Posts Tagged ‘Trading Discipline’

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Trading Ideas to Consider

Wednesday, June 3rd, 2009

Today is Tuesday, June 3rd and indexes trade in a narrow range off their highs.

Today’s market showed 4 directional changes to it, up twice and down twice. The swings were not very large but large enough to make some good trades. Unlike yesterday’s market, which had a strong upward bias most of the day. In that kind of market it is hard to take trades in both directions. You need to get on the right side of the trend to catch anything meaningful. Small trades work, but they are short lived with no follow through.

Today was more typical of an average day, good moves in both directions. You will see days like yesterday, three times a month on average, and days like today most often. Late in the day, the market tried to make a run for the highs again, but it came up just a little shy.

Today was a good day for me, hitting over 4 times daily goal. With all the swings I saw today, even though they were not massive, I could not help but take the trades for a little longer play. Not too much scalping today and that is OK as long as the price action supports the moves, that is just fine. I took a few breaks today and came back in here and there. Some of the guys in my group did well today, catching several swings with me, a nice day.

This might be a good time to tell anyone who is following me, that I do not run a call room. I help teach and educate the interested trader on how to spot the daily swings in the market that are before all of us each day. Each trader is responsible for his or her trades, but getting insight into what is happening and how to exploit that towards profitability is the order of the day.

There is a way to do that and be consistent at it, which comes by doing the same things over and over again, when the conditions warrant. Consistency is the name of the game and knowing what to do and when. That is not easy to do, if you don’t know how. People are not born with the knowledge of out flanking the trading markets but it is attainable to those who are dedicated to mastering the process.

Notice that I said process. That is because that is exactly what it is. You can try and figure it out on your own and that is fine, just know and be prepared to pay your dues, because we all pay them or have paid them one way or another. If you want to cut down the tuition you need to practice and put the time and energy in. It is not going to come natural to most people.

Successful trading is not a natural process and there is more to it than meets the eye. If it were, more people would be doing it. So, put all of this in perspective and keep at it. If you work hard, you can achieve your goals, but you have to not only want it but as I have said, be willing to make sacrifices and remain open minded.

If I have been a help to any of my readers, that’s great. I do enjoy seeing more people understand what only a very small few have come to know about the markets. Please feel free to email me with any questions you might have, I will be more than happy to help out where I can. It’s not all about the money for me. I can make what I need there from the markets and plan to ramp that process up to a much larger degree, but timing for taking a bigger stake is very important, all the while exercising discipline and repetitive behaviors.

This is what it’s all about. In trading, if your timing is off, what do you think is going to happen? You got it, Boom, Bust, Kaput, Nada. Trading discipline is so important and that cannot be over-emphasized. Being in control of your account and not letting your account control you, is a big difference. Unfortunately many people let day trading turn into a form of compulsive behavior that gets beyond their ability to maintain control, thus the blow ups. Don’t let that be you.

I recommend that if it is possible to get with a trading partner to help create a sense of accountability. Some people will not like that, but do you know why? Because you cannot hide your mistakes and it is now open for others or your trading partner to see. Do you know what that will do for you?  It can force you to take a more disciplined approach and not lose control. If you have more than two losses in a row, you had better stop for a while and take a break, even if you are up a lot on the day. Do you have the discipline to do that on your own? If you do, that’s great.  Most people don’t. You have to self-regulate yourself and that can be hard.

I am not saying all of that to steer you to me, it really does not matter, but I say that to tell you all how you will get the best results for your efforts. I find that it is better to trade with support as opposed to doing it alone. So find a trading partner and commit to helping each other, you will all be glad you did in the end.

As promised some of the trades I took today.

http://www.screencast.com/t/Ae4Gl25i

http://www.screencast.com/t/yLSonUcgPn

http://www.screencast.com/t/kTyiTohj0

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Trading Dreams Can Come True

Friday, April 24th, 2009

Today is Friday, April 24th and the Indexes continue to hold on.

Yesterday just before the close, the Dow shot up about 60 points in the last 30 minutes of trading, closing at its high for the day. Nice. Today, there was some follow through to that late rally and the Dow pushed up another 120 points and the S&P 14 points. The market is almost back to where it was last Friday before Monday’s big sell off. I did not see any news today, but you can be sure that Wall Street is talking about something, earnings or what have ya.

News is not the only thing that I don’t usually watch during market hours. I have come to eliminate anything that can give me a bias, one way or another. For instance, I know a lot of people look at the TICK (NYSE tick count) and TICKI (Dow tick count). I don’t.  Many look at the TRIN, and the ADV/DEC. I don’t.

There was a time that I did, but I have come to realize that they are distractions to the one and only thing that counts, PRICE ACTION. I remember saying to myself, the TRIN is posting some high numbers and came to a conclusion that the market should do this or that. Even when you look at all of them, sometimes that is worse because it reinforces that sometimes wrong opinion.

When you see price action telling you one thing and you form and opinion based on a collection of readings, you now have a conflict. It creates indecision and you may have a tendency to rely too heavily on them to tell you what is happening, when all you need to do is LOOK AND READ it.

The problem is most people do not know how to read the markets. It has a language of its own and unless you know how to read that language, you are going to misinterpret what it is saying. I know that very successful traders do look at those things and it may work well for them But we are not them. They may have a way to discipline themselves to not be swayed by other interpretations of these readings and to that, I say bravo. I have found for me, that it is too many things to process and need the time and focus to just read the price action.

In today’s trading, I had a very quick day, 15 minutes. I only put on a few trades and closed it up. I had 5 trades and only had a 1 tick loss on one of the trades, bringing in a modest $550. I’m still feeling crummy – headache, a little dizzy. Oh well, you don’t want to hear about that. Me either. Monday, I would like to see if I can find a nice pyramid trade setup and ride it out for what ever it will give me. I need to be selective and cautious and you know I will.

MENTAL EXERCISE AND CHALLENGE: Here is a challenge for any trader who wants to exercise his or her self control. Pick something that you have a hard time saying No to. It could be anything at all, big or small. If you are able to say No and exercise self control in that area, you are and will be exercising your mind and willpower.

You may want to do it with a couple of things and try and do it for more than a couple of days or long enough so that you feel a little pain. You know, “NO PAIN, NO GAIN”.  If you do decide to take the challenge, make sure it is something that you are sure you will overcome. This can be a double edge sword, so don’t do it unless you are sure you will not fail yourself.

If you do fail, after you gave your word to yourself, it can have a reverse effect. This is mental reinforcement so that you can be sure that when you are in the pit, you will only do the things that are going to advance you in your overall goals and objectives. All of this is for you to show yourself that you are in control. You do not have to do anything that you do not want to do. But prove it – to yourself.

This little exercise will carry over into your trading and when you get the urge to take a less than perfect trade setup, ”JUST SAY NO”.  You would be surprised what this can do for your bottom line. Trading downfalls come from losing control and if you can show yourself that you can maintain control in the face of adversity, then you will be exercising your Trading Discipline. This is a follow up from last week and I will get back into this subject in the coming week.

I just took some of my own advice. I thought about not writing this last piece because of the headache that I have right now, but I exercised some self discipline and wrote it, because I know it very well may help someone out there prepare for the battle that they will soon begin. (W.C.)  Believe me, it is a battle, but its one that you can win, if you are willing to do things like I just mentioned above, which is small and just a start in the right direction.  If you wait until you are faced with making heavy decisions, you may be tempted to go beyond what your trading plan calls for and that is something that cannot happen for the person who sees himself on top.

JUST DO IT. Believe in yourself and your dreams.

Have a great week end.

http://www.screencast.com/t/Hl1CcIkzDXs Today’s equity chart

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Trading Discipline, Part 5

Saturday, April 18th, 2009

Today is Friday April 18th and another lesson on trading discipline is below.

First, the markets put in another session of higher prices from their reactionary low of a few weeks ago. Very nice. The daily momentum is still up, so be careful on fighting the overall trend, for those who swing trade the S&P’s. I am not too concerned with the larger direction, because I trade a much smaller time frame and take trades in both directions, but look to identify the stronger side of the market so as not to fight it, somewhat relative.

In today’s trading I only traded for 12 minutes, start to finish. It was later in the day and was  just trying to get back on my feet. I came into the trading market during the last 30 minutes of the day. It worked out fine. I took 4 trade entries, the first was a loss and the next three were gains, which included a few small runners of a couple of points each. I separated my exits today and took some off early and let the other half run a little. I picked up an even $ 1,000 dollars and shut it down. No struggles today, just picked it up and moved right along. The signals were very clear and the market had volume to push it around in my direction.

Today’s Trading lesson will continue in the area of “Trading Discipline”. This is an area that very few people tend to focus on, but is one of the most important. I could not say which one is more important. If you don’t know how to trade, trading discipline is not going to do you a lot of good, but once you have a solid approach and you know what you are doing, which is really not that easy for most people, you need to spend a lot of time in this area.

If you cut back in this area of training and spend more time in perfecting your method or trading style, it is not really going to make a difference, because you are going to add yourself to the ranks of people who thought they could, but couldn’t. I am just stating the facts on this one and trying to get your attention as well, because you need to spend as much time, or even more, in this area as you are spending right now in getting your actual trading execution in order.

Believe me on this one. All of your hard work can be lost if you cannot handle all of the outside factors that will be presented to you, regardless of trading know how, so that is why I feel so strongly about this. It was always my intention to start my blog and website with trading know how, then switch over to trading psychology and it’s related issues. There is a wealth of information that I will be discussing in the weeks ahead regarding this area. So stay tuned.

Yesterday, I discussed practical ways to slow down the sometimes impossible situations that we as traders find ourselves in – multiple losses in a row.  I say it this way because slowing down the destructive mind set of self sabotage is sometimes the best we can do.

Others will truly see how dangerous this situation can really be and take very strong measures to stop it. It is the cause for most trading failures, in my opinion. Many people will have a fairly good idea on how to capture trading profits, but it is that one or two days a month that they give it all back and then some. This is really a fixable situation for the person who is willing to do what it takes to become successful on a monthly basis.

If you find that this is you, there is hope. If you still struggle in putting winning days together, then you have more work to do. But for the trader who finds himself in the above situation, you need to look for the answers in trading psychology and trading discipline. There are reasons for everything and nothing happens by its own merit. This is where you need to look within yourself and either self-analyze your trading problems or find a trading coach or mentor to help you through the unseen issues you face. If you see yourself as a winner and have always found the solution to whatever it was that was holding you back, then you have a great chance to make it.

Having the right mind set is one of the first things you can do to put yourself over the hump to profitable consistent day trading.

* How do you see yourself ?

* How and when do you see your future becoming a reality?

* What are the things in your control that are holding you back ?

* Are you willing to pay the price to overcome your stumbling block ?

If you are not sure what it is that causes you to lose control and have large losing days, then I would recommend you take some time off from trading altogether and explore deep into the root cause. You may not be able to do this on your own. If you do attempt this on your own, you need to be brutally honest with yourself. It is not going to do you any good if you don’t pull down all the barriers you may have put up. This is the only way to attack the problem and that is exactly what you need to do.

If you take a passive approach and say, “It will just eventually work itself out”, you are only kidding yourself. Very rarely do these things fix themselves, even if you seem to be doing better for a while, you can have a relapse and find yourself no better off than before. The key is, are you willing to change and pay the price?  I will tell you right now, most people are not. That is the reason so few people are profitable on a consistent monthly basis, to the point where trading is their main source of income. This does not have to eventually be where you spend the majority of your time, but it produces the majority of your income.

If you see it, live it, work hard for it, you can have it. DO YOU BELIEVE ?

http://www.screencast.com/t/3avuzSBLQW Today’s equity chart

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Trading Discipline, Part 4

Friday, April 17th, 2009

Today is Thursday April 16th, and I have a valuable trading lesson below.

I started my day on the wrong foot, that was for sure. I know the potential always exists to mess up a bit, but I also know that I have enough discipline to stop trading if I am having a bad day. We all need to know at what point you will stop trading for the day if you hit your daily loss limit.

This is a discipline question that needs to be known before you start the trading session. I always know what that point is and I feel other traders in the business should also, but everyone trades differently and there are almost no two styles alike. You may mirror yourself after a successful trader and that can work well, but you will eventually need to OWN IT for long term success to take hold.

This would be whatever you learn that seems to work and slowly adopt it as your own, because everyone will see things at least a little differently. The bottom line is, did you follow the “base method setups” to get your points. If you did, then your results are duplicatable for future profits and that is what we want – daily positive results.

Today, I came up to my daily loss limit, which for me is always two times my minimum daily goal. My daily goal has been one thousand dollars, so my maximum loss for the day can be no larger than two thousand dollars. My first couple of trades were small, then went to double positions. If I click 5 contracts twice, that is a double position, but it shows up as two separate orders when taking losses and gains.

I was using double positions and not hitting my targets – not a good thing. I usually lighten up until I get a better footing for the day, but I did not, which pushed me down right above my limit. Funny thing is, when the chips were really down, I know I had to hit the next trade or I was going to have my first losing day in months.

I finally got it together and waited for a very good runner and followed it up with another one almost just like it. I put one last trade on to top off those two large gains for a total profit for the day of $ 2,600 dollars – over double daily goal. WOW, that was close.

I was not feeling well this whole week and it finally showed up. I noticed I did not have any focus and patience to wait and look for my basic trade setups and it showed. I almost was not going to trade this morning, but I reasoned with myself and went ahead.  I did not like the feeling of having a string of losses like I did (remember I took several double positions, which makes it look worst), but how I handled the emotions is what I am going to talk about today. This is the exact topic I had planned to discuss, no kidding. Is that not ironic?

Trading Discipline: Part 4

Trading Discipline has many aspects to it and I could write many more articles on the subject, but the one I will discuss today is how to handle your emotions after having multiple losses in a row. The easy answer is to just tell yourself not to get anxious and wait the move out for a directional change.

Easier said than done. We have all been there and will likely be there again at some point, but you really need to rehearse this scenario in your mind to pre-plan how you are going to deal with it when it happens. If you don’t do the work now, you will certainly do it later, but under different circumstances, which could cost you big dollars.

This is a very serious matter, more than you may realize, because it is at this point that many traders can just LOSE IT.  What I mean is, you get to a point where you can no longer handle the pain of loss and if you don’t pull it together quickly, you will self destruct. No kidding. Everything you do will be wrong, not matter what. Your trading plan will get tossed right out the window and you will go into survival mode, which is better classified as SELF DESTRUCT MODE and you really don’t want that.  So the very first thing is:

* Take a deep breath, get some oxygen in your body, so you can think clearly and take at least 30 minutes off.

* Go back over your contingency plans you thought of before this whole thing started.

* Imagine what you did when you rehearsed this scenario in your mind, see yourself confidently putting on a positive trade, while imagining hitting your target or your expected outcome.

* Be sure you do not trade past your daily loss limit.

* If you still have room to trade, plan it out, just like a sniper would pick his target. You may only have 1 or 2 bullets. Make it count.

* Have next to your computer a script of positive self talk, that will help you change your negative state of mind, this should be something you read often for this scenario.

If after doing the above, you still have a loss or even hit your daily loss limit, don’t beat yourself up. One of the reasons for a daily loss limit is it takes the pressure off. If you already know ahead of time that this is the very worst that can happen today and you accept that, how much easier can it be in relieving the stress and pressure.

One double daily goal loss is not bad, when you consider that there will eventually be days that you hit double daily goals. I do it all the time. In fact, most days are at least double daily goal. That gives me plenty of room to come back the very next day and still stay on target of at least hitting a daily goal average for the week.

Never let your trading account losses get away from you. As “Day Traders”, we need to stay alive and our life blood is trading capital. Keep the trading capital in your account, so you can trade again. If we lose our blood, we die. Don’t let this happen to you!

http://www.screencast.com/t/qortOnHL Today’s equity chart

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Trading Discipline, Part 3

Wednesday, April 15th, 2009

Today is Wednesday April15th, and all is well.

I had a fairly easy day on the board today. It could have been better, but the opposite is also true. I had one loss that totally could have been avoided, but I had to get over it and move forward. If I were to beat myself up over that, it could effect future trades. Knowing that, I saw my mistake very easily and learned something from it. It’s always important to go over your trades, especially after the trading day, to see anything that you might have missed. If you make mistakes, its OK, we all do, but we need to learn from them so we can minimize the damage and not repeat it if possible.

Today’s trading I had 12 gains 4 losses and came right up to $1,000 dollars and stopped. I turned my data feed off and did other things today. I traded for about one hour from 8:45 to 9:45 am West Coast time. There was not a lot of movement and it was a bit choppy, but I was still able to squeeze out my daily goal. I was only trading 5 contracts for all orders, so I had the equivalent of capturing 4 points net after commission. I came in to today’s market with low volume, not a great deal of direction, not a lot of overall movement and still captured my points. I am pleased when ever I get good results with less than ideal conditions.

Yesterday, I went over a new idea that portrays discipline in the life of a trader. Last week I pointed out another idea and will give a short recap now.

1) Your trading environment has an effect on your trading performance, so keep it neat and organized, it makes a difference. (last week)

2) A balanced home life and priorities that are a reflection of your personal long term goals and values, a key ingredient for long term success. (yesterday)

3) Exercises that you can take to expand your general level of self-control in any area, which will spill over into greater control while trading. (today)

Point number three is what I will briefly discuss now. Maintaining control while trading is going to be one of your best friends, if you can find a way to harness it’s benefits. One of the hardest things to do is to act when you need to, not before, and not after.

If you discipline yourself in small areas of life, it will send a message to your brain that you do what you say, when you say it. If you procrastinate in putting things off and then scramble to get it done at the last minute, like finishing your Taxes on the deadline day, you may not be as in control as you would like.

The good news is, we can all get better at improving in this area. Find something small, that you know you can overcome. It may take some thought and it can be just about anything that can effect positive change. If you resolve to overcome whatever that is, and get some desired benefit, you are now exercising your mind, will power, self control and gaining greater self esteem.  There are many benefits that can spill over into your trading session. You will come to trust yourself more over time as you exercise yourself in these areas. That will give you added self control when you need to stay out of the market because your trade setups are not yet present and a whole host of other benefits as well.

Back to trading technicals. Before you put a trade on, your TIMING is going to be critical.  When you see the trade setup that will yield you an easy point, you need to have the discipline to take the trade at that moment. If you wait for confirmation, you will either overpay and risk getting stopped out, thus also hurting your chances of getting filled at your target.

This kind of discipline and confidence can only come from getting a good handle on what you are looking for, but once you know that, the thing to do is execute. If you hesitate and are not sure, when a perfect trade setup presents itself, you have a problem. You will eventually get frustrated and your next few trades may become losses, when you finally get the courage to take the trade.

You need to not let that happen, by envisioning the whole process ahead of time, you can train your mind to jump on the trade, the moment you are sure it meets all the qualifications of a legitimate trade setup. With short term trading, you need to put it on only when your timing tells you to, but do not hesitate. Whatever time you take to examine your strategy for what constitutes a trade setup, that is what you need to get familiar with. You know what it looks likes before and have seen it hundreds of times, so when you see it in live trading action, that memory recall is what you will need to draw on.

Seeing the trade set itself up and developing in a live environment is critical. As the trade develops you see what has happened so many times before when the conditions are met, you come to expect the same outcome this time and place the trade with a high level of confidence and capture the  intended outcome.

http://www.screencast.com/t/YGyzRfgT Today’s equity chart

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Trading Discipline, Part 2

Tuesday, April 14th, 2009

Today is Tuesday April 14th and another large gain for the day.

I had a nice return on my time invested today for solid gains. I will get right to it with the stats. I had 20 gains, 3 break even trades and 3 loses. One of the losses was rather large, with a double position and a little larger stop than I usually take. That was early on, but came right back to forge forward into new equity highs. I ended the day at + $3,000 with very little draw down except that early trade.

Very happy with the results overall. I missed the large swings in the early trading. That makes it a lot easier to get the hit and run trades that I like to put on. It is harder to trade a slow moving market because it keeps you in the trade longer. Any time you are in the actual trade, there are forces working against you, straight up. You cannot get away from adversity, but it is how you handle it. A very large part of success is between your ears and we all need to remember that. Every other trader across the globe is having to deal with the same issues on a daily basis. The difference is going to be, who is going to handle the pressure and come out on top?

Having targets and stops built in, is a way to cut down the adversity that takes place. Many people argue that if you have small targets, it is not enough to make up for your inevitable losses. That can be true, if you have more losses than you have gains. In addition, if you stay too long, you may lose your concentration and give back your hard earned equity. All things to remember, especially if you are fairly new to the game.

I have heard it said that when you start and open a trading account, don’t deposit too much into it, because you are going to lose it ALL. This is actually not too far off and it’s really true if you try and go it alone. The world is full of S&P day traders who think it won’t happen to them. That’s the kind of thing that happens to the other guys, but not me. Well, I hate to break the bad news to would be traders who think they have a handle on this, work on your discipline after you know how to trade and what your looking for.

If you have one without the other, you are doomed. You will need to exercise discipline, just like a group of muscles at the gym. If you zero in on that quality, you can improve it and get stronger. This may be a foreign idea to you, but it is totally necessary to your success.

Here are a couple of ideas. I stated before that your environment has an effect on your trading results and that is true. A clean, neat work space, that is organized and in place, makes and has an effect on you mentally. It can have a reflection to your inner world, which translates into clear thinking, patience, focus, etc, resulting in better trading performance.

Now just think about other elements in your life that can have a similar effect. I don’t mean to get personal, and maybe I can just talk about myself to make my point. My goal is to create a home life that is balanced and also in order. By tending to the things in my life that have real true meaning, it helps establish a foundation of stability which gives me a sense of well being. This may not be for everyone, although I feel what everyone needs to know is “Why are we here on this earth?”

I ask myself this question often and it reminds me of what is really important. It is a way of centering myself with the busy lifestyles we all tend to live. The answer to that question is going to be different for everyone and I cannot answer that but for myself only. I get a great deal of peace when I reflect on this question, which then helps me to become a better husband and father to my grown children. It also provides the balance I need in my life to help me compartmentalize my trading goals and pursuits. If I do not exercise balance in that area, I may devote too much time into trading and letting other responsibilities get away from me – the ones that really mean the most. So it all boils down to discipline and remaining in control of your emotions and leaving your trading EGO at the door.

As a trader we will have those trades that bring us nice returns, but always need to remember that this is not easy to master and you need to remain Humble. That too is a form of discipline, to hold yourself back from becoming emotional after a nice gain. It is normal to be excited, but you need to see it as just one trade in the path of many that will eventually take you where you really want to go. That may be spending more time with your family, vacations, helping your neighbor with a project. These are all the things that a successful trading career can give you.

Just remember it’s not all about “us”.  What can we do for others?  You may be surprised, but that attitude will have an effect on your trading results and all for the better. It may say, “I have enough in me to give some away, whatever it is.” With that approach, you open the door for additional resources to find their way into your life, i.e., a growing trading account that seems to always expand.

This is what I find to be true in my life, anyway. I hope it helps someone out there to better handle and exercise discipline in their trading ventures. More to come on this subject. It’s a big one.

http://www.screencast.com/t/72VlG1w2 Today’s equity chart

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S&P 500 bounces off double bottom & Trading Lesson

Monday, February 23rd, 2009

It is Sunday February 22nd with a weekend report and review.

The S&P 500 bounced off the previous low set on November 20th last year. It did close up off of that low which is good. I have been hoping the overall market can hold on for a while before it continues down, but what I want does not matter to the markets. It would be wise, to learn from that point of view. When you trade, don’t try and impose your will on the markets, by your strong directional bias. The market does not care about what we think, it is going to do everything it can to fake you out and get you to establish a position in the wrong direction.

The S&P 500 is currently at the bottom end of it’s range. Usually, when that happens you will get a bounce off that bottom. At this point there is really no way of knowing how big a bounce it will be. I suspect that it would be enough to make up a bit of the drop that we have recently experienced the last week. This rally, if we get one,  is what I would call a retail rally. What I mean by retail, is this is usually not the smart experienced money. A double bottom is a very basic chart formation and it looks to me like this may hold over the next couple of days.  It could turn into something more significant, I hope, for the country’s sake.  The Dow actually broke down over 100 points below it’s November low. Sometimes that can be a sign that a short term rally will come. It broke just enough for investors and traders to bit. Now we shall see, if the market turns.

One interesting thing that many people do not know is that the Dow has recently had some changes in the stocks that make up the 30 companies in the index. It seems that any stock under 10 dollars per share has been taken out and replaced by other companies that have higher share prices. This will change the index values and not really give us a true representation of the market. Its like playing cards and you know you are going to loose with the hand that you have and so you just get a new set of cards and see if those work better for you. Seems a little shady and misleading to me. There has been a lot of that going on these days. On another day, I will have more to say about what is really going on in the markets and economy. Believe me, there is a lot more than meets the eye on this one. I have been following the stock market, politics and world events for over 25 years and there is a story here, but for another day.

                                                               TRADING LESSON: Trading Without Bias

When you establish a position in your mind, that the market should do this or that and when price action is saying something different, you are about to get burned. Fortunately my stops are small and my losses are thus small as well. When you have 2 or 3 stops in a row, you just need to stop. It does not matter what is going on, you are out of rhythm with the markets. Until you let a little time go by and focus on what is actually happening, only then will you begin to see the light. A little time is the best medicine for this scenario. If you still do not get it right, you need to stop for the day.

I have a rule, that if I am down more than my daily goal, I need to take a break, no matter what. After that break, when I come back if I go down in equity by double daily goal, that day’s trading is over, period. I came up to this point once this week and my next trade had to be right or I was going to have my first losing day in months. Fortunately, I waited until I found a high percentage trade and built my equity back up from there, one trade after another.  That bears repeating, one trade at a time.

Many people will try and make up negative equity by getting it back all at once. I do not advise this. If the patterns present themselves, then take the trade, but you may even want to decrease your size for a short time until you know you are back on track. Once you have yourself in tune with the markets again, you can then resume your normal trade size. I would throw in taking small breaks during your come back, to insure you are not getting overloaded or burnt out. A fresh mind can do wonders for your P&L.

This one rule can save many traders from blowing their account out in such a short amount of time. If you don’t stop, it then becomes compulsive negative behavior and that will ingrain in you very bad habits, which you may never break until the market has broken you.

If traders followed this one idea and have the trading discipline to adhere to it, the percentage of successful traders would go up by a wide margin. But human nature as it is, we know through studies of trader psychology that most people will not change. They will insist that they know how to trade these markets and they had just gotten a bad break here or there. Well, if it was not this day’s bad breaks or next week’s mishap, it will be something else. The market has a way of cleaning out all of the weak hands. Whatever their problems are, it will find them and exploit them, until it breaks you. That is the hard cold facts.

Now on the other hand, when you are aware of this force and plan and train for the days that the market is trying to take you down, you need to fight back. How do you do that, you may ask? Well, it first starts out by having a trading plan. You would be surprised how many people do not have one. Second, you will need a trading journal. This helps you record for yourself, if you are following your trading plan with what you are doing right and what you are doing wrong. If you can identify what you are doing wrong, then you can take steps to change and/or improve. When you are doing things right, that also is very important, because it is establishing in you consistent trading behavior that you will need to fall back on when things become difficult. You need to have a plum line, something that is constant, your trading plane.  Everyone’s trading style is different, because we are all different in our personalities.

Trading involves emotions, that is what brings most people to make a buying decision or not. The struggle of bulls and bears during the trading day is all about personal convictions for most people. We need not get caught up in the struggle, but knowing that it is going on is vital in positioning ourselves in front of that emotion. When we do that, we will be able to ride small waves of movement or (emotion) and capture profit from that. The markets have proven themselves to be consistent because people are creatures of habit. They seem to do the same things over and over again. We just put ourselves in the position to capitalize on that predictability.

More coming tomorrow

Vince

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