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Let’s say you are a tennis player and you would like to improve your game. Who would you play? Rafael Nadal? Imagine him serving ace after ace. When it is your turn to serve, he returns each ball with super powerful volleys which you can not even see. While you may admire his skill, would you learn much? Would that game be beneficial?
Let’s go to the other extreme. Would you play with a beginner who can hardly hold the racquet? He can not return any of your serves and you score game after game with ease. Would that game ne of any benefit to you? Who would you play?
You probably would like to play someone a little bit better than you who will push you to do better. But if your opponent is so much better than you, you may give up and not improve much at all.
Isn’t trading the same? If you try to master multiple indicators and multiple systems at the same time, you may get overwhelmed or overloaded and give up. If you use multiple contracts with multiple exits, add to your position at the same time, look at intraday charts to get the micro trends while monitoring weekly charts to get the bigger picture, you may burn yourself out and be beaten at the game quickly.
On the other hand if you trade buy and sell 5 shares of BHP at a time based when close is higher than open, you may take a long time to get good at trading and make decent profits.
How do you find the edge at which to trade? How do you improve yourself without staying too guarded in your comfort zone and also without getting to far out of your comfort zone? Back testing and paper trading a system long enough to gain the confidence and starting to put money on the line, small at first, with a plan to grow is one of those ways. Without your own testing, any system, no matter how good will seem scary. On the other hand you can not make any money with paper trades, sooner or later, you will need to stick your toe in the water.
A good indicator to see if you are at the edge, to see if you are going is to monitor your feelings and emotions. Back testing or paper trading hardly elevates the emotions. Taking a real trade is different. You can start small enough so you do feel yourself going into new territory, but not petrified to the tune of wanting to hide under the blanket. Than a little more out of comfort zone: be it a bigger position or a new layer on top of your existing system.
Using David Bowden’s words, when your real trading performance matches your paper trading performance, you have mastered trading psychology.
Believe, achieve.
Sinan Koray
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