Forex Journal

Does a Holy Grail in trading exist?  If so, where can it be found? I am writing this article in an attempt to inspire you to find “your” Holy Grail to become a consistently successful trader. Invariably, whenever the words “holy grail” come up in a trading conversation, there are two predominant themes that I hear from retail traders.  The first is that there is no such thing and it does not exist. The second is that there is some secret trading methodology that guarantees success, if you can only find it.

I believe that there is, absolutely, a Holy Grail to trading and it has very little, if anything, to do with the trading methodology that an individual uses (assuming they are following a successful methodology in the first place). What do I mean by this?  In countless conversations that I have had, I can tell you that I have met the traders’ worst enemy and it is us! It is as plain as day, yet most traders will never learn this as they are focused on less important factors.

This is an article about trading psychology – one of the three pillars of successful trading along with a successful trading methodology and expert money management skills. It is a much underestimated and misunderstood skill that most beginning traders, and all losing traders, overlook in their quest to become consistent winning traders.

I believe there are several factors that cause this. The most common is the pursuit of the entry technique that never fails (and does not exist in real life).  These techniques are touted by many vendors in the trading industry, but generally fail to live up to the hype in real life trading.  Do the following catch phrases sound familiar?  52 winning trades in a row, never had a losing month or 90% accuracy rate... these statements are very likely skewed by some facts that are either hidden in the small print or just plain not true.

Most beginning traders believe that a successful entry technique is the most important element to becoming a successful trader. It is this preoccupation with finding that “perfect” trade entry, combined with all of the associated hype and false promises in the trading industry that causes most losing traders to bounce from one trading system to another, or one software package to another in an effort to find the Holy Grail of entry techniques. In reality, the entry is one of the least important factors in becoming a successful trader.

Another trap that traders fall prey to is extreme overconfidence in their abilities even though they have had very little, if any, trading education from a reputable educator.  Most people believe that successful trading is something that you just learn on your own very easily – like learning to ride a bike.  You get on the bike, fall off a few times and get a few scars, but then you quickly learn to ride successfully.

This mentality could not be further from the truth.  Trading is the most difficult endeavor that you will likely ever encounter. I have heard it stated that to become professionally proficient at something requires some 10,000 hours of preparation. If we use one hour-per-day as a study rate for the new trader (with no days off), it should be expected that the education/preparation process should take around 27 years to become a completely competent full-time trader.

When I discuss a potential client’s expectations regarding how long it will take them to become a successful full-time trader, I often hear answers such as; “I have just been downsized out of my job and I need to start making money quickly” or “I can devote a few months to learning.  Is that enough time?”

You see, most traders have a false belief that trading is easy and should not take much time or effort to learn. Again, this could not be further from the truth. All traders must realize that they are competing against the smartest, most experienced and best-capitalized traders in the world every time they place a trade. It is truly ironic that the new trader in reality has no reasonable expectation of winning against these smart money traders, but arrives in the trading arena arrogantly convinced of success.  If you suggested they had a better chance of knocking out the heavyweight boxing champion after training for just a few months, than beating the smart money at their own trading game; they would never believe you.

This is an excerpt from Nov 2011 issue of Forex Journal.