Making Pips Is Not Like Making Donuts

Trading is a very tough challenge because the relationship between effort and success is almost non-existent. You can do almost everything right and lose or you can do everything wrong and win. While luck plays a role in almost all human endeavors ( you just need to see last week’s American football matches to see how a random bounce made all the difference) in trading the variance is far greater than in any other field.

There is absolutely no way, for example, that a pudgy 5 foot 6 teenager with coke bottle glasses could walk on a professional football field (be it American football or soccer ) and score. Yet in trading, that very same novice who knows nothing about finance or markets could easily beat the pros, at least for a little while.

Part of the reason why this is possible is simply the unpredictable nature of news. At any given time newsflow can flip price action completely around. This does not happen in the real world where 99.9% of the newsflow has no impact on price whatsoever. Imagine if your donut businesses were affected by every new Trump tweet, and you get the idea of why trading is very different from making donuts.

Precisely because trading is so arbitrary you need to create a system of control that is ironclad. We can’t control price, but here are some of the things that we can control and should.

1. Control size. Of all things that get traders in trouble, size is the biggest problem. Trading 0.01 lots for as long you need is still the best trading advice there is. Trading 1X equity max is a close second.
2. Control entry. We can control exits, but we can always control entries by either letting price come to us or waiting til price touches a key point of momentum.
3. Control how we exit. We can’t know where the market will take us, but we can control the trade once it’s in the money by using a dynamic stop. This a terrible method mathematically, but the best method physiologically and since trading is as much about keeping your psyche sound as it is about keeping your account positive controlling how you exit is the only way to control yourself.
4. Control your approach. What makes you trade better -- defined strategy or discretionary trading? Discover your inner truth and you will be much more successful at controlling the game.