You are correct on that. I can’t really go into it in-depth as the entire book I mentioned is based around this concept, so it’s pointless to try and squeeze a book’s worth of info into a forum thread.
That being said, trading has become a lot easier for me now. Today, there are just as many times when I put on a trade and the very next candle “betrays” me and goes in the exact opposite direction far enough, fast enough to punch my S/L as there were a month or two ago. I totally shrug it off now. Like water off the duck. I’m still baffled by the whole thing, but my attitude is more like, “Wow…look at that. This trade didn’t work out. Who woulda thunk it? Oh well…on to the next.”
For me, the most important thing to focus on is working the system exactly as planned. Never take trades that are not according to the plan which causes you to fall into the “overtrading” trap. Just as important, though, is not “undertrading”. That’s when you have a series of losses in a row and decide to “take a break” to let the market work out the kinks…or whatever other mental nonsense we use to give in to our fear and not put on another trade. Usually, this is the exact time when you would have broken through and score a win, or a couple of wins in a row, which you would have needed in order to balance out the losses.
If you start skipping signals because you’re afraid that the market is in a “bad patch” then you’re not really working the system. Your money management plan is suppose to protect your account balance, not additional filters, whether they be indicators or putting your whole trading plan on hiatus at your own discretion.
I’m blessed in that I have a system which throws a lot of signals. Sometimes as many as 30 in a 10 hour period. At least 60% of them fail to bring in a profit. The winners more than make up for it though. The nice thing, though, is that the sheer volume of trades has kinda deadened my senses to the losses. I don’t track them as I’m trading.
It’s only at the end of the day that I tally my wins and losses. Usually, I’m always surprised by both the wins AND losses. I’ll be like, “When did I get that winner? I don’t remember that.” If I scroll the chart to the left though, I always see where I would have entered, that it was a valid signal, and why it ended up a winner. More often than not though, I find a series of losses that I forgot about.
I don’t even focus on the account balance anymore. All I care about is if my monthly win/loss ratio is hitting my target of 0.40 or better. Sometimes, I’ll have a bad day or two or three in a row where each day the average is like 0.33, 0.25, and 0.34. It’s really disappointing, but all I have to do is scroll up to the top of the spreadsheet and I’ll see that even though I’ve had a rash of bad days, the overall ratio for the month is 0.39 or so. This is almost right where I need to be, and if there’s a lot of days left in the month, I know that there’s plenty of time to make it up. So I just focus on the taking the trades according to plan, and the money management and the win/loss ratio works out the rest by the end of the month.
It’s all psychology.