Believe it or not, what you think you know is what usually gets you in trouble when you trade. There are plenty of people who think they “Know” and quite honestly they don’t know jack-squat. The one thing that we can be completely certain of in the stock market is that it is uncertain. You trade with an edge with the idea that a large sample size will give you a “certain return”. But on the individual trade, nothing can be counted on.
If you wanted to be “Absolutely Certain” on a trade that you were initiating, you would have to know everything about everybody, what they ere buying, what they were selling, what brokerage firm was upgrading and which ones were downgrading. What types of orders were traders using and who had a fight with their wife the night before. Simply put there are to many variables to know what is certain on an individual trade. That is why when you trade in the market you have to be willing to lose what ever your are risking, and not look back after what ever results in that particular trade. It’s when you think you have a “home-run” or a guarantee, that you become undisciplined, causing you to not admit a mistake when it becomes painfully obvious, to ignore or change a stop-loss, or to do the “double-down” idiocy that leads to double-the-pain.
Trading is a game of probabilities and odds, an extension of gambling – but not in a bad way per-se – in fact all forms of bartering is gambling in one shape of form or another. If I go to Wally World (WMT) and buy a 60″ LCD for $3,000, I’m gambling that the money I am paying for that TV set is equal or less than the value that I get out of watching Jack Bauer churn up terrorists in High Definition.
But in trading, perpetual losing is not an option like it is paying for overpriced ticket items. You have to have an edge, because the market is set up for you to lose in the long run (SEC Taxes, Commissions, trading errors, losing trades, etc). But in the same sense, you have to accept the fact that each trade is uncertain in its outcome, just as much as a Casino understands the uncertainty in a customer coming in and pulling the level on their slot machines. However, unlike the customer, you come in with an edge, so (i.e. technical analysis, chart reading, etc) so that, despite the inability to predict the outcome of each individual trade, you are, nonetheless, able to predict the success/failure of your system over the course of a myriad of trades.
Accept the fact that “You Don’t Know”, that what the market does and how it behaves is uncertain, because you are only trying to interpret that which it is trying to tell you with the information it is providing you with, and thereby putting yourself in a position to capitalize off of that information. The outcome is uncertain in the short-term, but repeating your process and remaining unbias along the way, will insure your success in the long-term.