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We begin to trade with our 'new' knowledge. 3. We consistently 'donate' and then realise we may need more knowledge or information. 4. We accumulate more information. 5. We switch the commodities we are currently following. 6. We go back into the market and trade with our 'updated' knowledge. 7. We get 'beat up' again and begin to lose some of our confidence. Fear starts setting in. 8. We start to listen to 'outside news' and to other traders. 9. We go back into the market and continue to 'donate'. 10. We switch commodities again. 11. We search for more information. 12. We go back into the market and start to see a little progress. 13. We get 'over-confident' and the market humbles us. 14. We start to understand that trading successfully is going to take more time and more knowledge than we anticipated. MOST PEOPLE WILL GIVE UP AT THIS POINT, AS THEY REALISE WORK IS INVOLVED. 15. We get serious and start concentrating on learning a 'real' methodology. 16. We trade our methodology with some success, but realise that something is missing. 17. We begin to understand the need for having rules to apply our methodology. 18. We take a sabbatical from trading to develop and research our trading rules. 19. We start trading again, this time with rules and find some success, but over all we still hesitate when it comes time to execute. 20. We add, subtract and modify rules as we see a need to be more proficient with our rules. 21. We feel we are very close to crossing that threshold of successful trading. 22. We start to take responsibility for our trading results as we understand that our success is in us, not the methodology. 23. We continue to trade and become more proficient with our methodology and our rules. 24. As we trade we still have a tendency to violate our rules and our results are still erratic. 25. We know we are close. 26. We go back and research our rules. 27. We build the confidence in our rules and go back into the market and trade. 28. Our trading results are getting better, but we are still hesitating in executing our rules.
29. We now see the importance of following our rules as we see the results of our trades when we don't follow the rules. 30. We begin to see that our lack of success is within us (a lack of discipline in following the rules because of some kind of fear) and we begin to work on knowing ourselves better. 31. We continue to trade and the market teaches us more and more about ourselves. 32. We master our methodology and our trading rules. 33. We begin to consistently make money. 34. We get a little over-confident and the market humbles us. 35. We continue to learn our lessons. 36. We stop thinking and allow our rules to trade for us (trading becomes boring, but successful) and our trading account continues to grow as we increase our contract size. 37. We are making more money than we ever dreamed possible. 38. We go on with our lives and accomplish many of the goals we had always dreamed of. Most traders will identify with this list and should be able to place themselves within these steps. Keep in mind that very few people progress through these steps in an orderly fashion. Developing your trading skills is an iterative process. For example, you may reach Step 13., find that although you were making money, your basic premise for trading was flawed (you might have been benefiting from the bull market, rather than your own trading prowess and then have been rudely awakened when the market entered a bear phase) and you may drop back to Step 4. and start 'climbing' the steps again. Having the proper mindset, attitude and psychological makeup becomes increasingly important as you progress through the steps. The focus of the earlier steps is on external issues, i.e. developing proficiency in the mechanics of trading while the focus of the latter steps (particularly from Step 30, on) is on internal issues, i.e. improving ourselves mentally and psychologically, maturing as trader regards creditviolet
Thursday, May 14, 2009
Ten Commandments of Trading Discipline
trading discipline should dramatically improve your trading success if adopted and followed. They h 1) Trade free from fundamental prejudices. Hold no judgment on a stock. Don’t try to rationalize a losing position, or fall in love with a winning Truth” is its price. 2) Focus on proper trading strategies and not on making money.
Money is merely a consequence of skill level, or lack thereof. As long as you trade with unwavering
mode of thinking. Both winning and losing trades should be reviewed during your journey towards t 3) Develop a trading style that is consistent with your personality and philosophy. Trade your nature! 4) Determine the risk/reward ratio of each trade before entering. Risking the farm to make peanuts is unwise. Create the plan before the trade, and not during! 5) At times, the best action is no action. Don’t search for action and think that you must trade every day. 6) Trade with the trend since stock prices flow in the direction of least resistance. If a stock goes against the trend you expected, get out. When in doubt, stay out or get out. 7) There is no room for emotions in trading.
Disciplined traders can observe the market from the perspective as if they are not in a position, eve think it should do. 8) Make the market come to you. If it doesn’t play “your hand in your world,” step aside. Be strict, be disciplined, and be patient, and
9) The true battle is not with the market, but learning how to control your own emotional imp
Many internal battles of letting fear and greed interfere with logic and discipline can unfortunately r placed stops based on technical analysis. 10) There are no “holy grails,” magic software, or short cuts to success. Professional traders never cease being students of the markets. Spend time each day developing your own trades and actions.
Why traders lose their discipline
Are you looking to increase your ETF knowledge? When traders lose money, they often attribute the problem to a lapse of discipline. Such a lack of consistency, however, is actually the result of many different problems--not the cause. Traders lose discipline with trading for the same reasons that dieters lose discipline with dieting or people getting in shape lose discipline with exercise. Quite simply, our moods, needs, and mind states of the moment tend to overwhelm our longer-range intentions. We pursue short-term pleasures (and avoid short-term discomfort) at the expense of longer-term rewards. Here are some common reasons why traders (and most other human beings!) fall short of being fully intentional: • • Environmental distractions and boredom cause a lack of focus - All of us have limits to our attention span and these are easily taxed during quiet times in the market; Fatigue and mental overload create a loss of concentration - The demands of watching the screen hour after hour make it difficult to be sharp, creating fatigue effects that are well-known to pilots, car drivers, and soldiers; Overconfidence follows a string of successes - It is common for traders to attribute success to skill and failure to situational, external factors. As a result, a string of even random wins can lead traders to become overconfident and veer from trading plans-especially by trading too frequently and/or trading excessive size; Unwillingness to accept losses - This leads traders to alter their trade plans after trades have gone into the red, turning what were meant to be short-term trades into longer-term holds and transforming trades with small size into large trades by adding to losers; Loss of confidence in one's trading plan/strategy because it has not been adequately tested and battle-tested - It is difficult to tolerate even normal drawdowns unless you have confidence in your methods. This confidence does not come from mere positive self-talk. Rather, it is a function of testing your methods (historically and in realtime) and seeing in your own experience that they truly work; Personality traits that lead to impulsivity and low frustration tolerance in stressful situations - Psychological research suggests that some individuals are more impulsive
than others and less conscientious about adhering to plans and intentions. These personality traits often are accompanied by stimulation-seeking and a high degree of risk tolerance: a deadly combination. • Situational performance pressures - These include trading slumps and increased personal expenses that change how traders trade and lead them to place P/L ahead of making good trades. By worrying too much about how much money they make, traders can no longer follow markets with a clear head; Trading positions that are excessive for the account size - This is much more common than is usually acknowledged. It creates exaggerated P/L swings and emotional reactions that interfere with cool, calm planned behavior; Not having a clearly defined trading plan/strategy in the first place - Interestingly, many traders do not consider themselves to be discretionary traders, but in fact do not have a firm, explicit set of trading rules that they follow. It is difficult to be consistent with a plan (and to evaluate your consistency), if you don't have the plan clearly laid out; Trading a time frame, style, or market that does not match your talents, skills, risk tolerance, and personality - All too often, traders veer from their plans because those plans are ones that they feel they *should* follow, but that don't truly come naturally to them. These departures from discipline are actually unconscious attempts to trade in a style that is more in tune with the trader's skills and talents.
As you can see, not all discipline problems have their origins in the trader's psychology. Many times, the loss of discipline reflects problems with trading itself. Discipline in trading is not so different from "discipline" in a romantic relationship: if you're doing the right things, there's little need or desire to stray. But if your trading is not meeting your needs, it's all to easy to break your trading vows! Brett N. Steenbarger
Trading Discipline - Gerd Gwiss I would like to introduce myself very briefly. I am involved in futures trading since 4-years. I am working as a broker for half-a-year in Vienna, Austria. The topic I would like to discuss is a very old one: "Discipline"! I made a lot of trades in very different markets. My trading philosophy is basically 800 technical. I'm a very big fan of technical analysis and technical trading systems. My very special trading vehicle is candlesticks combined with stochastics or sometimes a different oscillator, but I don't concentrate on the oscillators because they are more or less the same. I really concentrate on candles. I am also using Swing Catcher because I think it is a really excellent program, but I use it in connection with additional systems. Swing Catcher was the first software I used and I want to explain my experience and show some big mistakes that I made. I received the software and installed it immediately. I had it run very quickly. The only problem I had concerned the data feed from CSI (Commodity Systems, Inc.), not due to CSI, but due to my modem. At this point, I want to thank Dave because he really supported me in an excellent way! I had a view at the performance of the last month and I was really surprised. I decided to trade the German Deutsche Mark and Swiss Franc futures (in low risk trading mode) because they showed a wonderful profit (the first nonsense, because these markets are highly correlated as I knew, but I was blind already seeing the profit on my account). The first order was placed to buy DM. The dollar was around 1.49 and from the fundamental point of view, the buck was a buy but I decided to follow the system (that was ok). The dollar came down to 1.46 and my DM-position was perfect. One day after the long-DM, the system came up with a buy signal for SF and I decided to go long. I have to mention that it was ok because I strictly followed the system concerning entering the market and concerning the stops. Both positions were winners, but on the same day the German Bundesbank crossed my trading plans. Buba was intervening heavily by selling Deutsche Mark. I was stopped out on both positions with an absolute crazy fill on the Swiss Franc. The DM locked in a profit due to an adjusted stop, but the loss in the SF was bigger and I suffered a net loss of about $1500. I was shocked. My account then showed a balance of $400 credit. Now I recognize my second stupid mistake: I simply overtraded my account. Two positions in highly related currency futures in a $1900 account doesn't make sense!
I stopped trading due to lack of money. As a poor student I could not afford to loose additional money. Iwatched the system and a friend traded some signals for his account. He made two loosing trades and then told me that the system is no good. After thinking about the whole problem, I came to the conclusion that he was absolutely wrong. He and I already made our third big mistake. You have to follow a system strictly for a longer time and not stop trading after two loosing trades. These trades are simply not significant. Then we watched the following signals, which were excellent and resulted in big profits, but we had no positions. My friend revised his opinion concerning the system very quickly and became a big fan. That was the fourth mistake, because these few winning trades were also not significant. He started to trade the signals again and although he would have made profit on the next trades, he actually did not because he did not follow the recommended stops!!! That was the fifth mistake. He generally is no friend of stops, which is of course reflected in his account balance. After trading two years without using the system from the beginning of the before mentioned trade, he lost about $75,000. Of course, the system was called no good again after doing the before mentioned last trade using the system but NOT using the recommend stop. That was the next big mistake. He always shifted his inability to make profit. Although it was obvious that he made a wrong decision by not using the recommended stop, he said that the system is good for nothing. He then traded using his "feeling" and lost a lot of money. But of course, it was not his mistake. "The market reacted the wrong way," he told me, "they are playing against you with the target to get your hard earned money." I told him that this was by far the biggest nonsense I ever heard in my life and asked him why he does not stop trading if he knows this fact. He was not able to give an intelligent and satisfying answer. He is still trading and of course still loosing money. I won't continue, but believe me I could tell you a lot of stories which would make your hair stand. I really believe that a successful trader needs three things: 1. Important - A trading system to find buy & sell signals that fits to the trader, which he is comfortable with. (It need not necessarily mean a computerized system.) 2. More Important - Money management techniques. That means you have to define your risk before entering a position and then place the stop and do not change it once the market is trading near the stop
level. If you get stopped out, wait for the next signal to step in again, but do not alter the stop 20 times. It does not make sense. Don't trade to big numbers in relation to the size of your account. 3. Most Important - Discipline, discipline and discipline! Trade the signals as they occur. Use the stops under consideration of the risk you are willing to take and do nothing else! This "nothing else" is maybe the most complicated matter overall. The most successful traders are those who comply 800 to the system they are trading. If the system does not show the results you are looking for, choose or develop a different system with a new approach. Don't make the mistake of having a system and not complying with signals! If you can manage your mental environment to follow these three points, you can bet on your trading success.
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