5. How clear are you about your trading methodology?

In the last trading advice blog post, we discussed the relative importance of Method, Money Management and Mindset. I don’t want to give the impression that methodology isn’t important – it is. The more confident you are in your method, and proficient you are in trading it, the more you’ll be able to make it second nature. With that, the better and more easily you’ll be able to balance your attention, and keep a strong focus on money management and mindset.

How clear is your method to you?

If I ask you to explain your trading methodology (or system) to me now, clearly and precisely, can you do it? Go ahead, and try it.

 

How did you do?

 

I’m going to stick my neck out here and say – if you can’t explain your system clearly then its probably because it not clear to you in your own mind. If you have to look it up or refer to something you’ve written down, in order to explain your system, then its not yet deeply enough engrained in your head. If that’s the case, then how will it be in the midst of the pressures of the trading day?

 

Your method shouldn’t be something nebulous. It can’t be a vague string of ideas that you apply on the fly when you see price patterns taking shape. That’s a recipe for disaster -a recipe for seeing things in price charts that just aren’t there.

 

As you know if you’ve watched a price chart unfold in realtime, its very easy to get drawn into discretionary trading, even for someone that has a clear method. There is often a strong urge to be doing something, to not be missing out on an impending move. If you don’t have a method that is written in stone in your own mind, then it is going to be extremely difficult for you.

 

Having your method clear in your own mind gives you more control, it gives you your surfboard to ride the waves of the market. You can sit on your surfboard and watch the waves. You can choose to let them pass you by, or you can decide that one looks right to ride. If you don’t have your method clear in your mind when you are in the waves, you’ll get tossed around and you will drown — you are better off staying on the beach.

 

The most basic, entry level requirement, is to have a clear, written trading method that is deeply engrained in your own mind.

 

So, what are the next steps for you? Obviously, if you don’t have a trading method that you can be confident in then you’ve got to find one (that’s what we’ll be discussing in the next post).

If you do have a trading method but its not yet concrete in your brain. Then practice explaining it out loud. Pretend you are explaining it to a friend. Better still actually explain it to a friend. You’ll find that its a great test of how clear you are – and where there may be unanswered questions.

 

Next blog post: Finding a trading method that’s right for you.

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