“I always say that you could publish trading rules in the newspaper and no one would follow them.” – Richard Dennis
Richard Dennis famously strayed from the common belief that a trading strategy was vulnerable to too many people using it. He strongly believed that even if he were to publish his system nationally, its performance would not be affected because people simply wouldn’t follow it correctly.
In order for a trading strategy to work, the strategy needs to suit the personality of the person trading it. That person also needs to have an unshakable belief that the strategy works and then have the consistency and discipline to stick to the strategy.
This can be especially hard to do during bear markets. Traders who have not yet found success are prone to spending their time jumping back and forth between different strategies, never mastering any approach. In order to find success, you must find a system that suits your personality, and then trade that system with extreme consistency and discipline.
You Must Have Conviction
There are literally hundreds of different approaches to trading the stock market. In order for any of them to be profitable, the person using the strategy must completely believe in it. Anyone who trades a strategy that they don’t believe in will find themselves constantly second guessing the approach. This influence of the traders discretionary second guessing will surely sabotage the strategy’s results.
In order to have conviction in a given approach to trading the stock market, you must know that approach inside and out. You must study every aspect of it. You not only need to know the rules of the system, but you also need to understand the reasons they exist. This thorough understanding of a trading strategy is the only way to develop total conviction that it can be successful.
You Must Have Consistency
Once you find a trading strategy that you have conviction in, you need to trade that strategy consistently.
If you choose to trade an approach taught through Investor’s Business Daily, then you need to read the key sections of that paper every single day. If you choose to trade a mechanical breakout system on weekly charts, then you must go over those charts every single weekend. If you choose to trade based on fundamental data, then you need to read the quarterly reports of the companies you are following every quarter.
There are no exceptions to consistency. If you are only going to implement a strategy some of the time, then you are better off not implementing any strategy at all.
You Must Have Discipline
Discipline walks hand in hand with consistency. Once you are consistently following a strategy that you have conviction in, then you must have the discipline to follow the rules of the approach.
If your strategy only buys stocks trading above the 200 day moving average, then you can’t buy a down stock because you heard it’s a good value. If your approach requires you to sell any stock that drops more than 10% after you purchase it, then you must actually sell it, regardless of what you think it might do next week.
Having the discipline to stick to whatever strategy you choose can be very difficult when your hard earned money is on the line. It’s important to keep in mind that without conviction, consistency, and discipline, your hard earned money is as good as gone.