“What! But growing up I was told we are all unique!”
We all have different personalities, skills and tendencies, but when it comes to trading we aren’t unique. By that I mean we all trade the same markets, which levels the playing field. Because the market is composed of such a wide array of people, you can be assured it will strip away most of the profits from simply being “smart” or “ambitious.” We assume that because we are smart, or have worked hard the market will give us profits… it will reward us for our uniqueness. Unfortunately, there are millions of other smart and hard working people also trying to make a profit in the markets, in other words, you aren’t unique.
The main problem when people begin trading is that they look within themselves for some sort of edge, and then try to predict and beat the market at its own game. For example, someone may begin trading and think they are smarter than most other traders. So as the price is dropping based on their analysis they choose to buy because the price is due for a bounce. Or the price is screaming higher so they buy thinking it will continue to go higher. Occasionally this tactic may work, but over the long run it likely won’t. Why? Because the trader is playing the same game as everyone else. Since most traders lose, by playing the same game this trader too will eventually lose everything. There is no specific strategy here, instead the trader is operating off ego, and assuming they know what the market should do next.
So if most traders think they are unique but aren’t, and lose, the valuable question becomes how do you actually become a unique trader? It is a several step processes which involves coming to some realizations, both about yourself and the market you trade.
1. Admit that you aren’t unique. There are other traders out there just like you, learning and trying to beat the market at its own game. And that is not how to win.
2. Despite what you have read or seen, forget about predicting where exact tops and bottoms are going to be in the future. Realize the market is dynamic, with new and old traders constantly moving in and out of positions, leaving the markets and coming back, being aggressive and passive based on both market conditions and personal circumstances. You can’t predict that.
3. Looking at the market through new eyes–a market you can’t predict–realize you will need a strategy that most traders aren’t thinking of–that will scare most unsuccessful traders.
For example, during an uptrend, buying during a pullback at a Fibonacci retracement level is not something the average (non-unique) trader can convince himself to do. While it is logical to look for assets at a discount, most traders instead buy when the price is screaming higher, only to find the buying doesn’t last and they lose as a pullback occurs.
Therefore, if you want to disengage from the herd and become profitable you need to look for entry and exit points where the herd isn’t looking. For me that generally (I have a few different strategies I use) means buying on pullbacks as the price just starts to creep back up (during an uptrend), and exiting just become beyond a former high which is where most amateurs buy (and subsequently lose). It also means avoiding many of the trades that traders in the herd will take.
4. Most traders focus on ego, without even noticing it. They trade to win, or trade not-to-lose, to satisfy a personal need to be right, beat the market or to brag to other traders. Your final step in getting away from the herd, and becoming part of a more select few, is to abandon these notions. Instead, view trading as a process where your only goal is to execute the plan you have come up with, and execute it precisely. Focus on that, and results take care of themselves.
If you are able to complete these four steps–and full integration could take months to years–you have the possibility of actually becoming an almost-unique trader (but still in the company of other great traders). You will first have to admit that your personal traits don’t make you unique in the scope of the market, and the markets don’t care how smart or driven you are. The markets are what they are, and that is it. Don’t waste time trying to come up with elaborate models that predict every turn in the market. Instead, realize most traders lose money, which provides you with an edge. Your only goal is to exploit that edge based on the strategies you develop based on your new realizations.
The first step to becoming a successful trader requires admitting you are not unique. You have no special advantage. The market lies outside of you, and will not move to your will or based on your ambitions. When you realize this, only then will you be able to see the market through clear eyes, and develop strategies that may have a chance of producing a long-term trading income.