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Critical Success Factors in Trading

In trading as in any other professions, there are factors that one can follow to achieve success.

Dr. Alexander Elder rightly observed that Mind, Method and Money as the 3 Critical Success Factors for successful trading:

"Successful trading depends on the 3 M’s – Mind, Method, and Money. Beginners focus on analysis, but professionals operate in a three-dimensional space.
They are aware of trading psychology – their own feelings and the mass psychology of the markets.
Each trader needs to have a method for choosing specific stocks, options, or futures as well as firm rules for pulling the trigger – deciding when to buy and sell.
Money refers to how you manage your trading capital.
Mind, Method, Money – trading psychology, trading method, and money management – people sometimes ask me which of the three is more important.
It is like asking which leg of a three-legged stool is most important. Take away one of them and try to sit down.

Trading is the most exciting activity that a person can do with their clothes on.
Trouble is, you cannot feel excited and make money at the same time.
Think of a casino, where amateurs celebrate over free drinks, while professional card-counters coldly play game after game, folding most of the time, and pressing their advantage when the card count gives them a slight edge over the house. "

(Excerpts taken from Come Into My Trading Room: A Complete Guide to Trading by Dr. Alexander Elder).

In a nutshell, we need all 3 Ms - Money, Method and Mindset to trade well:

1. Money - You can't be in the market without Money and you won't be in the market without proper money management.

2. Method - There is no need to complicate your Method of trading. The simpler and sounder your trading rules are, the more likely you are to follow them.

3. Mind - You must have a strong Mindset or mental ability to manage losses and profits, and the discipline to adhere to your Money management and your Method of trading.

In addition to these 3 Ms, we must also have the 3 Cs to succeed in trading:

1. Comfort in the amount of Money we are prepared to risk in every trade.

2. Confidence in our methods to achieve nett gains over a sufficient period of trading.

3. Consistency in the execution of our trades. Only then can we expect consistent results from our trading.

From the short experience I had in manual trading, I found that having the right Mindset in trading is the most challenging among the 3 Ms.

Many of my trader friends have also concurred with me that the emotional highs and lows that we experienced in live trading are the most difficult to handle.
Their interferences to our rational thinking are often detrimental to the performances of our trading results.

Ever since, I decided to automate my trading plans and let my EAs do the trading, I can vouch that the critical success factor of Mindset is no longer an issue for me.

I am also freed from the stresses and the disproportionate amount of time that I used to spend in front of the computer monitor trying to catch trading opportunities.

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