The 21 Irrefutable Truths of Trading

1. Master Your Ego and Beliefs to Excel in Trading

"The holy grail is nothing other than the self-examined life lived according to 21 irrefutable truths."

Control your ego. Successful traders understand that their ego can be their biggest obstacle. They work diligently to control their unconscious and conscious thoughts, developing empowering beliefs about themselves and the market. This process involves recognizing and challenging limiting beliefs, such as the notion that there's a "holy grail" trading system that can be purchased.

Develop empowering beliefs. Traders must cultivate beliefs that support their success, such as:

• The market is always right
• Losses are a cost of doing business
• Consistent profits come from following a proven methodology
• Success is determined by long-term performance, not individual trades

By mastering their ego and beliefs, traders can maintain objectivity, make rational decisions, and avoid emotional pitfalls that often lead to poor trading outcomes.

2. Develop Unwavering Faith and Confidence in Your Trading Abilities

"Faith is the foundation of all human endeavors."

Cultivate faith in your approach. Successful traders have unwavering faith that their methodology will work over time, despite short-term setbacks. This faith provides the mental fortitude to stick to their strategy during challenging periods and allows them to execute trades without hesitation.

Build confidence through experience. Confidence in trading comes from:

• Thorough research and testing of your trading methodology
• Consistent application of your strategy over time
• Accepting that losses are part of the process
• Focusing on the quality of your decisions rather than outcomes

As traders develop faith and confidence, they become more resilient to market fluctuations and better equipped to handle the psychological pressures of trading.

3. Cultivate Discipline and Courage to Execute Your Trading Strategy

"Good traders need confidence; they need discipline; and the confidence to rigidly stick to their discipline."

Develop iron discipline. Discipline is crucial for consistently following your trading rules and methodology. It involves:

• Sticking to your entry and exit criteria
• Maintaining proper position sizing
• Following risk management guidelines
• Avoiding impulsive trades based on emotions

Exercise courage in trading. Courage allows traders to:

• Enter trades when their strategy signals an opportunity
• Cut losses quickly when necessary
• Let profitable trades run
• Adapt to changing market conditions

By combining discipline and courage, traders can execute their strategy consistently and effectively, even in the face of market uncertainty and psychological pressures.

4. Harness Intuition and Persistence for Long-Term Trading Success

"Just as one might have to turn the whole body round in order that the eyes should see the light instead of darkness, so the entire soul must be turned away from this changing world until its eye can bear to contemplate reality."

Develop trading intuition. Intuition in trading is not about hunches or gut feelings, but rather a deep understanding of market dynamics that comes from experience. To develop intuition:

• Study market patterns and behaviors extensively
• Practice reading price action and order flow
• Reflect on past trades and market movements
• Trust your analysis while remaining open to new information

Cultivate persistence. Success in trading requires unwavering persistence:

• Continuously refine and improve your trading strategy
• Learn from both winning and losing trades
• Stay committed to your long-term goals despite short-term setbacks
• Maintain a growth mindset and embrace challenges as learning opportunities

By harnessing intuition and maintaining persistence, traders can navigate the complexities of the market and achieve long-term success.

5. Maintain Integrity and Flexibility in Your Trading Approach

"Integrity without knowledge is weak and useless, and knowledge without integrity is dangerous and dreadful."

Uphold trading integrity. Integrity in trading means:

• Being honest with yourself about your performance and mistakes
• Following your trading rules consistently
• Accepting responsibility for your trading decisions
• Avoiding unethical practices or shortcuts

Remain flexible in your approach. While maintaining integrity, successful traders also stay flexible:

• Adapt to changing market conditions
• Refine your strategy based on new information and experiences
• Be open to new trading techniques and technologies
• Recognize when your approach needs adjustment

Balancing integrity with flexibility allows traders to stay true to their principles while evolving their strategies to remain effective in dynamic market environments.

6. Overcome Fear, Anger, and Doubt to Improve Trading Performance

"FEAR is nothing more than false evidence appearing real."

Conquer trading fears. Fear can paralyze traders and lead to poor decision-making. To overcome fear:

• Recognize that fear often stems from uncertainty and lack of preparation
• Develop a solid trading plan and risk management strategy
• Focus on the process rather than outcomes
• Practice mindfulness and emotional regulation techniques

Manage anger and doubt. Anger and doubt can be equally destructive to trading performance:

• Anger: Often results from unmet expectations or loss of control
  • Practice acceptance of market unpredictability
  • Focus on learning from mistakes rather than dwelling on them
• Doubt: Can lead to hesitation and missed opportunities
  • Build confidence through thorough preparation and practice
  • Regularly review and validate your trading strategy

By addressing these emotional challenges, traders can maintain a clear and focused mindset, essential for consistent performance.

7. Implement Effective Money Management and Risk Control Strategies

"Focus on exiting strategies rather than trade initiating parameters. The big money is captured by managing risk with exits."

Prioritize risk management. Effective risk management is crucial for long-term trading success:

• Determine the maximum percentage of capital to risk per trade (e.g., 1-2%)
• Use proper position sizing based on account size and risk tolerance
• Implement stop-loss orders to limit potential losses
• Diversify across multiple uncorrelated markets or strategies

Develop robust exit strategies. Successful traders often focus more on exits than entries:

• Use trailing stops to protect profits in trending markets
• Implement profit targets based on risk-reward ratios
• Consider time-based exits for mean-reversion strategies
• Regularly review and optimize your exit criteria

By implementing sound money management and risk control strategies, traders can protect their capital during drawdowns and maximize their potential for long-term profitability.

8. Create a Written Trading Plan and Continuously Learn from Experience

"Every outstanding trader has very strict rules on how to manage risk. Without a very clear strategy, your ultimate success is greatly diminished; with it, your success is almost assured!"

Develop a comprehensive trading plan. A written trading plan serves as a roadmap for consistent decision-making:

• Define your trading goals and risk tolerance
• Outline your entry and exit criteria
• Specify your risk management rules
• Describe your approach to market analysis
• Include a process for reviewing and improving your performance

Learn from every trade. Continuous improvement is key to long-term success:

• Keep a detailed trading journal
• Regularly review your trades to identify patterns and areas for improvement
• Analyze both winning and losing trades objectively
• Stay updated on market developments and new trading techniques
• Seek mentorship or join trading communities for additional insights

By creating a written plan and committing to ongoing learning, traders can stay focused, disciplined, and adaptable in the face of ever-changing market conditions.

Last updated: July 19, 2024