A tale of two merchants: which one do you want to be?

Today, let’s talk about the story of two merchants. Suppose they have both been trading for the same period of time. They both have the same starting capital, the same trading dome, the same market, and both use the exact same trading system with precise entries and exits. We are going to let traders trade for the next 60 days and see what results they have achieved. Would it surprise you to learn that one trader would make a 20% return and the other would make a 40% loss during that same period? I am fascinated by the fact that two people, with the same opportunities to earn money, can obtain very different results.

I believe that the answer to success (whether in trading or in life) lies within each of us and that we are fully responsible for our own results in trading (or in life). Too often, we blame our trading results on external events, circumstances, or other traders. The typical excuses would be: the “market” was against me, the big players were looking for me, they knew exactly where my stop was, etc.

Not long ago, I read a book that discussed how, to some extent, your trading discipline was a matter of integrity. Not exactly the kind of integrity you’d normally associate with that term. More importantly, this integrity has to do with how you adhere to your specific trading rules. This integrity has to do with: Are you being honest with your commitment to your trading rules? Do you move your stop if a trade goes against you? Do you justify moving your stops because you think a trade you are in is going to make money? Have you moved your limit order (to take profit) because you “have a feeling” that the market will continue to move in your direction? All of these actions would violate your commitment to your rules and therefore violate your integrity.

Once you have a strict set of trading rules, one of the most important things you can do is follow those rules to the letter. For me, using the “integrity” analogy helps me look at a trade and say, “Is this a trade that meets all of my trading criteria? Can I follow my trading criteria to the letter on this trade?” ” If all the criteria for the trade are met, I accept the trade and set my stop and limit orders. Then the hard part comes into play. If I go a bit higher, my natural tendency is to start moving my stop higher. But that’s not part of my trading strategy. My strategy says: “If my trade goes up 1.50 points, I can move my stop to break even.” Not a tick before. If I were to move my stop before then, I would be violating not only my integrity, but also my trading rules.

I realize that I spend a lot of time going over the mundane subject of trading psychology. The reason is that from my experience, the mindset of a trader can largely determine the profitability of a trader. Take a look at my initial “Tale of Two Traders” comparison. My question to you is this? Which trader would you rather be? Work hard to follow your business rules. Set objective and realistic goals and… Catch a Whopper.