Trading Psychology is More Important Than Your System
The personal attitude (trading psychology in our parlance) required to succeed in pair trading is the same attitude required to succeed in any other style of trading or anything else in life for that matter. Every trading system or style will have drawdowns and soft patches, that’s the nature of the trading beast. There is not one trading system we are aware of that will produce profit, day in day out all the time (except Virtu’s ultra-high-frequency algorithms co-located at exchanges at the time of their IPO). There will be times when market conditions aren’t favourable for a particular trading style. A trader can and should seek to recognise and adapt their systems and styles to match the conditions on offer.
Why Pair Trading Can Help Your Trading Psychology
Anyone can handle winning trades. It’s how you handle losing trades that matters. You can’t control what happens, you can only control how you respond to what happens. The good thing with pair trading is naturally it has a high win rate around 70%, meaning 7 out of 10 trades will produce a profit. Having a high win rate makes it easier to stick to a strategy. That doesn’t mean you can’t have 3 losing trades in a row, and these losers can be significantly larger than the average winner. You inevitably will have this situation at some stage if you trade long enough. What matters is your performance after 50, 100 or more trades. Successful pair trading is a game of numbers. You need to treat your trading like a business where your losses are your business costs, are your wins are your business revenue. So long as you collect more revenue than costs after the quarter ends, you have a profitable trading business.
Look At Your Reaction to Failure
By default, many of us have been raised and educated to believe that if you do something and it is wrong, then you must change something. This reaction is a natural human reflex that is deeply ingrained犀利士
in our psyche. It can also be detrimental to successful trading. Often in trading one ought to continue to use the same method even if it isn’t working at the moment. This disconnect and its resulting cognitive dissonance is where most traders fail with trading systems. You can find a trading system with an excellent back test report and equity curve; however when the inevitable drawdown comes, the trader starts chopping and changing things or – even worse – completely abandons the method. What you need to continue trading through a drawdown is confidence in your trading method.
Use PairTrade Finder® PRO to Help Build Your Mental Fortress
The advantage with pair trading is that it is designed around a very robust strategy with sound logic. Pair trading is not a fly-by-night strategy like many of the EAs and other junk that many online traders employ. It has been around since at least the 19th century and will continue to exist as long as liquid markets exist. It is not based on some voodoo combination of the MACD, RSI, chart pattern and day of the week filters. These technical indicator systems may sometimes produce good results. However, such trading systems aren’t based on sound logic and when the inevitable drawdowns come, you will have no conviction to allow you mentally to continue trading them.
Planning, Patience and Persistence: The Winning Trading Psychology
Successful pair trading, like anything else in life, requires planning, persistence and patience. You can’t expect to become a millionaire overnight – it takes work and time to achieve. Plenty of practice and record keeping will help you get better at your craft. Try and learn as much as possible. Ask other successful pair traders questions and look for new ways to improve your trading. Pair trading is a method you can use to generate a consistent income and capital growth after you have mastered the basics.
If you are tired of chopping and changing your trading method, or looking for the non-existent holy grail, or sick of being promoted the latest ‘’hot stock’’, then make it your objective to learn the pair trading method to the best of your ability. Be guided by our software and ongoing support. If you do, we believe you are significantly increasing your chances of becoming a successful trader and living a lifestyle about which most people can only dream.
Pair trading does work over time, as evidenced by the results in the backtester and in robust academic research (https://blog.pairtradefinder.com/pair-trading-resources/). If you stick to it, you will succeed. The impatient and greedy will not.
Find out more at www.pairtradefinder.com.
Happy Trading!
