What is the most important thing in trading – instinct of a trader or algorithm of a trading system? The financial profitability is the criterion that measures the success of a trader and algorithm of trading robot.
Hunting in the market.
There is an opinion saying there is no correlation between trader’s knowledge and his results of trading. They think that absence of knowledge in math, technical analysis and market does not prevent him from succeeding in trading. Trader is considered to be as a hunter in market. He uses only one tool available in hunting his instinct. They think that only the instinct can help in predicting the market movements.
The only thing we need is to find out how efficient is this instinct of a hunter is in market. We need some kind of coefficient of efficiency to do that. It is hard to do it with high precision but we can find approximate answers. Based on data form IG Index, plc we can confidently say that 95% of “hunters” fail in Forex market and only 5% of them succeed. Therefore this coefficient of efficiency of the instinct is only 5%. Even a century old steam machine could do better.
What are the obstacles for successful trading?
There are two things that prevent a trader to trade efficiently. The first one is a continuous desire to use his “hunter’s instinct”. The second one is trying to predict the future of the market.
Inexperienced traders always try to substitute the experience with instinct. The root cause for it is greed that makes them feel unsatisfied with the profit they have. Instead of systematic market study trader relies on his individual feeling about the market. Imagining himself as an invincible hunter a trader gets his adrenaline dose and becomes overconfident about market behavior. The final result is that market will teach him a lesson by taking away his money.
It is impossible to predict price movement in market. This statement is the source of many arguments. Many people argue that they can predict the probabilities of price reaching a certain level. But it is impossible to predict the price accurately. From probability theory that means that probability of price reaching a certain level is 100%. But usually no one can predict with accuracy of 100%
The only alternative to hunter’s instinct and predicting the price is carefully developed trading system. A trading system can eliminate second-guessing, predicting and relaying on instinct from the trading. A trading system gives you exact points of entry and exits. It works very efficiently from financial standpoint.