Trading Success Has Three Components

Trading Success Has Three Components 

 

Trading strategies, systems, and method look fantastic on paper, but when they're put into practice, market conditions that are unpredictable and difficult to foresee will render even the most effective plans incapable of generating consistent gains. Even if a trader employs an excellent trading technique, the most rapidly understood reality is that trading gets more difficult when a trader is under emotional stress.

Although the trading approach you employ is critical, it is insufficient. Mind (mind), Money (money management), and Method (trading method), frequently abbreviated as 3-M, are the three components of trading success. If you overlook any of these factors, you will eventually be unable to earn consistent profits over time.

That isn't to say you shouldn't utilize a decent trading strategy; forex trading plainly necessitates the adoption of a tried-and-true trading method and system with the highest potential winning rate. You won't locate high-probability trading signals without solid trading methods, tactics, and systems. If you solely rely on trading tactics, however, you will never be truly successful because the other two components, namely Mind and Money, are neglected.

Traders will initially rely on advanced trading techniques with high winning rates, but these three elements are actually interconnected and impact one another. When it comes to trading, you should be able to strike a balance between these three elements.

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The Mind is the first component.

Even the best trading method won't help you succeed if you don't have the correct mindset. Incorrect ways of thinking include: how much profit will I make if I use a particular trading approach, or how long will I be able to earn as a full-time trader, and so on. Such sentiments are common among new traders or those who are struggling to make a profit in the market.

They always believe that forex trading is a kind of money machine (which may be true if they can consistently generate profits), thus their minds are always focused on how much money they will make. This encouraged him to take shortcuts, such as entering the market as frequently as possible, which may result in his trading account being wiped out.

Thoughts that are solely focused on the desired outcome will inevitably produce emotional distress. The only way to avoid this is to just modify your less truthful way of thinking. If you don't trade with the wrong mindset or attitude, you'll get new money.

Trading success is a blend of art and information, and it is actually a three-part process. The bigger our risk while trading and our funds are in the market, the larger our emotional reaction to market price changes. Making our mind components operate effectively is a simple and effective technique to ensure that we can always control our emotions, namely by calculating the amount of risk logically in every trade we do.

By adjusting the level of risk, we may rationalize our thinking since we will experience fewer unpleasant feelings, both when we lose money and when we win money. Furthermore, your thoughts should be focused on a trading strategy. You'll be prone to over-trading if you don't have a defined trading strategy.

 

Money is the second component (Money Management)

If you've agreed to limit the amount of risk you take on each deal, you should do it proportionally, not too tiny or too large. Increase or decrease the size of your trading and investment portfolios.

The risk/reward ratio is another key consideration in money management. Determine the amount of risk/reward ratio objectively and logically in accordance with market conditions before you enter. The risk/reward ratio should be at least 1:1 in order to be profitable in the long run.

The money management component, which includes a way of thinking and a trading method, is the glue that holds the other two components, a way of thinking and a trading method, together. With disproportionate money management, even if your way of thinking is accurate and your trading approach is highly complex, your final trading outcomes may not be ideal.

 

Method is the third component (Trading Method)

 The absolute trading approach is used to estimate the possible direction of price movement, set stop loss and profit targets, and select the best time to enter a trade, among other things. Even the trading approach is the first component you'll need to face the market as a weapon. A good trading approach is one that is obvious, straightforward, and effective. Avoid using a lot of technical indicators because they can lead to confusion and misinterpretation. A successful trading strategy will. improve your ability to think objectively and logically

 These three elements work together and compliment one another. If one of the chain's components breaks, the entire chain will break and will be unable to function properly. You might consider of these three components as the "Holy Grail" of trading if you use them correctly.