Today, I'll share with you an interesting framing of Alexander Elder’s book “TRADING FOR A LIVING”.
Many people insist they want to become rich and successful through investing or trading, and seek constant thrills through short term gains. That is, they gamble in order to get short term benefits.
This is setting yourself up for failure just as a fat person is telling everyone that he is on a diet. However, if you look into his kitchen, you realize that Mr. Fat Boy always have a chocolate bar every once in a while. The desire for this unhealthy bar is stronger than the delayed and long-term health and social benefits of weight loss.
Many traders and investors coming to the financial market behave the same way. Insisting they want to be successful, but taking actions that is causing more damage than long term wins. Short term thrills as a result of gambles are not going to give you what you want in the long term.
Just as the world is full of books on how to lose weight, the world is still full of fat people.
A key takes away from Mr. Elder is the three pillars of trading
2. market analysis and systems
3. money management
Just like a small chair with three legs, remove one of the legs and it will collapse. Or in case with investing and trading, take on losses.
The point with psychology is that there is no system of software in the world that will solely make you a successful investor or trader.
You need to be able to control your emotions, so you can invest and trade with your head instead of your hearth. I want you to take actions based on good decisions, instead of emotions such as FOMO.
Just like a diet won't work if you don’t stick to it, you won't be a profitable investor or trader if you can't stick to your system and money management rules.
Money management and saving won't give you freedom and the choices to experience and do what you really want to, unless you have an investing or trading system. When I say system, it also includes a proven strategy.
If you can't stick the system, the rules and the strategy it is of no use. You would instead gamble. There are specific places for such gambling activities, it is called casinos.
Finally, there is no system or strategy that can make up for poor money management.
The three pillars are very important because if you can master them, it will mean you are prepared. Remember, opportunity is just a transfer of wealth from those who are unprepared, to those who are prepared