FOUR STEPS TO TRADING PROGRESS


HEAR
To HEAR you have to listen and listen intentionally. You will not HEAR properly if you are focused on other things. This situation is especially true on a webinar or during the trading day when the markets are open. It is essential to set distractions aside and HEAR what is being stated.
RECEIVE
To RECEIVE something you have to HEAR it and come into agreement with it.  To RECEIVE is to take it unto yourself and personally grab hold of what you have heard and make it your own.
BELIEVE
To be successful you have to believe that what you HEAR and RECEIVE can add value to your current situation. You have to BELIEVE that a specific strategy repeated and correctly  executed, regards of any specific outcome, will provide successful results over time. You will act on what you believe In all areas of life.  Please make sure you really do BELIEVE it and are not allowing any contradictory mindset to compete with your belief because it is possible to hold two opposing beliefs at once. This is being double minded and leads to instability.  Being firm and unswayed in what you BELIEVE can lead to becoming a successful trader.
APPLY
APPLY Is taking action on what you BELIEVE. You will not fully apply something until you fully believe it. Application requires action. You must be willing to pull the trigger on a trade when all of your rules are meet or when all the T’s have been crossed.  You must also without reservation pull the trigger to exit at your predetermined stop loss. Regardless of what we think or BELIEVE we will also act out of core or dominant belief. To properly apply ourselves we have to revise our core beliefs.  If I APPLY all of my predefined rules for entry and exit even when the trades go against me, my core belief will keep me confident that I did the right thing in making this trade and over time I will accomplish my goals. In addition my loss will not stress me because based on following my predefined rules it was a small loss based on a predetermined, well thought out process.C

The secret to trading success: You.


You are the weakest part of your system. It is a defeatist statement. It makes your expectation to fail easier to accomplish and more importantly it makes failure easier to handle. It shifts the pressure away from you and unto fate.
Would you fly on an airline if their motto was “Our pilots are the weakest part.” I do not think so. You are your system. Even if your system is automated you added the inputs, parameters.
Taking responsibility for your action is not easy. Taking control of the outcomes of trading or life is a huge responsibility. You will have moments of weakness, but you are not weak. The market does not go straight up and either does the road to success.

Wisdom From Bruce Kovner


On protecting emotional equilibrium:
To this day, when something happens to disturb my emotional equilibrium and my sense of what the world is like, I close out all positions related to that event.
On the first rule of trading:
The first rule of trading — there are probably many first rules — is don’t get caught in a situation in which you can lose a great deal of money for reasons you don’t understand.
On making a million:
Michael [Marcus] taught me one thing that was incredibly important… He taught me that you couldmake a million dollars. He showed me that if you applied yourself, great things could happen. It is very easy to miss the point that you really can do it. He showed me that if you take a position and use discipline, you can actually make it.”
On allowing for mistakes:
He also taught me one other thing that is absolutely critical: You have to be willing to make mistakes regularly; there is nothing wrong with it. Michael taught me about making your best judgment, being wrong, making your next best judgment, being wrong, making your third best judgment, and then doubling your money.
On elements of a successful trading:
I’m not sure one can really define why some traders make it, while others do not. For myself, I can think of two important elements. First, I have the ability to imagine configurations of the world different from today and really believe it can happen. I can imagine that soybean prices can double or that the dollar can fall to 100 yen. Second, I stay rational and disciplined under pressure.
[Successful traders are] strong, independent, and contrary in the extreme. They are able to take positions others are unwilling to take. They are disciplined enough to take the right size positions. A greedy trader always blows out.
On having a market view:
I almost always trade on a market view; I don’t trade simply on technical information. I use technical analysis a great deal and it is terrific, but I can’t hold a position unless I understand why the market should move.
…there are well-informed traders who know much more than I do. I simply put things together… The market usually leads because there are people who know more than you do.
On technical analysis:
Technical analysis, I think, has a great deal that is right and a great deal that is mumbo jumbo… There is a great deal of hype attached to technical analysis by some technicians who claim that it predicts the future. Technical analysis tracks the past; it does not predict the future. You have to use your own intelligence to draw conclusions about what the past activity of some traders may say about the future activity of other traders.
…For me, technical analysis is like a thermometer. Fundamentalists who say they are not going to pay any attention to the charts are like a doctor who says he’s not going to take a patient’s temperature. But, of course, that would be sheer folly. If you are a responsible participant in the market, you always want to know where the market is — whether it is hot and excitable, or cold and stagnant. You want to know everything you can about the market to give you an edge.
…Technical analysis reflects the voice of the entire marketplace and, therefore, does pick up unusual behavior. By definition, anything that creates a new chart pattern is something unusual. It is very important for me to study the details of price action to see if I can observe something about how everybody is voting. Studying the charts is absolutely critical and alerts me to existing disequilibria and potential changes.

Three Trading Wisdom


 
Preservation of Capital
Preservation of capital is the cornerstone of my business philosophy. This means that, in considering any potential market involvement, risk is my prime concern. Before asking, “What personal profit can I realize?”, I first ask, “What potential loss can I suffer?”
…There is one, and only one, valid question for an investor to ask: “Have I made money?” The best insurance that the answer will always be “Yes!” is to consistently speculate or invest only when the odds are decidedly in your favor, which means keeping risk at a minimum.
Consistent Profitability
Obviously, the markets aren’t always at or near tops or bottoms. Generally speaking, a good speculator or investor should be able to capture between 60 and 80% of the long-term price trend (whether up or down) between bull market tops and bear market bottoms in any market. This is the period when the focus should be on making consistent profits with low risk.
…Anyone who enters the financial markets expecting to be right on most of their trades is in for a rude awakening. If you think about it, it’s a lot like hitting a baseball — the best players only get hits 30 to 40% of the time. But a good player knows that the hits usually help a lot more than the strikeouts hurt. The reward is greater than the risk.
Pursuit of Superior Returns
As profits accrue, I apply the same reasoning but take the process a step further to the pursuit of superior returns. If, and only if, a level of profits exists to justify aggressive risk, then I will take on a higher risk to produce greater percentage returns on capital. This does not mean that I change my risk/reward criteria; it means that I increase the size of my positions.

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Thought For A Day

  Mark Mobius Articulates The Discipline

 Of Buy And Sell Decisions

The thought of giving up a once-treasured possession can be an emotional exercise for anyone, even if the object of affection has outlived its use. As investors, we can find it difficult to sell a once-favored holding — even more difficult than the decision to purchase it. But sometimes, you just have to let go.

I’ve often been asked about my team’s process, not only in selecting potential opportunities, but also when and how we determine a particular holding may not be worth keeping in a portfolio and bears replacing with something we deem to be a better opportunity. Emotion simply can’t play a role in our decisions. Instead, we pair bottom-up, rigorous research with step-by-step analysis, first identifying potential bargains within a dataset of more than 25,000 securities, then conducting deep quantitative and qualitative analysis to assess each company’s long-term value potential.Our quantitative analysis includes five-year historical audited financial statements and five-year forecasts based on projected future normalised earnings, cash flow, or asset value potential. Qualitative analysis covers understanding of the company’s business, management quality, ownership structure, corporate governance and commitment to creating shareholder value. That includes an understanding of who owns and controls the company, how it operates, and in what markets. As you can see, our research approach is extensive.

As I’ve said time and again, we firmly believe an on-the-ground presence is necessary to provide local, first-hand understanding of investment opportunities. Our Templeton Emerging Markets team currently numbers 53 investment professionals spread across 18 global offices and visits as many companies as we can—approximately 1,500-2,000 per year— to tour facilities and conduct management interviews. I personally travel more than 250 days a year.

Deal Breakers

Our ongoing fundamental research drives all buy and sell decisions. Our analysts set a target price for particular stocks based on the intersection of their research and our overall investment philosophy. We review all our holdings regularly to ensure our analyst recommendations are as up-to-date as possible and accurately reflect changes in company fundamentals. As value managers, we seek to invest in companies that are trading at a discount compared to our five-year valuation projections, and we adhere to a strict sell discipline based on valuation thresholds. Any one of the following triggers may cause us to sell stocks:

• The current security price exceeds our estimation of full value

• We believe significantly greater value potential exists in another security

• A fundamental change occurs at a company to alter our forecasts

One of our deal breakers includes unhealthy corporate governance. Corporate governance is a very, very important issue to us; we want to ensure the interests of shareholders are being addressed. So the first things we look for are a strong culture and ethical conduct.

Getting into the guts of governance means we conduct analysis of ownership structures, the management team’s track record, the company’s corporate governance history and its commitment to creating shareholder value. We look for managers who know the business well and have experience in a given field. We track management’s ability to cope with a rapidly changing business environment, and evaluate whether the risks a company takes seem rational and have the potential to be properly rewarded.

Understanding risk is core to our process. A dedicated Performance Analysis and Investment Risk Group (PAIR) team regularly examines our portfolios and analyses the risks.

Collaboration is critical, so the members of our investment teams communicate on a daily basis. We also hold weekly peer reviews in which we examine company weightings, valuations and price targets to ensure a portfolio is managed in accordance with its investment objectives. In addition, the Templeton Emerging Markets Group holds semi-annual meetings to evaluate investment methodology and portfolio performance, optimization of resources, and to discuss portfolio-related themes such as company-specific issues, country-related issues and global industry trends.

Volatility and Valuation

Emerging markets have traditionally been volatile and can be dominated by retail investor flows and sentiment changes, but we seek to use this volatility to identify potential bargains. We believe strong growth prospects in many emerging markets aren’t always recognized in equity valuations, and can lag those of developed markets by a considerable margin. As such, select companies or sectors in our portfolios may not perform as we’d like in a given month or year, but we are long-term investors, not short-term traders and we abide by our sell discipline.

Sometimes a falling market tide will drop even the soundest of ships, and that’s when bargains can be born. But there are times when stocks are priced cheaply because they are distressed. We may invest if we believe these sorts of companies can turn things around, given some time. Even good companies can fall on temporary hard times.

We think the best indicator of whether a stock is a good value or has completely lost its luster (what one might call “a value trap”, or fallen but still expensive relative to its intrinsic value) boils down to growth. If we don’t see any future growth potential, a company isn’t worth investing in; but if it’s inexpensive and earnings projections look good then there can be a case to invest. Of course, when a particular stock market is rapidly rising, it can be harder to find individual values. If a stock approaches what we deem to be fair value, we may consider reducing a position.

For all our stock-specific analysis, I should add that we do also examine macroeconomic factors in a particular country that support our investment themes, but don’t tend to be more bullish on one country or region than another, since we focus on individual companies. We believe there are great companies in all countries around the world, and that most markets have at least some attractive stocks.

We have maintained the same investment strategy for more than 25 years, and don’t expect to change. Our team inherited the same investment philosophy and methodology from our founder, Sir John Templeton, who summed up his thinking well with these words: “To buy when others are despondently selling and to sell when others are buying requires the greatest fortitude and pays the greatest ultimate rewards.”

Investment Adventures in Emerging Markets – Notes from Mark Mobius
Mark Mobius, Ph.D., executive chairman of Templeton Emerging Markets Group, joined Templeton in 1987. Currently, he directs the Templeton research team based in 15 global emerging markets offices and manages emerging markets portfolios. As he spans the globe in search of investment opportunities, his “Investment Adventures in Emerging Markets” blog gives readers a taste for what he does, when, where, why and how. Dr. Mobius has written several books, including “Trading with China,” “The Investor’s Guide to Emerging Markets,” “Mobius on Emerging Markets,” “Passport to Profits,” “Equities—An Introduction to the Core Concepts,” “Mutual Funds—An Introduction to the Core Concepts,” ”The Little Book of Emerging Markets,” and “Mark Mobius: An Illustrated Biography.”

Book Review: Trading Bases

A timely book here just ahead of opening day, http://tradingbases.squarespace.com/. Peta relates a lifelong love of baseball and statistics, his experiences as an equity desk trader for Lehman Bros. (15 years) and his subsequent battle back from a horrifying injury sustained by being run over in the streets of NY by an ambulance –as if his Lehman experience wasn’t enough to endure. He suffered a “Theisman grotesque” leg break that left him depressed and basically rehabbing alone in his NY apartment with wife and family living on the west coast.

His passion for trading snuffed by not being able to work, hopped up on pain meds, and trapped in the apartment leads to him to watching more sports than ever before. A baseball lover at heart and a statistical junkie, Peta finds a reason to wake up in the mornings. He decides to try his hand at making a statistical model that would identify edges for baseball team wins and losses that would provide him with a betting edge over the Vegas Line.

Peta eventually creates a hedge fund that bets baseball games that returns 41% in 2011 with similar daily volatility as the S&P 500. The book outlines Joe’s views on gambling. Baseball is his preferred niche since the juice/spread is the smallest in comparison to other sports, the ability to use statistics to get an edge is available, and the natural alignment between the better and the team– rooting for your team to win versus the convolution of winning and beating a point spread.

Joe explains his model with care, logic, and facts–backing up his assertions with anecdotes, experiences and back testing in terms of the body of baseball evidence from the historical stat stockpile. He builds on the pioneer work of Sabermetrics, Bill James, and Nate Silver. In general his system uses time tested relationships of team win/loss records, runs allowed/runs scored, starting pitching assumptions, WAR/PECOTA analysis, and more. He relates his journey on a monthly basis showing his results, the breakdowns of what went right and what went wrong, his acceptance of a “lumpy” higher return than a smooth more accepted rate of return by clinging to the belief that reversion to the mean will occur–eventually. He uses a concept called “cluster luck” to identify “lucky or unlucky” pockets in team’s prior records that should be ignored and removed from overall estimates. This is a key to his being able to form an opinion against the betting line of under or over valuation. His model then picks matchups that should be bet on and he uses a very systematic approach to determining the amount of the fund to bet on any one game–essentially using fund manager skill sets.

One notable opinion of his describes his fondness for “skill sets displayed” versus the recording of errors (mistakes committed and sometimes unfairly attributed). He uses SIERA (skill-interactive ERA) for pitcher evaluation and special modeling for playoffs and interleague games. He also walks the reader through his decision making process for when to tweak the model or when to stand pat—. Over tweaking will result in removing the natural capture of mean reversion. Joe has a friendly writing style and comes across as genuine, interesting and likeable.

I think any spec would like this quick reading book–you will learn something here about baseball stats and baseball betting theory; you may well enjoy the woven storyline of his trading career experiences as these snippets and stories move betwixt his model outlining. It is written for an above average mind, but its not too heavy to put someone off who doesn’t deal with wall street or modeling on a daily basis. I read ever page, every micro-print footnote, and every end note.


A Trade or a Gamble?

I love to trade a lot – which is of course a euphemistic way of saying I love to gamble. Although I have been to Vegas more than a dozen times I never laid down so much as a dollar bet in any casino. I have absolutely no interest in backjack, craps, slot machines or any other games of chance and I look down with disdain at the excited masses crowding the cavernous Vegas gambling halls. But deep down, if I am honest with myself, I have to admit that whenever I trade a lot I am just as much of a sucker as every hopeless loser that gives up his hard earned money to Steve Wynn or Sheldon Adelson

If you are constantly trading just for the sake of trading, just for the rush of being “in the game”, just for the momentarily thrill of being right you are gambling. You are trading without an edge, without any solid information and are therefore completely vulnerable to the random vagaries of price.

Towards the end of last year I decided to do something about my toxic addiction and created two separate accounts – one for trades that would only follow my trading plan – the other for all my trading/gambling impulses. But before I share my experience with you allow me to define the difference between a trade and a gamble. The key distinction is information. The less information you posses the more likely the chances are that your trade is gamble.

A techincal trader who only looks at the five minute chart to gauge his support and resistance points is just gambling. On the other hand a trader who looks through the hourly, daily, weekly and monthly support points, carefully calculates Fib retracement positions and only acts when multiple time frames confirm his analysis has a much greater chance of success. Similarly a fundamental trader who mindlessly reacts to the latest economic release without understanding the prior market expectations, the current price flow and and countervailing information on the other currency in the pair is also just gambling.

Notice the unifying theme? Like everything else in life success in trading requires hard work and homework. There is no magic formula, no simple 5 minutes per day method to make you money. In trading, working hard is no guarantee of winning, but not working hard is an assurance of losing, because trading at its core is a game of information and you must always be up to date on what’ s gong on in the market or become the sucker at the table.

Now back to my experiment. I subdivided my trading into two accounts – one where I traded only calendar risk on a reactive basis with very disciplined entries and exit rules and strict adherence to money management. The other account was just for my whims and impulses. An interesting thing occurred. My “trading plan” account which I traded far rarely and more carefully became much more profitable and incurred much lower drawdowns. Meanwhile the equity in my gambling account bounced up and down like a hopped up rubber ball. Suddenly the thrill of “being in the game” wasn’t so much fun. Like a reformed smoker who appreciates the smell of fresh air, I was no longer drawn to making impulsive trades. That’s not completely true. I still dabbled in my gambling account (who amongst us can completely give up our vices?) but my need to trade constantly has been reduced substantially. The less you gamble, the more you realize how stupid it is and that has been the most valuable lesson learned so far.



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Self Appraisal -A Story

A BEAUTIFUL STORY

*A little boy went to a telephone booth which was at the cash counter of a store and dialed a number.

The store-owner observed and listened to the conversation:
… …
Boy : “Lady, Can you give me the job of cutting your lawn?

Woman : (at the other end of the phone line) “I already have someone to cut my lawn.”

Boy : “Lady, I will cut your lawn for half the price than the person who cuts your lawn now.”

Woman : I’m very satisfied with the person who is presently cutting my lawn.

Boy : (with more perseverance) “Lady, I’ll even sweep the floor and the stairs of your house for free.

Woman : No, thank you.

With a smile on his face, the little boy replaced the receiver. The Store-owner, who was listening to all this, walked over to the boy.

Store Owner : “Son… I like your attitude; I like that positive spirit and would like to offer you a job.”

Boy : “No thanks,

Store Owner : But you were really pleading for one.

Boy : No Sir, I was just checking my performance at
the job I already have. I am the one who is working for that lady I was talking to!

This is called “Self Appraisal”

Better to be Profitable Than Right

The ultimate goal of a futures trader should be to have overall trading success by being profitable. There is no single-best path one can take on the destination to trading success and profitability. However, there are a few general trading tenets to which all successful traders have subscribed. One such trading tenet is “losing your ego” when trading futures.

Mark Cook, a well-respected trader and trading educator from rural Ohio, for many years has stressed that traders need to lose their egos before getting into trading futures markets. He is also an advocate of survival in futures trading. One must survive in this challenging arena before one can succeed. I enjoyed listening to Mark at a trading seminar a few years ago. He even used to wear bib-overalls (with no shirt) at some of his trading seminars – just to drive home the point that trading futures is not easy and that ultimate success takes a lot of hard work.

My good friend and respected trader and educator Glen Ring also espouses the notion, and may have even coined the phrase, “it’s better to be profitable than right in futures trading.” Those who know or have talked to Glen know he, too, is a no-nonsense, no-hype trader who takes a yeoman’s approach to the business. When asked what direction a specific market “will” go in the future, Glen is never afraid to say, “I don’t know,” before he adds that, “successful trading is not a business of predictions but one of probabilities based on past price history.”

It’s been reported that people who get into the endeavor of futures trading tend to be of higher-than-average intelligence and have more aggressive personalities – called “Type A” personalities. Having higher-than-average intelligence certainly can be advantageous in any field of endeavor. However, in futures trading, possessing the “Type A” personality can be a disadvantage. Reason: More aggressive and competitive people do not like to lose and do not like to be wrong. It’s a time-proven fact that trading futures is about absorbing numerous losing trades. But that does not mean “Type A” personalities cannot succeed in futures trading. Those with the competitive and aggressive tendencies just need to realize they possess those traits and then manage them properly when trading futures. (My wife says that I’m a “Type A” personality, but I say I’m not. I just know I’m right and she’s wrong – just kidding!)

Most have heard the simple trading adage, “Cut your losses short and let your winners run.” What this also implies is that during any given year the vast majority of futures traders will see more losing trades than winning trades. Yet, some can still realize profits by getting out of the more numerous losing trades quickly at small losses (by setting tight protective stops), and allow the fewer winners to run and accrue bigger profits.

Just think for a minute about the futures trader who does not want to lose his or her ego. This is the trader who likes to be right and cannot stand to be wrong. In fact, this type of trader will probably go to great lengths just to be proven right. What does this mean when executing trades? It probably means that the trader who hates to be wrong won’t be willing to get out of a losing position at a small loss. Instead, this type of trader may pull a protective stop when in the heat of a trade, or may not use protective stops at all – in the hope that he or she will be proven correct. This type of trader is likely to see a small loser turn into a big loser, and might even get a margin call from his or her broker. And if this type of trader repeats this scenario and keeps absorbing big trading losses, he or she will eventually be forced to exit the endeavor of futures trading. This is also the type of person who would likely blame the markets or the broker for his or her lack of trading success.

Be a humble futures trader. If you are not a humble futures trader now, the markets will eventually make you one – and very likely sooner rather than later. I guarantee it. There are few guarantees in futures trading but this is one that I can make.

Market Metaphors and Perception

What we perceive is not just a function of what is out there, but also the lenses that we wear. Many of our cognitive lenses are so much a part of our thinking that we forget they are there. We assume that what we’re perceiving is what objectively exists…but that’s not always the case.
Some of the most powerful lenses are the metaphors that we use in describing markets. Consider the following:
* A trader views the market as an enemy to be conquered;
* A trader approaches the market as a puzzle to be solved;
* A trader sees the market as a paradise of potential riches;
* A trader regards the market as a mistress to be wooed;
* A trader views the market as a dangerous minefield;
* A trader looks at the market as a video game.
How do these metaphors affect our trading? Our emotional responses to trading? How would being aware of our metaphors–and shifting them–change how we trade and how we experience our trading?


Greed, Fear and Irrational Behaviour

Where trading and investing in stocks, options, futures, forex, etc are concerned, there is no doubt that people have a tendency to behave strangely. Exhibiting irrational behaviour is common. People come up with all sorts of reasons and excuses for the way they are behaving, even while subconsciously admitting that they are deviating from their plan without valid reason.

The field of Behavioural Finance attempts to interpret and understand why people behave the way they do with financial activities. It is an investigation of how people’s decisions are affected by cognitive errors and emotions.
Some key points in Behavioural Finance are:
  • The ‘Fear of Regret’ – where people beat themselves up about incorrect decisions or errors of judgement. They avoid this pain by holding onto positions that are moving against them, despite the intelligence that they should exit the trade while the loss is small.
  • People are more upset by potential losses than pleased by wins.
  • People perceive chance wins as trading success.
  • The more people win, whether by method or luck, the more confident they become. This is very dangerous for those who win by luck.
  • People are more exuberant and optimistic on bullish days and depressed and pessimistic on bearish days.
  • People tend to make irrational decisions reflecting biased or wrong beliefs. People have a tendency to cling to beliefs, even when presented with evidence to the contrary.


It is important to understand that emotions and intuition can lead to poor decision-making at times. Never trade on gut-feeling, intuition or untested ideas. Don’t desperately try out new ideas in the hope that they will be the solution to your trading woes. These un-researched and under-tested ideas lead to disappointment and poor decision-making at times when calm and order are required.

To minimise the risk of making irrational or stupid decisions in trading we must set up guidelines and rules. Trend trading with a written plan or system is a crucial factor in being successful in the market. A second crucial factor is the patience and discipline to follow your system without doubt or deviation, even when it appears times are tough.

If you trade without a system you are unlikely to be successful. The concepts behind Behavioural Finance indicate that if you have no plan, but win some of the time, the wins will appear more significant, you will develop over-confidence in your abilities, with the result that you will begin to take greater risks.

Ultimately, you will lose if you follow this path. You must know in advance what you will do in any market situation. Never place yourself in a situation where you are making decisions on the run – faced with a plummeting market and no pre-determined strategy to cope with such an event.

Most people tend to overtrade – I doubt there is one successful trader who would not admit to having over-traded at some point in their trading career – it is a common fault among new (and not-so-new) traders. Following a loss, they become fearful of more losses, so they ‘revenge’ trade to try to win back the losses. These trades are usually ill-thought out and result in more losses, which results in more fear. Eventually these traders may self-destruct and quit the market, disillusioned, broke and believing that trading can never work.

People who overtrade and win are at risk, too. The euphoria leads them to jump into more and more trades without proper analysis. They expose themselves to too much risk, believing they are invincible.

Generally, the more often people trade, the less they earn. There is a perception that short term trading is less risky and more profitable than long term trading, because you are getting out of trades earlier and naturally have stops closer to your opening position. However, the opposite tends to be the reality. You are risking your money more often.

Trend trading with a set of rules – a checklist for every scenario – will allow you to trade without distraction or doubt. You will be confident in your decisions and will be happy with the result. A loss taken with the conviction that it is the best course of action need not be an unhappy event. It builds confidence in your ability to make correct decisions for your trading style and personality.

To be successful in the market, you must be systematic in your approach. You must have rules. Follow those rules. Don’t be distracted by outside news and events. Have a strategy in your rules to deal with such things.

Trend trading is a skill and strategy that can be used in any market, be it stocks, commodities, futures or forex. Learn it well and you will succeed. Remember that your aim should not be to make money in the markets but to be the best trader you can – then the money will follow.

Take heed of the words of Richard Driehaus – “Everyone wants to be rich, but few want to work for it.”

Most buyers and sellers in the financial markets do so without any plan, discipline or risk management. It takes strength of character and courage to do what others are notdoing, but ultimately, you will be the winner.
Don’t trade to be right – trade to win!



Lack of Patience

The fourth finger of the invisible hand that robs your trading account is Lack of Patience. I forget where, but I once read that markets trend only 20% of the time, and, from my experience, I would say that this is an accurate statement. So think about it, the other 80% of the time the markets are not trending in one clear direction.

That may explain why I believe that for any given time frame, there are only two or three really good trading opportunities. For example, if you’re a long-term trader, there are typically only two or three compelling tradable moves in a market during any given year. Similarly, if you are a short-term trader, there are only two or three high-quality trade setups in a given week.

All too often, because trading is inherently exciting (and anything involving money usually is exciting), it’s easy to feel like you’re missing the party if you don’t trade a lot. As a result, you start taking trade setups of lesser and lesser quality and begin to over-trade.

How do you overcome this lack of patience? The advice I have found to be most valuable is to remind yourself that every week, there is another trade-of-the-year. In other words, don’t worry about missing an opportunity today, because there will be another one tomorrow, next week and next month … I promise.

I remember a line from a movie (either Sergeant York with Gary Cooper or The Patriot with Mel Gibson) in which one character gives advice to another on how to shoot a rifle: ‘Aim small, miss small.’ I offer the same advice in this new context. To aim small requires patience. So be patient, and you’ll miss small.”

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