How to join the 5% - Plus a valuable formula* TIP 8 from MarkAustinTrading.com
Dear Trader,
How to join the 5% - Plus a valuable formula
Its no real secret that 5% of the world's population holds most of the wealth and the other 95% struggle to achieve their desired level of wealth accumulation. This statistic applies to many parts of life. Society has led us to believe that those who really succeed are either special, more intelligent or lucky. The fact is the human race is very similar and apart from those who inherit wealth its really only the human mind set which prevents most goals from being achieved.
There are 3 key characteristics of the 5% which separates them from the 95%:
Taking action - We all have good ideas, plans and visions of where we want to end up but very few people actually take any action. The ones who do succeed actually take their thoughts and act on them.
Education - If you want to succeed in anything then you need to put some work in. It only takes one piece of useful information to make a dramatic change to your life . The Internet is littered with quick fix systems and programmes which promise vast quantities of wealth whilst lying by your pool, drinking cocktails. Whilst this is possible with a few businesses (trading being one of them), you still need to put some time into learning and correctly applying the information which you have purchased to get to this stage.
Failure - The 5% do not give up and treat failure as a learning curve where valuable lessons have been learnt. If we look at some of the most successful businessmen e.g Walt Disney, Donald Trump and Henry Heinz. They have all been previously bankrupt. Even John Piper in his early years had a similar experience.
Now if we enter the world of trading then it may come as no surprise that the same statistics apply to this business as well. 5% of traders earn considerable amounts from the markets and the other 95% struggle to achieve their desired goals.
So how do these characteristics fit into trading?
Well Taking Action is rarely the problem. These days opening a trading account is made relatively easy for you and the actual process of trading is straight forward.
Education - If you want to make money in anything then you have to put some time in. If you have access to good information, spend the time to soak it up and use it to your benefit. Did you know that if you spend just 1 hour of your day, each and every day learning a particular profession then after 1 year you will be a specialist in that area!
Failure - Of the three I believe this is the biggest and most challenging hurdle which separates the traders who go on to make considerable amounts of money and those who struggle or eventually give up. For this reason I am now going to spend some time on this key point.
FAILURE
It is programmed into us from a young age that failure is not acceptable and to succeed in life we cannot fail. For this reason when most of us fail at something we give up at the first instance. Now we all know that in trading we have to accept loses and to some this comes as a real challenge as its going against our subconscious belief systems. It did for me certainly. I have quite a competitive personality as it is but when I first started trading, I really did not like taking loses and it was a real challenge to accept this was part of the business (basically a business expense). I did on more than one occasion contemplate quiting trading in my early years. I'm glad I didn't. I still dislike taking a loss but the trades I do take have little risk attached to them so if they do fail then this has little impact on me. Taking lots of small loses actually strengthens the trading mind. Taking a large loss weakens your trading mind.
But how many losses can the human mind actually take? This is an interesting question and I believe this is where most new traders come undone. Its all very well accepting you will take a few small loses in trading but the majority do not understand the probabilities of their system / strategy. If you understand an outcome and or scenario then its far easier to act rationally than emotionally when seen.
2 losses you start to feel a bit uncomfortable
3 losses. It can't get worse than this!
4 losses........This is the threshold for most. For 95% of people, 4 trade loses in a row would lead to a strong emotional attack which will in turn manifest into future problems such as fear of placing a trade, lack of faith, taking winners too early e.t.c and of course some will quit trading at this point.
KEY FORMULA
So what's the rational approach?
Lets a system with a hit rate of 70% and a favourable risk/reward of at least 1:1. By all accounts this would be deemed as a good system with top traders.
There's a simple piece of maths that will calculate just how likely you are to have a losing run, provided you know the expected success rate of your trading strategy.
Probability of 4 losses in a row = (losing rate) to the power of 4
So, if your win rate is 70%, your losing rate will be 30%.
For the sake of the calculation, we use 0.3 as the losing rate.
So (0.3)^4 = 0.0081 (which equates to 0.81%)
0.81% is your probability of getting a run of 4 losing trades.
It might not sound like a lot but it works out as almost 2 times in every 200 trades.
One of my systems /strategies - the Magnet - runs on a higher win rate at around 80% and although I have never experienced 4 loses in a row, if I did, I would be fully prepared.
If you're still struggling with this concept, then it may be that you need to reevaluate your money-management plan. If a losing run (which is a valid part of your strategy) is causing you too much pain - chances are your leverage is too high.
I want all my clients to be in the 5% so lets work together to ensure this is the case.
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Best regards,
Mark
My website is www.markaustintrading.com
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