Trading principles, are they important?

In the previous three posts, I talked about distinct characteristics (principles) that may be necessary to help make us consistently profitable in technical, financial trading.

A process or a way that we can apply to any methodology, within reason. So, am I saying that the method or system by which we trade is secondary to some overarching principles? Yes, I am. The most significant of them being the trader’s psychology for which I’d highly recommend ‘Trading in the zone by Mark Douglas’.

I have chosen discipline, quantitative and discretionary as my trading hooks, my principles (and combined them with trading psychology). In other words, they are the platform to which I link my trading system.

Is a trading system not as important? When we start, we all look for a method first and are ignorant of the more critical needs of principles. I guess it would be like an athlete working tirelessly on technique but ignoring fitness.

Once I have my underlying principles sorted (my fitness), I can then more easily add systems as I need (technique).

More importantly, trading principles force us to be more selective about our system. The strict criteria of trading laws act as a standard for system selection and amendment; this is the same if we traded in price action, intraday currency pairings or was a gap trader of a daily equity chart.

P.S. For next month I’d like to discuss something that I’m working on at the moment, the need to combine both intuitive and systematic.

Instinctive is how most traders start and how we lose our money, often all of it! We learn that lesson and try again, but this time with a systematic approach, and if we do this well, we might not lose as much.

As a discretionary trader (i.e. not simply a systems trader) what I believe is necessary to tip the balance and propel us into creating a real trading account is a finely tuned and disciplined balance of both aspects. How to go about achieving this is something we’ll explore.

A traders engine is….

What best helps us make money as a financial trader?

Is it:

  1. a fantastic strategy
  2. time on our hands to be able to trade
  3. enough money to trade with
  4. an environment without distraction
  5. the correct equipment and support software
  6. to be able to trade objectively, all the time

The list could go on. And of course, we could argue that all the above have a part to play, to some degree or other.

However, from our lessons, it is the final item that takes the biscuit.

To trade objectively (or in the zone, or from a ‘now’ moment perspective) is the engine of the whole process.

I have read ‘Trading in the Zone’ by the late Mark Douglas several times, and it was only the last read where, for me, the so-called ‘light’ came on.

I probably need to gain a certain level of traders experience before I was able to grasp what Douglas was telling me.

Trading in the Zone

I read Mark Douglas’ book ‘Trading in the Zone’ some years ago when I was at the beginner stage of my current trading strategy, and I didn’t get it.

Yes, the principles that Douglas provides are simple and easy to grasp but to truly relate to what he is saying, and how it applies to what Douglas calls the ‘traders mindset’ is another thing altogether.

I think that a trader needs to be at, or in the early stages of, the ‘expert’ level as a trader to properly grasp Douglas’ lessons.

A beginner tries every kind of strategy going, which is fine, as long as the trader can settle on a particular way forward without a great deal of variation in the overall principle of a chosen strategy; to do so is the only way that a trader can move from beginner to intermediate.

The expert level is the cumulative refinement of one’s strategy and complete acceptance in that strategy. And that’s the easy bit. The hard work then comes with mastering Douglas’ trader’s mindset.

If we are a beginner or intermediate we aren’t going to get the importance of Douglas’ concept because, at the beginner and intermediate levels, we haven’t yet fully accepted responsibility for our strategy. In other words, we have not yet emotionally matured as a trader and fully accepted the probability of our trading strategy.

Read Douglas, and reread it when your foot goes on the first rung of the expert ladder – believe me, it’s like a light coming on.