Trading Systems and Reality of The Market
I would talk about Forex trading systems. An interesting thing about any successful trading system is that it’s just a mathematical model which tries to describe the reality. However such model can not predict the future. It can’t even give a right recipe for the right action in the market. Due to lack of understanding of this simple fact, many new traders get nervous after the first few losses. That leads to unplanned actions that make losses even worse.
Professional traders would advise to control you emotions in such situations. What is loss? Loss is just the discrepancy between mathematical model and reality. The most interesting thing is that in this case unexpected profit is the same as loss. If profit or the size of it was not planned by your trading system that means the reality stepped away from the model.
Both losses and unexpected profits are dangerous for traders since emotional response to those events may lead to distorted perception of reality. In both cases such reaction can lead to actions that trader would not take if his perception was neutral. Forex is not a lottery, if you let the emotions to take control, you may find yourself in deep drawdown.
Therefore using any trading system a trader needs to remember that loss is not his fault, not market’s fault it just the way the system models the reality of the price movement. In other words even if you have 6 wining trades out of 10 you still can consistently build up your account. However it is possible only if you are able to stick to the model for long time. It does require patience. In my opinion the most important thing that I learned in Forex long term persistence always pays of.
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