Weakness and Strength of System Performance

Understanding Market Approach

We did not enter this market to take an aggressive or attacking stance, prove ourselves, or compete. Instead, we must adopt a defensive stance, just as our ancestors did to ensure survival. Understanding the weakness and strength of trading systems helps traders refine their approach and improve their overall performance.

Anyone can enter the market with any amount of money—whether it's from loans, debts, selling assets, or savings. However, if the result of a trade is crucial to us, we should not trade with money we cannot afford to lose. Traditional businesses often use loans to develop, so why should this not apply to the market? What is the difference between taking a loan and using leverage? The key point is that the trade outcome should not cause issues such as the "Troxler effect."

Identifying Trading Positions in Time

We must evaluate whether our system identifies positions efficiently or if it generates signals too late, causing us to act after the trend has already formed. Key considerations include:

  • Does the system identify positions early, allowing us to enter before the majority of traders?
  • Is the cost of entry justified by the potential return?
  • If the system provides timely signals with a suitable risk/reward ratio, is the success rate also acceptable?
  • Even if our system appears effective, does it perform well across a larger community of traders?

Optimizing Trading Conditions

To refine our trading performance, we should consider various factors:

  • What is the best trading session for specific currency pairs or cryptocurrencies?
  • What days and hours are most suitable for trading?
  • Do personal habits, such as meal consumption, morning routines, or relaxation activities, affect trading performance?
  • How do different currencies react to news events, and how does liquidity impact volatility?

Controlling Emotional Responses

A trader should maintain emotional stability regardless of profits or losses. Emotional reactions are linked to the amygdala in the brain, leading to repeated behaviors based on past experiences. For instance:

  • Experiencing a profit may lead to overconfidence in similar future trades, despite changing market conditions.
  • Facing a loss may cause hesitation in future trades, even when valid opportunities arise.
  • Keeping a trading journal helps identify past behaviors leading to losses and correct them for future improvement.

The Role of Psychological Well-being in Trading

Post-trade activities that bring joy and relaxation are essential. To sustain long-term success in trading:

  • We must ensure adequate serotonin levels outside the market to counteract stress-related hormones.
  • Failure to do so can lead to health issues caused by fear and anxiety in trading.

Realistic Profit Expectations

According to Mr. Jabal Ameli, setting specific profit targets in trading is not logical due to market volatility. The market does not adjust based on our planned percentage gains. Key takeaways include:

  • Setting rigid financial goals can create mental barriers that lead to losses.
  • Instead of focusing on arbitrary targets, traders should emphasize continuous improvement and adaptation.
  • Trading is a long-term profession that transforms a trader over 3-5 years.

Addressing Psychological Barriers

While self-improvement books can provide insights, psychological challenges in trading—such as fear, doubt, and excessive hope—often require professional consultation. Seeking guidance from a psychologist can help address these deep-rooted issues and enhance trading performance.

By focusing on these principles, traders can develop a more sustainable and efficient approach to market participation.

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