A simple thought for a Sunday:
I don’t know which is worse, getting stopped out or closing a winning position too soon and missing the ride. At least the latter can be corrected. So today’s quote is a simple one. But maybe a game changer for some:
“unless the reasons for being in the trade have changed, let your profits ride.”
Not as easy as it may sound…
In the early stages it is important for beginners to work systematically in observing what works and what doesn’t whilst developing their strategies and risk/money management. There is little chance of moving forward if one jumps from one idea to another and without giving each change the chance to prove its worth or otherwise. As our current writer states:
" Becoming a better trader means using some sort of system in your trading. Whether it’s computerized or done visually on a chart, or is simplistic or elaborate, a trader should have a solid set of rules that have been proven to work. Unless a trader can start making the same smart trades over and over, he not only will probably lose, he will not know the specific reason he is doing so.… The problem when you don’t have a system is that you may have no idea why you are losing, as your trades may be made randomly."
There are gamblers and then there are traders. In many ways they are different…or are they? Does the professional gambler follow the same rules of patience, discipline and money management as the consistent trader:
“Successful gamblers also know they don’t have to be in every hand. A good poker player is disciplined enough to fold hand after hand until the right one comes along. He may get bored out of his mind, but he’s the one who has the mountain of chips in front of him. Bad players bet every hand all the way through, just as a bad trader is always in the market even when the trades are marginal.”
Day trading does not mean trading every day. But it is a killer to sit, and watch, and stay attentive, and do nothing… just waiting for the right set up. But that is high probability trading.
After decades trading my favorites are, “Price Fluctuates” and “Trading is 80% technical, 20% art, and the 20% is all that matters”
Forex trading is not just about making money. It is about not losing your money. The longer you can save your money, the better you become at trading. Try out as many strategies and techniques that you can, to become capable of not losing your money. Think about making money later.
I haven’t been reading much lately to quote here, but I thought this reply from another thread by @Trade.Ninja was worthy as a quote here.
It is understandably tempting to try and get the most out of every move, but that is not necessarily a very good approach and can often lead to worse results than focusing instead on quality set-ups, risk and money management and the psychological factors.
And, as @Trade.Ninja says, it can make trading much more rewarding than just pip-chasing.
Straight from the first page by Mark Douglas. Maybe we all need to think about this: are we really focusing on what is the critical aspect of trading? Our systems? Or our selves?:
“I sincerely feel that success in trading is 80 percent psychological and 20 percent one’s methodology, be it fundamental or technical. For example, you can have a mediocre knowledge of fundamental and technical information, and if you are in psychological control, you can make money. Conversely, you may have a great system, one that you have tested and has performed well for a long period of time, yet if the psychological control is not there, you will be the loser.”
One very important psychological factor is not often talked about, and that is building confidence in one’s trading. It is important to reach a point where one has confidence in one’s trading methodology i.e. the combination of the actual trading strategy, risk control and equity management.
This confidence could be termed the positive expectancy and refers to a belief in a state of profitable consistency over a period of time. Not just this, or the next, trade but the overall results over time.
If one does not have this deep confidence then it can distort one’s attitude to trades in the way described by Mark Douglas:
“your perception of market activity will eventually become heavily weighted towards avoiding pain instead of seeking opportunity. Your fear of losing money, being wrong, or missing an opportunity will become your primary motivation to act or not act.”
Which, as we may conclude, leads to winning opportunities being cut short and a reluctance to prune out the losers. Not a good combination for profits and will stifle the potential of an otherwise good strategy.
We often talk about treating our trading as a business. But it is a different kind of business to the more traditional kind of business.
One thing that attracts so many people to trading is the opportunities it offers. The only real concrete limitation on its possibilities is the amount of capital one has.
But with opportunity comes a great responsibility. The fact that trading markets is free of almost all restrictions means that the entire responsibility for what we actually do lies solely on the shoulders of the traders themselves. There is no one else to blame when things do not go right.
We need to take care of our learning, ensure we learn from our experience, protect our equity, and manage and evaluate our trading strategies.
As Mark Douglas puts it:
" I learned that the markets offer the trader an opportunity to profit from price movement, and these opportunities are basically in perpetual motion. It is an environment where the individual has the freedom to create his own results, unimpeded by many of the constraints that exist in everyday social life. These never ending opportunities make the market a perfect mirror of the trader’s attitude. What the trader sees in that movement and what he can do about it the markets have no control over. All the choices and all the power to turn these choices into experience reside in the mind of each trader. "
And whilst on the subject of treating our trading as a business, one other issue that often comes up is learning to accept losses as an integral part of trading. The only bad loss is the one that results from not following our own rules. Losses can, and should, be treated in the same way as the overheads in any other business. I.e. the costs of doing business. You cannot make profits without being in the market, and being in the market means there will be losses. It is just something that needs to be managed.
Managing losses and handling them with the right attitude is important, as Mark Douglas says:
" I inadvertently learned one of the most important lessons to becoming a successful trader: how to
“accept” a loss without any negative consequences. No guilt, anger, shame, or self-punishment."
SovoS
You can’t give me too much Mark Douglas I
Here’s one from Tom Hougaard - "The best loser wins"
A lot of truth there in a few words! Loss handling is critical to consistency in the long run.
It’s funny how psychology works. For example, we can feel a lot of pain, frustration and anger at taking a loss on a trade. But, at the same time, a retailer will consider it totally normal and sensible to sell off old stock in a sale, even at a loss, in order to release capital to purchase new, more profitable stock.
Absolutely !
It seems to me that there is a constant flow of newcomers here that are filled with drive, dreams, and infinite enthusiasm to make it in forex trading. Well this is what Dr Alexander Elder has to say to them about that in the very first pages of his book:
“You can succeed in trading. It has been done before, and it’s being done right now, today, by people who started from scratch, learned to trade and are making a good living at it… Trading is a journey of self-discovery. If you enjoy learning, if you are not scared of risk, if the rewards appeal to you, if you are prepared to put in the work, you have a great project ahead of you. You will work hard and enjoy the discoveries you’ll make along the way. I wish you success. Now let us begin.”
Positive thoughts for the weekend.
A good description from Dr Elder of the different paths we can take. It is worth pausing to ponder on which path we ourselves are on, and is it the right one to lead us to where we want to be:
“A newcomer to the market faces three paths that lead into a forest full of treasures and dangers. The first path, for investors, goes through the sunniest areas. Most of those who take it come out alive, if not much richer. Another path, for traders, leads into the heart of the forest. Many travelers disappear, but those who come out look rich. The third is a shortcut that takes gamblers into the swamp.”
“A good signal jumps at you from the chart and grabs you by the face—you can’t miss it! It pays to wait for such signals instead of forcing trades when the market offers you none.” Dr Elder
“Trading a small account is like flying an airplane at treetop level. You have no room to maneuver, no time to think. The slightest slip of attention, a piece of bad luck, a freaky branch sticking out into the air—you crash and burn. The higher you fly, the more time you have to find your way out of trouble.” Dr Elder
Simple truths:
If you want to start trading:
“The money in your trading account is money you CAN afford to lose”
If you want to continue trading:
“The money in your trading account is money you CANNOT afford to lose”
I was watching a TV series tonight and someone there said of their life that:
“My life is just a graveyard of crushed dreams”
And it hit me that one could so easily say that about trading, too! A constant stream of new posters full of screaming enthusiasm and dreams. Not dreams of just a new hobby or a pastime, but of nothing less than a life-changing experience, financial freedom, guardian of one’s own destiny, and maybe even a lamborghini or two.
And yet, where do they all go? So many slide down the gutters, watching all their spare cash and even more just wash down the drains. Yet some do pull through. There is a way.
It is so sad, that graveyard of crushed dreams.
I came across this quote in an e-book and I thought it was a rather provocative way of describing precisely what our plan/strategy/method should achieve. It should be clear, evident and concrete in all aspects - so much so that, under the same circumstances, we would even take those same losing trades.
“Our goal is to create a systematic approach that leads to consistent trades. You want to get to a point where even if a trade was a losing trade, you would still be happy with your selection and given the same circumstances you would make the same decision again and again.”
This doesn’t mean that we shouldn’t ever study losing trades and consider changes that may minimise them.
It does mean we should strive for a strategic approach that is applied consistently according to its rules and parameters. A strategy which incorporates and applies our perceived trading edge whilst including the acceptance of losses under controlled, damage-limitation, conditions.
Optimisation: maximising overall gains whilst minimising overall losses.