Two twos of the trading business

Most people may find trading tough. But it can be easier, even very profitable, if you approach it the right way. The main reason, I believe, so many people fail at trading is because of that; their approach to trading is unsound, incorrect, untested, simply not right. In this article, I will re-iterate just two very basic things that commonly get overlooked and when that is ignored, it often leads to a disaster. I call these two basic things "two twos" for a reason, as you will see below.

1. There are only two kinds of trading ideas or methods: those that work and those that do not.

Which kind are you using? If you have no idea, it may be the kind that does not work. The only way to know it is to put them to the test and if you don't know the answer to this question, you have probably yet to do so. I hope it is not too late. Testing your trading ideas before you start using them in live trading is of paramount importance, and the more seriously you take this, the less money you will lose and the more confidence you will build.

2. There are only two ways of trading: the mechanical way and the discretionary way.

And yet very often, people use neither. That is, they either lack the skills or a mechanical trading system that could make them profitable.

The discretionary way is the way of the skillful trader. To become a discretionary trader you need to develop a proper skill. This may take some time, and often does, but that is what you rely on: on your skill in using your trading strategies, that should be sound, but may not even be testable because testing discretionary trading methods objectively is impossible. Their effectivenss depends on the trader too, and it is the discretionary trader's job to master them so well that he (or she) can use them to make money consistently.

The other way is the strictly mechanical way of trading. No skill is needed here. Even a trained monkey can handle it, but the said monkey, even of the genius caliber, is unlikely to develop a mechanical trading system that is required for this type of trading. The system needs to be very well tested before you start using it. First on the past data. Then on the data going forward in time from the moment the system was developed. This part of the whole business takes rather good analytical skills, but once you are done with that, so is your main job, and then you only apply your system, which can be a pretty boring thing. But then again, trading is rather boring and it may even be dangerous to make it less so. If you seek thrill and entertainment, look elsewhere.

There is no magic bullet in trading, no magic way, no magic strategy. You name it, and there is nothing magic about it. But there are good, sound, principles on which to build your trading business. Don't try to wing it, don't rush, take it slowly and build it on the solid foundation of sound general principles.

Despite the proliferation of trading forums, some better than others, most just lousy, it's amazing how little attention is paid on these forums to these general principles. People seem to be preoccupied with fancy indicators, while forgetting what I have said on this site too (and probably in more than place as well) that indicators are only as good as the trader that uses them, which is why developing excellent trading skills pays off because once you have them, you will be able to use virtually any kind of trading tool better than those with poor such skills. The forum that I am still in the process of developing, will try to emphasize the trading basics.

Yes, I know that they may be boring, but from what I have noticed, they tend to be forgotten or overlooked. And when this happens, bad things soon follow.

Posted on February 21st, 2015.