Even though most of the educational material out there is focused on trading strategies, in reality, skills are the ones generating results while trading CFDs. This could seem confusing for some of you, but there’s a psychological explanation for this.
Our brain and trading
You probably know that from a biological point of view, we humans are not fit for trading. The main reason for that has to do with our brain, in particular, the primitive part of it – also known as the amygdala. Along with other functions, this is the region of the brain that triggers “fight or flight responses” in situations when we’re at risk of experiencing pain.
Subconsciously, our trading process is heavily influenced by it. How many times have you taken profits too early, or hold on to a losing position, even though the market was communicating a change in the order flow had taken place? Did you at any point avoid allocating time in order to learn more about trading and instead searched for the “easy way out”?
We all do that, and it happens because our brain is designed to help us avoid pain. Financial risk is the problem in our case.
Skills vs. strategy
Trading means anticipating future events and since no one knows how the right side of the chart will look, we need rules to make our decisions – a.k.a. a strategy. The problem appears when people are misled to believe that their strategy is all that matters. Larry Williams, a popular trader, turned $10,000 into $1 million in a year and some of his strategy rules are now public. Will you be able to have the same results now? Absolutely not. Even he tried a second time and the returns were way smaller.
Strategies can’t work every time, meaning skills are the main ingredient for success. Does it matter if you know the rules of a false breakout strategy if you have not yet mastered how to read the order flow behind the price action? Will you be able to generate consistent returns without managing risk properly?
Probably not. Skills and strategy both work well intertwined and instead of just searching for the right winning formula, design a longer-term plan that will help you develop some skills. If you are struggling to have trading results, take some time to reflect on what you do, or even ask for some advice from a trader who already does what you want. Practice and diligence will put things on the right track eventually.