My journey through the financial markets span now over twenty years I was an ‘investor’ more than a trader for the first part of that journey . I had my start in mutual funds then went into index ETFs and individual stocks, in recent years I have traded options as well expanding my ways to be profitable. I have discovered along my journey that the trader is the weakest part of any trading method. What trips up most traders is emotions and ego not the market environment or method they are using. While I had some natural strength as I started trading with math, cutting losses, and letting winners run I had many weaknesses that have taken years to overcome and still lie in wait wanting to come back and express themselves in my trades. Here are the inner demons I had to overcome:
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I am a very aggressive trader by nature I want to take huge positions when I know it is a great entry point. Like Livermore I was also a boy plunger and had no trouble pulling the trigger on the big trades and profited form many of them. However as I matured as a trader I learned this way of trading leads to much bigger draw downs of capital and huge amounts of stress holding such large positions and can lead to making bad decisions due to emotions. Also timing has to be almost perfect to be able to hold the position. I have overcome this behavior by following the 1% AUM risk rule for position sizing, using OTM options to express big trades, and pyramiding into indexes for big positions sizing for less risk of volatility. The key to success for best and most consistent long term money managers is proper position sizing not big trades.
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In my past I had a habit of taking a trade slightly before an entry signal trying to front run, this lead to many losing trades. There is a big difference between an entry signal and an almost triggered signal. It is better to be a little late than a little early.
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I use to think as a trader I had to trade a lot to make money, I could not just sit back and wait, I had no patience and loved action. I have learned that avoiding the bad trades is just as important as taking the good trades. With my current method the less I trade the more I make because I avoid the choppy markets and mediocre entries. I trade only the best signals at the best times. Over trading is rarely good trading.
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I use to have too much risk on at any one time. Each year I trade my trading becomes more and more focused on less and less things to watch and I look for losing the least amount of money as possible and having the least draw down. Over exposure to risk during a market trend change use to cause me big draw downs in the past now I limit my risk exposure at all times and even more at possible market turning points.
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I use to be very narrow minded in what made money in the markets now I am open minded to all profitable traders and robust methods. I now accept I can learn new concepts and principles from varied trading styles while still being true to what works for me personally and fits my risk tolerance and personality.