Follow The Path Of Conventional Trading Wisdom? 

When patterns are broken, new worlds emerge.
-Tuli Kupferberg

Imagine a world where there was a recipe book that laid out precisely how to cook up a success in the market. A book that gave all the ingredients required to become a successful trader. Indeed, there are many books that claim to provide the path to success and each trader will have their own preferred anecdotes and guru whose words they choose to follow.

However the fact is, there isn’t a quick method for getting rich on the markets or becoming successful. Success is built up over time and depends on the market conditions that prevail as to what approach is needed.

In a world where success is about winning and establishing a profit there are as many tidbits of conventional wisdom as there are approaches and methodologies. So how valid is it all? Can we trust it and follow it to success? Well the fact is that there is one piece of conventional wisdom that demonstrates the very nature of conventional wisdom for traders as it does the markets, “history only repeats itself in the markets when it does.” i.e. no matter what the charts show and how it all seems to map out to indicate that the current environment replicates a previous event, the fact is that it might not all play out the same way this time. You have to be prepared for whatever occurs.

Consider all the well known conventional wisdoms we come across as a trader and what it means to you and what you know about trading. Are they to be followed or avoided or do you pick and choose which ones you take seriously? The best examples are the ones like “Avoid the market open” and “Avoid trading before an earnings report”. Both sound pieces of advice built off the fact that these events are more chaotic and less predictable than the rest of the time and therefore the risks are high that you execute at the wrong price or you can get spooked by an apparent drop or rise that goes against you.

But there is a lot of evidence that many traders not only thrive by trading at precisely these times but do it successfully and with a larger than average amount of profit taking. So should we always follow the path of conventional wisdom?

Well like it or loathe it there is a lot to be said for taking the cautious approach, especially when establishing yourself as a trader and learning the ropes. It is self-evident that controlling risks helps ensure that you can survive a loss on a trade and therefore having a plan and following it make sense. These actions will help keep you in the game long enough to gain enough experience to then decide if you can risk bucking the wisdom and trying your hand at trading at the more volatile periods.

Consider for a moment what it is that drives us to follow conventional wisdom and keep it up our sleeve like a protective mantra. Is it that we are following the lessons of childhood that tell us that following the rules is essential and is what leads to success? That somehow you get rewarded if you do the right thing as opposed to the wrong thing?

Conventional wisdom seems to be frequently based on a step by step process and set out fixed outcomes from an event, ie. if A happens then B will follow. However we know that this isn’t so, especially in the world of the financial markets.

At the end of the day, there are many things that all come together to make a successful trader and much will depend on the market conditions as any other elements. However persistence, experience, self-belief, planning and the ability to weather the ups and downs with whatever techniques work for you are what will all collude to get you to the promised land of trading success however you define it.

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