Good, glad to see you’ve got a healthy curiosity!
Sorry about the reverse psychology title, but there’s something important you need to hear.
Many traders think they’ll finally be successful when they’ve perfected their system and trading technique. I’d like to propose, ever so gently, that there’s just a bit more to it.
Suppose you were given one wish from a magical Genie. You wish for the perfect trading system that would never go wrong. Your wish is granted and you madly start placing day trades.
About the time the United States markets die down, you move over to the Australian market. Then, as the sun rises again, you’re still trading the European markets.
Your account equity grows at a furious pace. Every time you close out a trade you can almost hear an imaginary winning slot machine disgorge another huge pile of gold coins.
At some point, you close your eyes for just a moment because you’ve grown exhausted from all this non-stop excitement. The moment turns into a whole hour, and during your little snooze you miss your exit. You realize that that market has closed for the day. Worse yet, really bad news about your one large open position comes out right after the market closes. Since you had everything riding on that one “can’t lose” position, you already know this is going to lead to a margin call.
This fear takes you out of your game. Instead of getting some well earned rest, you just toss and turn, eventually slipping into nightmares that can’t be nearly as bad as what actually awaits you when you finally do wake up again.
By the time the market reopens, you are fully psychotic from a mix of caffeine and sleeping pills. You go long when you mean to go short and you close positions you never opened. Somehow, somewhere, the broker mercifully closes your accounts, and a computer someplace emails you a nasty gram as a PDF, attached to a very large bill of what you still owe the brokerage house.
What happened? First of all, you got overconfident. Then you did not pay attention to your “internal state. ” You traded when you weren’t sharp, which caused you to make mistakes. Then, because you had lost your emotional mooring, you crashed and burned into a crater of confusion. In effect, you sabotaged yourself.
Where are we going with this? Einstein was fond of something called a “thought experiment. ” The purpose of the thought experiment was to follow a hypothetical situation to its logical conclusion, in hopes of developing a useful insight.
Perhaps you’ll get your own insight from this example. However, let me leave you with mine: no matter how powerful a trading system you have, if you aren’t ready for success, you’ll end up sabotaging yourself.
So, before you start trading that stock trading system you paid really good money for, make sure you’re ready for success. Otherwise, success will elude you.
Doug Newberry is the Founder of Investing Systems Network and builds financial software for all kinds of investors about stock trading . His weekly radio show and newsletter are enjoyed by tens of thousands of investors in more than 23 countries.