When a great trading system loses money.
TRADING SYSTEM
You've done your homework. Countless hours of seeking out the right guru (or piecing together your own system). Weeks of monitoring your guru's daily trade picks (or paper-trading and back-testing your homemade system). You've done it by the book. No seat of the pants trading for you!
OK, now you're confident. It's time to put your money where your homework is.
You've had your coffee and your first trade signal is before you. Confidence high. Trade made. First loss. Not a problem. You understood before you started that successful traders both win and lose and "losing is part of the overall winning."
You've also heard more than once that "successful traders don't win on every trade." Moving on, still confident. Next trade made. Another loss, but this one hurt your pride a little because you got stopped out early in the trade, and then the market rebounded and would have hit your profit target if you weren't stopped out.
You double-check. Yep, you placed the stop where your trading system told you to place it. You kind of had a feeling that the early weakness in the market was just profit-taking from the previous day's trading, but you're trading a system and you must stick to it. Wounded, but resilient.
After a good night's sleep and a few mouse clicks, your new daily trades are in front of you. Hey, this one looks good! It's a little bit more risk than yesterday's trades had, but look at that profit potential! With a smiling face, the trade is executed.
With a nice start to the trade, you're feeling good and you've moved your stop to break-even, just like your system said. Surprise piece of news - market reverses - blows through your stop - an "unexpected" loss. Is something wrong with the system? Has the overall market "personality" changed, affecting your system to the Core, rendering all your back-testing irrelevant? Your confidence turns to doubt.
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