Many traders believe that there must be a Holy Grail in trading. I also thought so in the early years of my trading, thinking that there must be a magical indicator or trading technique that can predict the future market and be invincible in battle. If not, it must be that I haven't found it yet.
However, after several years of trading, I lost several million, and it was only after losing all my wealth that I realized that there might really be no Holy Grail in trading. It's just that the process of searching is full of hope and expectation, so it's always irresistible.
So, is there really no Holy Grail in trading? How do those who can make a stable profit do it?
Later, I sold my car and house to accumulate some funds and started trading again. It wasn't until two years later, when I made a stable profit, that I realized that there might be a Holy Grail in trading, but it's not the invincible trading strategy we commonly think of, but a mature cognition.
This cognition includes the correct cognition of the market trend, the correct cognition of trading technology, and the correct cognition of the expected return. Only when these three kinds of cognition are in place can a complete trading system be formed, which can help us see the truth of trading. That is the Holy Grail I think of in trading.
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Because after forming the correct cognition in these three aspects, the trader has the ability to make a profit in trading. Even in different financial markets, they can make a profit. Although this ability to make a profit is not only profit and no loss, nor as easy as picking up money, it can also allow us to increase our wealth. Our only purpose of trading is to make money, so this is the trading Holy Grail we should pursue.
I will break down these three cognitions one by one.
1: The correct cognition of the market trend.
First, we must understand that the future market is unpredictable, which is the most correct and fundamental cognition of the market trend. We should give up the idea of predicting the market, and don't think that anyone can predict the future, otherwise, we will fall into a vicious cycle of loss.
Give up prediction, accept the unknown, and also give up the naive idea of wanting to predict the future through the search for the technical Holy Grail, knowing the market changes in advance, and making a lot of money in the market.Secondly, although the market trend is unpredictable, looking back at the past century of history, there is a regularity to the market trend, which always alternates between oscillation and trend. Therefore, we can use these regularities to make probabilistic outcomes and think about trading with a probabilistic mindset.
2: Correct understanding of trading techniques.
We must understand that trading techniques cannot predict the rise and fall of future markets; all technical indicators are merely standards for traders to execute trades. By selecting technical indicators to build our trading system and executing them consistently, we can measure probabilities, thereby achieving the purpose of recording and optimizing, and ultimately making a profit.
Trend-based indicators form a trend-based trading system, which is effective in trend markets but ineffective in oscillation markets.
Oscillation-based indicators form an oscillation-based trading system, which is effective in oscillation markets but ineffective in trend markets.
Since the market trend has a regular pattern of alternating between oscillation and trend, and our trading system rules are uniform and unchanging, there will inevitably be periods of loss in the trading system, and there will definitely be times when we need to stop losses. At this point, we must calculate the success rate and the profit-to-loss ratio, achieving a balance between the two to achieve a profitable effect.
It is also emphasized here that there is not much difference between technical indicators; it is only a matter of whether they are suitable for one's own use. You can choose indicators and indicator parameters according to your own personality, and there is no need to be too entangled.
3: Correct understanding of return expectations.
Firstly, a trading system cannot always make money; there will be cycles of profit and loss. An oscillation-based trading system makes money in oscillation markets but loses money when it encounters a trend market. Conversely, a trend-based trading system will also lose money when it encounters an oscillation market.
Before going live with a trading system, it is best to do a lot of backtesting to have a clear understanding of the profit and loss cycles of the trading system. During the loss cycle, we control the position size, control the overall drawdown of the account, maintain execution, and wait for the arrival of the profit cycle.Secondly, a trading system can be profitable, but it certainly cannot be excessively profitable. This is because trading systems have periods of profitability and decline, with both gains and losses. Consistent long-term execution is required to achieve overall profitability. No trading system can make money all the time, nor can it sustain continuous high profits.
When we have a reasonable understanding of the return rate of a trading system, we can look further into the future, and thus ignore the psychological pressure brought about by short-term gains and losses. By focusing more on long-term profits, trading becomes more confident and executable.
In fact, these principles are not only the philosophy of trading but also the philosophy of life. Those who do well in trading will not live a bad life, because you are clear enough, open-minded enough, and have a long-term vision and firm execution ability. You will succeed in anything you do, and this is the Holy Grail we should pursue.
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