Saturday, 22 October 2016

The 5 Holy Grails of Trading

By Steve Burns

“The Holy Grail is not what you would expect it to be. It is something that is different for each person. It’s a hidden secret you have to discover for yourself but it is obvious once it is realized.” - David Mobley, Sr.

Most new traders go on a quest for “The Holy Grail” of trading. They want the can’t lose system that prints money. Many believe that rich traders know the secret and keep it to themselves. The secret is that there is no “secret” system or methodology that always wins. There are many robust systems, but no 100% winning system, not even close. The big secret is that many of the best traders in the world have about a 50% win rate, and many of the best systems have around a 50% win rate (or less) with each entry.

Winning traders do have helpful secrets, but many new traders argue about these principles are difficult or don’t work, despite the fact that they come from seasoned and experienced professionals. 

Here are five real Holy Grails; they aren’t the answer alone, but put all five together and they can make a significant difference in a trader’s career.

  1. Big wins and small losses. With a 3:1 risk/reward ratio you can be a winning trader with a 33% win rate.
  2. Never lose more than 1% of your total trading capital in a single trade. This brings your risk of ruin down to almost zero, and turns the volume of your emotions down to a manageable level. This risk management rule causes a trader to be disciplined in their position sizing and stop loss placement.
  3. A trader must follow a robust mechanical system or trade with a rule based methodology that gives them an edge. You have to trade with a long term winning strategy and understand why it wins.
  4. Disciplined traders are the ones that eventually make the money and keep it, because they are able to take their entries and exits without being blocked by their egos or emotions.
  5. Traders don’t survive without perseverance. If one thing is the “The Holy Grail” of trading it’s perseverance. All the legendary traders decided they were going to be traders. They did what they had to do to be successful in the business. They put in the time and paid the price to win.
“Its hard to beat a person who never gives up.” - Babe Ruth

Quote for the day

"Curiosity is one of the most permanent and certain characteristics of a vigorous intellect." - Samuel Johnson