Saturday, June 23, 2007

The Holy Grail of Trading

I realize that it is human nature to want to find the perfect trading system. The system that will catch every little up and down in the market. I see it quite often on the blogs. When the market has a 2-3% pullback the bears gleefully point out that the COT doesn't work and the semi believers start to get nervous. Let me assure everyone there is no holy grail. All systems will have losses and that includes the COT. The sooner you accept that fact the sooner you can start making money. I'm going to give you my mindset when I enter a COT trade. I know that all the data for 21 years says that my odds of producing a profitable trade are about as good as they are ever going to get with any system. Keeping that in mind I still tell myself "self this is going to be that 1 in 4 losing trade I just know it" So if you know you are going to lose what is the smart thing to do? The answer of course is to bet small so if it is that losing trade you won't lose that much. However if the odds come to your rescue and it is one of the 3 out of 4 winning trades then congratulations you just made money. So what if you don't double your account you also didn't cut it in half and believe me it's more important to not cut it in half than it is to double it. Eventually with odds 3 to 1 in your favor you will double it. As long as you keep worrying about how much you could lose then you will eventually double it with virtually no chance of cutting it in half. That my friends is how you make money investing.