When I first started trading I believed the best way to improve was to become more skilled. The more I could learn, the better I should perform. The result was a very large library of trading books, and a moderate increase in trading success. We all need to master the tools of technical analysis. Understanding how they work and when they are best applied is an important part of developing the skills of trading - in theory.
When it comes time to put this theory into action in the market we discover many unexpected psychological barriers to our success. We do not have much money when we start trading, so we take a lot of time to decide on each trade. Often the first trades are easy and turn into effortless winners. This is poor preparation for the inevitable losses because we do not know how to react. When losses do come, most times we just hold on and hope. The result is a trading portfolio littered with long-term investments in the vain hope that, given time some of these fallen stocks may rise again. The market provides the most expensive self-education course available. Standing knee deep in blood from losing trades, we are easily distracted by the promise of trading systems developed by other people. These approaches may work very well for others, but unless they match our growing and changing understanding of risk, and our appetite for risk, the systems work poorly for us. Some people buy an expensive promise of trading success delivered by black box trading systems. Typically these are priced at an attractive $3,000 to $8,000. You might be told there are only a few licensed copies left so you need to be fast. It is a sure way to a small fortune for the promoters of this software, but rarely a successful solution for the private trader. The novice trader needs money management skills to survive, but he is the very person who is least likely to develop them. Instead, he concentrates on chart analysis and trading skills, believing they hold the secret to success. Money management requires knowledge and an understanding of the way losses impact on capital. Applying money management requires discipline and this difficult for Trader Novice and Trader Average to develop. It is part of what keeps them from becoming Trader Success. It is not a lack of charting and analysis skill. It is a lack of the discipline required to effectively implement money management strategies. '+'
