We never know what will happen. The market is in constant motion and is a sea of uncertainty. We must learn to become comfortable with alternative views if we want to have a true mental edge. The ability to be open to alternative views is one of the hallmarks of a consistently profitable trader.
A common phase for newer or struggling traders is to become fixated on a particular view, possibly becoming a little too rigid in their approach. I’m not advocating a wishy-washy approach here, just pointing out that the market itself is not moved by precision and logic, but by perception and emotion. Successful discretionary trading requires an approach that is adaptive.
It’s very easy to get locked into a scenario of what the market ‘should do”, As a short-term trader, you’re job isn’t to predict the market, your job is to make a prudent bet based on your methodology and maintain a “lets see what it does” view. This is not the same as throwing something at the wall to see if it sticks. Rather, you are making a bet based on a strategy you understand, are confident in, and you also know when you’re strategy is wrong.
Of course, ‘being wrong’ is a whole topic itself and deserves its own blog entry. But the bottom line is, do you trade to be right or do you trade to make money? If it’s the former, chances are you have difficulty adopting or at least recognizing when an alternative view is needed. If it’s the latter, chances are you know how to be comfortable with alternative views.
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Hi Andrew,
If it’s the latter, which is I trade to make money, how isn’t this trading my P&L? Great blog by the way! Thanks!
When you enter or exit a trade, how much of the decision is based on concerns about P&L? For example, someone deciding to hold a loser past their stop might be more concerned about realizing a loss and decide to hold it until ‘it comes back’. Another example, impulse trades are often an example of on one level a concerns about making money NOW, and on a deeper level the impulse trade is often an attempt to at least temporarily feel better – “I can’t make any money if I’m not in a trade”.
In reality, a lot of what happens in trading is a response to discomfort.