Get in Gear, Get Profitable

Discussion in 'Psychology' started by Spectra, Jan 13, 2007.

  1. We get a lot of feedback from struggling new traders every day.

    I can assure you, that every one who has ever traded has gone through what you guys are going through now.

    I am telling you the truth that it took me 4 years to get on track. As hard as it is to believe, even with heavy training, I still retained the tendency to keep repeating not only the same trading mistakes but also kept the same attitude that prevented me from being a consistent winner.

    There are a number of common mistakes that jump in to my brain. I will try to address the ones that are most important from people I have met, and my own trading beginnings.Brainy

    YOUR MINDSET is the number one important factor. Please stop reading this blog and go out and grab the book Trading in the Zone by Mark Douglas. It deals mostly with psychological issues which by far are the number one reason traders fail! Or if you want to do what CajunSniper does, go read the book at the store while enjoying a cup of java.

    My second suggestion is to put aside daily financial goals for a while. Having a goal to make $150, or $500 per day implies that you can control when the markets present such opportunities. Markets are not that cooperative.

    Find the reason for your lack of consistency. Most of the time its as simple as you BREAKING THE RULES on your trading setups.

    It doesn’t matter if they are some gurus rules, your rules, or a computer driven method—you cant achieve the results unless the rules are followed. So if you want similar results to our results or to a system you have created you must establish trades when the rules call for them and get out when the rules call for it.

    Being apprehensive to pull the entry trigger when your rules tell you to get in does not help matters. If the trade works right away—and lots do, you’d never get in. Think about that, you only get in on bad trades, feel good because you got a better price but always lose.

    The third issue is capital. You must be trading with risk capital. If it is bread money, rent money, tuition or necessary funds it is almost impossible to win. No matter what the setup, a trader betting with desperate funds is going to be too frightened to let the trade work. When it is profitable he will be so desperate for profits that a 4 point profit will make him satisfied. When the trade goes against him he will jump out so the stop doesn’t get him. A recipe for disaster and I brought the baked beans.

    If you are trading 2 contracts you have to consider the worst case scenario. Lets say we trade 3 times per day. And for 5 days straight take all 3 losses. It’s never happened yet but consider it. Lets say our stops are 12 points each. That is a $360.00 loss per day x 5 = $1800.00 plus $150.00 commission. You must ask yourself could you suffer through that kind of drawdown and not jump out the window. If you said yes then you at least are not playing with scared money.

    And if you said “yes, I am prepared to take every signal and assume it will lose because no one knows what the market will do next”. If you give yourself a $3000.00 maximum drawdown then you can at least start to trade with discipline.

    There is no advantage to stopping after 2 losses or quitting for the day. Only quit for the day if you are sick, or emotionally too rattled to trade. But a better way would be to say “OK today is new. I am committing $3,000 of risk capital to this method. I will take every call, every stop and every target until I am down $3,000.00 in my account. Then I will either stop trading or find a new method.

    Your goal should be to have followed every trade. If a trade is called by your system or method, you should have been in it. Your entry should always have been 1 or 2 points near where the signal occured. If the system stopped out, then you should be too. You should never be stopped out when the system stop was not hit. Doing that says you believe you know where the market is going to go. You don’t. Neither do I. Neither does harry potter.

    Think of it this way. If you were a pro baseball player your first job at spring training would be to work out to get back into shape, not hit home runs. Same with trading.

    Just a thought.
    Alex L. Wasilewski
    Co-Founder & Head Trader
    Trades That Work