Do you know the danger of a winning strategy? And how to avoid it?
How common are trading account blowups?
In my 19 years in the industry, I've lost count of the times independent traders told me:
"I know how to trade. I was up X%"
Truth is:
"was" is an abbreviation for
"I know how to trade because I was making money. It's just that there was a period where it stopped working, and I blew up my account."
I pass on the following advice to traders I train and mentor.
Don't believe your own bullsh*t
Why?
A giant trap is when you correlate "a skilled trader" with a strategy that currently has an edge.
To help explain:
I have a playbook of set plays that have an edge when applied to particular market conditions.
Yet, I also have retired set plays from my playbook, which no longer have an edge.
So, what is my edge?
Solving which traders will get caught on the wrong side of the market.
Comprehending how the market communicates to monetise the above.
Here's the deal:
Your edge is NOT your playbook.
Markets are ever-evolving.
Failing to adjust to changing markets is a market understanding and skill problem.
The key to continual market edge is understanding markets.
When the market behaves in a manner you haven't seen before; you go to school on that behaviour. You’ve received a new puzzle to solve.
But let me throw you a curveball.
You profit from set plays with an edge.
Yet, you accept you can't know the cause of the move with certainty.
And this is how you avoid believing your own bullsh*t.
The live trading exerpt below will show you.
