I was introduced to this principle a long time ago. Maximum adversity is the market's first and foremost rule. It goes like this: the market will do whatever it has to to disappoint the most traders. This is in no way a reference to contrarian thinking! The markets will do whatever it takes to throw the most roadblocks, obstacles and disappointment in the path of your journey to profitability and success as a trader. Maximum Adversity will do its very BEST to make trading, a relatively simple procedure, as hard as possible. It will make you doubt every trade you take and your very thought process.
Maximum Adversity refers to the discipline the market imposes on market participants. This is part and parcel of the market's mechanism that makes certain that the funds of the many flow to the few. Think about it. Money flows from weak hands to strong hands. From the majority to the minority. Also consider that if making money trading was easy, everybody would be doing it and coining money, right? The trader who does not recognize, comprehend, internalize and respect this principle is doomed to trading failure.
What does this mean to you? What is should mean is to develop healthy skepticism. Like the old saying, if it sounds to be too good to be true, it is too good to be true. If a particular trade sounds too good to be true, it most likely is too good to be true and you will lose money.If a simulated equity curve looks too smooth to be true, it is too good to be true (Madoff). If a new charting program (red and green arrows type) makes trading look too easy to be true, most likely it is too good to be true. It is only through experience that you will find in all these "too good to be true" scenarios, Maximum Adversity at work.
Maximum Adversity also has another component: PAIN. Lots of pain! From the new trader to the most advanced trader there IS pain. To deny it is not only wrong, it will hinder your development as a trader. In a way, it can be very much like a perpetual Marine Corp boot camp. Life of the trader is NOT that image of sitting at the beach, a drink with a small umbrella in it in one hand, pecking away at a lap top computer, entering winning trade after winning trade with the other. Maximum Adversity will do its absolute best to make your trading life as uncomfortable and painful as possible. It will attempt to fill your trading world with pain. It will attempt to make your trading hard, harder still and then even harder. When you lose money, it will hurt. When you make money, you will think about how much more you could have made, the money "left on the table" and that will hurt. When you spend time, energy and maybe even money to develop trades on a plausible theory and it does not work, that will hurt. When you do develop a methodology that works and you lose money using it, that will hurt. When you finally develop working trading edges and you spend time and energy making them sharper and lose money doing that, that will hurt. When your out of the market, waiting for the next trading opportunity and miss it, that will hurt. While your waiting, Maximum Adversity will heighten your anxiety about "missing" the next move and that too will hurt! As you can see, Maximum Adversity will seek to ensure that your trading life is full of pain and hurt!
Maximum Adversity does then make certain demands on us. It demands we each take total responsibility for our trading decisions. It demands that we always expect to get bushwhacked and ambushed at every turn. It demands that we expect the unexpected and most of all, it demands that we actually have to determine IF we are each up for the challenge. IF we have the intestinal fortitude for the task in front of us. Do we accept the higher probability that our lives as traders will be miserable in spite of the potential financial rewards? IF your answer is yes, ALWAYS keep this first market principle, the Principle of Maximum Adversity, in the back of your mind.
Good hunting out there, predators! Yours in the ever elusive search for the trading edge, The Market Sniper