close icon

The Iceberg of Trading Success

Most people’s idea of a trader is someone, who just sits on his desk, making tons of money, while drinking his coffee. In reality, things are far more complicated.
When the wanna-be trader makes his first steps, he usually reads about a forecasting method, which promises a great success rate. So, he decides that once he becomes a good analyst, there will be nothing to stop him on his way to trading success. Trouble is, a 100% accurate forecasting method simply does not exist. It might give you even 80% success rate at times, but if the other 20% cost you all that you have earned by then, you are not going anywhere.
Most inexperienced traders start searching for “the best” analytical method, the so-called “Holy Grail”, without realizing that the real problem is hiding somewhere else.
iceberg-of-trading-success
And that is where risk management and money management come to the stage. The ability to limit your losses and let the profits run. The will to ignore a good-looking trading setup, because of the greater risk that comes with it. Risk and money management is all about building your own set of rules, in order to take advantage of the successful trades and not allow the unsuccessful ones to ruin your account.
A couple of years later, our hero trader is a great analyst. He is also good at managing the risk and his balance. However, he still does not get the results he wants, because having a plan is one thing, but following the plan is a whole different story.
He is now able to recognize a good trading opportunity, which offers him a good risk/reward ratio. He is able to identify the stop-loss and target levels and know where to open the position. So far so good. But once in, he feels things are not going according to plan. His stop order is still far away, but the price is slowly moving towards it. Impatience and anxiety are taking over him. “It is going to hit the stop. I made a mistake, the forecast is wrong” is what he now thinks. So he exits the trade with a small loss, while his forecast is still valid. Soon after that, prices start moving away from where his stop-loss was and towards his target level. He is missing out on all the profits and anger grows inside of him. He correctly managed to predict what was going to happen and yet again, it all ended with another small loss. What went wrong?
Discipline, self-control, emotion control, patience. These are the things our trader still lacks. The psychological strength to stick to the plan, even when the situation is not going as good as he desires.
Controlling yourself is the final and most difficult part of the journey to trading success. So, even if you think you have found the “Holy Grail” of forecasting methods, chances are you have barely scratched the surface. You still have a lot of work to do…



Stay informed with our newsletter

Latest Elliott Wave analysis on different topics delivered to you weekly.

Privacy policy
You may also like:

Financial Bubbles: A Short History (Infographic)

Markets go bust so often we somehow accepted that it is a fact of life. The truth is that financial bubbles can be forecast accurately and prevented successfully way ahead of time. Our friends at Fortunly explain that the life-cycle of a financial bubble always starts with emotional investing. Overblown asset valuations and irrational expectations…

Read More »

The Skyscraper Curse

In the 1940s, Edward R. Dewey hypothesized, that the tallest buildings are usually completed after significant market peaks. This infographic will show you six market crashes, that occurred throughout a period of more than a century, as well as eleven skyscrapers, corresponding to these crises. They all seem to be confirming Dewey’s hypothesis. Is it…

Read More »

Trading Style. What is Your Hunting Tactics?

Market trends are fractal in nature. This means that the same trading setups can be found on all time-frames – from the smallest to the largest. But this could turn out to be a problem, because the bigger the horizon, the longer you have to wait before getting any results. So what trading style to…

Read More »

The Hidden Engine Behind Riots and Wars

Do you share the common belief that riots, civil unrest or political instability may and often do cause stock market declines? Yes, it makes sense. It seems logical and probably that is the reason why it is the explanation, which the large media offers you, when there is civil disobedience and the stock market of…

Read More »

Ralph Nelson Elliott

Ralph Nelson Elliott was born on this day (28.07) in 1871. This is our way to thank him.

The Fibonacci Magic in the Real World

The Fibonacci proportion is everywhere. You have seen it many times, but probably you did not notice. Here is an infographic about its magic and beauty in the real world.

Elliott Wave Principle and How It Works

The Elliott Wave principle is a form of technical analysis, which is used to analyze market trends, locate extremes in investors’ psychology and forecast future market trends. Ralph Nelson Elliott discovered that stock market prices trend and reverse in recognizable fractal patterns, called waves. The theory can be validated by using the Fibonacci sequence and…

Read More »

More analyses