one wishes to tackle preventable trading errors.
The majority of trading errors occur with one of 3 fundamental errors.
1. No such system is in place – Type 1 error
Cause
- Attempt to Short cut success
- Lack of belief that they NEED a trading system
- No education on why a trading system is important
- No education on how to develop a trading system
- Accept gap
- Invest time in learning, creating and testing a simple trading system for every strategy traded
2. A system is in place but is not adhered to or complied with – Type 2 error
Cause
- Don’t believe they NEED to have a trading system
- Don’t accept the reality of what is happening in the market
- Procrastinate when decision-making (don’t believe in their trading system)
- System too complex to follow
- System incomplete
- System not in place for every strategy traded
- Don’t remember to use their trading system in the heat of the moment
- Don’t change system as a result of testing and/or formal review
- Accept gap
- Realign with system as part of overall getting into optimum trading state prior to trading
- Have a trading system near within trading area
- Formally test trading system to create sufficient weight of evidence in the system
- Use results from testing and review systems to amend plan
Cause
- Attempt to Short cut success
- Lack of belief that they NEED a test or review trading system
- Fail to have a testing or review system in place
- Do not know how to create a testing or review system
- Failure to invest time in test and/or review process
- Accept gap
- Invest time in learning and creating a testing and/or review of trading system for every strategy traded
- Invest time to implement testing and review systems
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