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Trading Lesson 2: Are you working with best possible trading plan?

Many systems and gurus talk about 80% accuracy in picking trades. If it's that good why are they selling the program?

“Fortune favors the prepared mind.” Louis Pasteur

In the nineteenth century a brilliant Italian sociologist and economist Vilfredo Pareto made a simple discovery. While people worked hard in order to make a living there was in inequality in how wealth was distributed. He discovered that 80% of the income was accumulated in the hands of only 20% of the people. This has become known as the "80-20 rule" or "Pareto principle."

So the question remains, if these programs and systems are so great, as to provide 80% or better accuracy, why are the developers selling the system? Furthermore, why doesn't the system work for the average trader?

If we believe that the 80-20 rule is accurate it stands to reason that if a system can pick market direction with 80% accuracy, the success of such a program would produce limited results, with the remaining 20% of losing trades accounting for 80% or more of a traders loss. Whether these losses occur consecutively or non-consecutively bears little on the final outcome, total ruin.

This concept bears out time and time again when talking to professional money managers. Time and time again they state that out of ten trades, they will have six unsuccessful trades, two trades that break even or have little loss, and two trades that make up for all the rest and then some. These same traders are also quick to explain that there level of accuracy rarely exceeds 60%, but it's how they manage the trades that count.

On the other hand What typically happens to the retail trader using these systems or programs is that they will have eight small successful trades and two major losers. Giving back all of their profits and then some.

The difference between the professional trader and the retail trader is three fold.

1.The retail trader is fixated on being right as opposed to holding on for maximum profitability.
2.The retail trader is fixated on the process and not the strategies on how to interact with the trade.
3.The retail trader is fixated on picking trades as opposed to managing trades.

So the question remails, whydo they sell the program instead of using it themselves?

1.It's difficult to have the patience to hold on to a successful trade.
2.It's difficult to develop strategies that can help you succeed when you are winning and losing.
3.It's difficult to understand the concepts behind the market to manage trades according to context.

As a trader it is your job to develop these skills and to successfully use the program and not let it use you. Otherwise you are just a "race" handicapper and you would be better off betting the horses as opposed to trading.

STOP BEING ONE OF THE 95% CLUELESS TRADERS!