One of the oldest and most common truths of the financial markets is that price goes up in a staircase but comes down in an elevator. The yen trade this Monday was just the latest example of this time worn phenomena. It is also the reason why the majority of market players be they investors or traders always lose money.

Everyone panics and sells bottoms or worse doesn’t panic and holds on until the bitter end. That why success in the financial markets is always 90% process rather 10% analysis. If you are an investor the single best long term strategy that you can follow is to dollar cost average a diversified basket of assets every single month and then rebalance once a year.

It is also the strategy that almost no one follows properly. Mainly because it is so boring, bloodless and rote and furthermore will very often will force you to buy what looks like a sure loser and sell what appears to be an inevitable winner.

But let’s leave investing to investors and talk about process in trading. The exact same dynamic that occurred in the yen crosses this week, repeats itself constantly when it comes to trading accounts. You spend days, weeks, months cobbling returns pip by pip only to see everything flush down the drain from one ill considered trade. Do you have a process to prevent that? I didn’t think so.

I certainly didn’t and for many years paid for it with countless blown up accounts. I still cannot with all certainty say that I have a foolproof answer, but I have learned the hard way that the only way to avoid this fate is to separate your serious money from your play funds. There is no doubt that you will lift stops, add to losing trades, take random wild bets, chase price action, fight price action, hit the buy button when meant to sell, buy ten times more than you meant to do and make a million other trading mistakes regardless of how many times you tell yourself you will never ever ever! do it again. Your only course of salvation is to do all of this with your play money.

With your serious money you need to follow the bloodless process that your strategy calls for. You need to take every trade, honor every stop and sweep out any profits on a regular basis. There may be weeks, months, even years when the account equity will just remain stationary but if you want to succeed in the long term you need to not care and save any experimentation for your play account. Otherwise, all your hard earned work will come crashing down in one single frightening elevator ride.

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