Uncertainty and Trading Success

The one overriding law governing trading is the ‘Uncertainty Principle’. Yet, we are hard-wired to seek certainty. This conflict – our need for certainty in an uncertain environment – is one of the reasons so many traders fail.

What do I mean?

Unsuccessful traders seek to control the outcome of their trades – an impossible ask. The only we traders have is control over the trading process, our decision-making.

Our trading process is linked to the 3Ms: Mind x Money x Method. Each component has a routine that contributes to our long-term profitability.

MIND – the mindset that creates:

• The psychological environment leading to our consistent execution of our Method and Money rules, and
• The drive for constant and never-ending improvement.

MONEY – the rules surrounding maximizing profitability and minimizing risk of ruin.

METHOD – the rules that generate a positive expectancy when they are consistently executed.

And this leads me to today’s content. What are the METHOD processes needed for trading success?

That depends on your personality. To choose the correct process, you first need to know whether you are better suited to a mechanical approach or a discretionary ruled-based one.  The best way I know how to do this is to:

1. Take the test at http://www.personalityassessor.com/ipip120/
2. Read Jason Williams’ Book: “The Mental Edge in Trading“

I do have one caveat: note that the way the PeronalityAssessor labels the qualities and the way Williams’ labels them are different. So, you need to line them up.

For example: Williams’ Self-efficacy (c1)’ is the PeronalityAssessor’s              (‘competence c6’).

Tomorrow we’ll look at the processes for the mechanical trader and the discretionary rules-based.