ADJUST TO A CONSTANTLY CHANGING ENVIRONMENT

You finally develop a method that makes money and-pow!-the market changes and you find yourself losing money again. Trading requires that you be flexible and adaptable to the ever changing market environment. The only constant in life is change, and this applies equally well to trading.

A strategy that worked well one year may prove disastrous the next. The markets continually change, but most peoples' trading methods usually stay the same. It is hard to change a method that worked just a short time ago, but complacency in the markets is often a prelude to disaster.

Brains is a bull market is an apt description of the mentality of some traders about a market. Some people can only buy and appear to be fantastic traders in bull markets, but when the bull market turns into a bear phase they often lose their touch and their money. Others can only sell and wait for bear markets to trade. Others don't seem to care either way and are adroit at making or losing money in either phase.

Traders may have good winning streaks and then begin losing money for no reason at all. What usually happens is a method that was successful before does not work now because the market has changed. We would give almost anything to see the market trade as it did in the past, but it is senseless to think this way. Instead, we must learn to adapt to the market and change the method or find a different market where the method may have a better chance of working.

You may be wondering if there is a contradiction brewing. A trader needs to be disciplined and follow rules; yet the trader also needs to be flexible and know when to change the rules and surrender to the flow of the market. There is a crucial difference. The trader does not follow rules to prove he possesses self control. Instead, the trader believes following the rules will produce beneficial results in the long run. Flexibility is the ability to adapt to a constantly changing environment. The trader must realize the rules are not inviolate, but may change because the market changes with time. The trader must understand the rules may need to be changed in order to obtain the beneficial results again.

The trader does not surrender internal control to the market, but realizes the market is more powerful. Therefore, the trader does not try to impose his control or set of beliefs on the market.

For example, assume you are following a trading method. You notice every time a buy or sell signal occurs the market often goes the opposite way, and the trade results in a loss immediately. In this situation, self-discipline in carrying out the trading signals will only prove disastrous. What you really need is the flexibility to change the original system. This is the difference between being flexible to the changing market, versus following the whims or ut­terances of rumors and news reports.

There are always times when you are better off not following the rules of your trading system and breaking your self-discipline. But what you have to determine is whether you are consistently better off following or not following the rules. If you are better off not following the rules, it is not the discipline which must be broken, but the rule system that is not quite as good as you originally thought.

Therefore, you must follow your rules, and this requires self-discipline. But, you must also be flexible in adapting to the constantly changing environment of the market. The dinosaurs did not survive because they could not adapt to the change in their environment. You must be able to adapt to the market or you will not survive. You need the flexibility to adapt to a situation and develop a versatile trading method, along with the self-discipline to carry out your plans.