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Examine your assumptions

  
  Education
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assumptions

Everyone knows we need a good plan to succeed, but what the heck does a good plan entail? In the course of studying how to trade, we begin building assumptions that govern our outlook of what the
market is, and how the market should operate.These assumptions are stitched together by general concepts of technical analysis and stuffed in a little box like a holiday turkey left to bake, the finished product we label a “plan”.

Logically following, if your underlying assumptions are incorrect, your plan will fail no matter how well your analysis. The irony, of course, is that the more disciplined you are in following a bad plan the more money you will lose.

Game Theory:
Majority of traders are taught what trading should entail, but in the market the majority is wrong. It is often said that the market is set up to frustrate the most traders. (more…)

Hope

  
  Education
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When the ship starts to sink, don’t pray. Jump.

Learning to take losses is an essential speculative technique. MOST never learn it. Take losses at once and move on. Take small losses to protect yourself from the big ones.
Beware the 3 obstacles to jumping ship:
– fear of regret ( that the loser will turn out to be a winner when you’ve bailed-out )
– Unwillingness to abandon part of an investment ( become willing to abandon )
– Difficulty of admitting you made a mistake.

Three Essential Components Of Trading

  
  Education
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number-3Every winner needs three essential components of trading: a sound individual psychology, a logical trading system and a good money management.

These essentials are three legs of a stool – remove one and the stool will fall together with the person who sits on it.

Losers try to build a stool with only one leg, or two at the most. They usually focus exclusively on trading systems.

Your trade must be based on clearly defined rules.
You have to analyze your feelings as you trade, to make sure that your decisions are intellectually sound.
You have to structure your money management so that no string of losses can kick you out of the game.

Emotions and Mindset

  
  Education
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Emotional stability and discipline is the foundation upon which a trader has to build his trading methodology. Without the ability to control emotions and the impulsive trading decisions emotions cause, the best trading system and the best thought-out risk management approach are useless.

I truly feel that I could give away all my secrets and it wouldn’t make any difference. Most people can’t control their emotions or follow a system.  – Linda Raschke
Markets are never wrong – opinions often are. – Jesse Livermore
I don’t get caught up in the moment. – Ray Dalio
If you argue with the market, you will lose. – Larry Hite
The psychological factor for investing has 5 areas. These include a well-rounded personal life, a positive attitude, the motivation to make money, lack of conflict [such as psychological hang ups about success], and responsibility for results.  -Dr. Van K. Tharp
It is hard enough to know what the market is going to do; if you don’t know what you are going to do, the game is lost. – Alexander Elder 

These quote highlight the fact that, before you get into the nitty-gritty of your trading system and try to tweak your stop loss or take profit placement, you have to work on your discipline. It is not a stop loss order that should have been placed 5 points higher or lower that makes the difference between a consistently losing and a profitable trader, but the degree to how a trader can avoid emotionally caused trading mistakes.

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