Something that all traders go thru

Many traders usually go through different phases in their trading in this particular order.

1. Methodology. The first phase is that all-too-familiar quest for the Holy Grail – a trading system that never fails. After spending thousands of dollars on books, seminars and trading systems, the aspiring trader eventually realizes that no such system exists.

2. Money Management. So, after getting frustrated with wasting time and money, the up-and-coming trader begins to understand the need for money management, risking only a small percentage of a portfolio on a given trade versus too large a bet.

3. Psychology. The third phase is realizing how important psychology is – not only personal psychology but also the psychology of crowds.

But Jeffrey Kennedy of Elliott Wave International thinks it is the other way around. I definitely went through the phases exactly as above. I went through the school of hard knocks!! Where was Jeffrey's advice when I started out?

Jeffrey thinks that aspiring traders should begin their journey at phase three and work backward. The first step in becoming a consistently successful trader is to understand how psychology plays out in your own make-up and in the way the crowd reacts to changes in the markets. The reason for this is that a trader must realize that once he or she makes a trade, logic no longer applies. This is because the emotions of fear and greed take precedence – fear of losing money and greed for more money.

After the aspiring trader understands a bit of psychology, he or she can focus on money management. Money management is an important subject and deserves much more than just a few sentences. Even so, there are two issues that I believe are critical to grasp: (1) risk in terms of individual trades and (2) risk as a percentage of account size.

Once the aspiring trader understands this psychology, it’s easier to understand why it’s important to have a defined investment methodology and, more importantly, the discipline to follow it. Jeffrey uses the Wave Principle as his methodology. His advice in this realm is that whatever you choose to use, it should be simple.

So, there you have it... New traders, pay heed! :)