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Discipline

  
  Education
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Discipline seems to be that elusive element in trading, the thing you just can’t seem to get no matter how hard you try. Its a willo-the-wisp that we’ve only heard rumours about. Do you jump from system to system, method to method, change your chart constantly and have a favourite indicator of the month? We roughly call this poor discipline.

However I’ve discovered that there is something more fundamental underneath this behavior, which is a lack of belief in the system you are using. You have no faith in it. If you did, all such behavior and “discipline problems” would vanish in a puff of smoke.

To prove the point, consider this: imagine if I gave you a magic box, and if you put a dollar in this magic box and pulled the lever it would always dispense one dollar fifty.

What would you do? Yes thats right, you would do it over and over and over wouldn’t you? Probably for hour upon hour you would do it. (more…)

Uncertain Outcome, Consistent Result

  
  Education
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Every trader knows trading is a probability game. However, very few can internalize and live by the true meaning of what it means to be a probability game.

Mark Douglas, the author of “Trading in the Zone”, explains it well.     Someone who masters the probability game produces uncertain outcome but consistent result.   The best example to illustrate this concept is the casino business.     The casino holds on the average 4.5% probability advantage over the player. It does not know whether the next hand will be a winner or a loser against the player, but the casino is certain that they always win given enough bets.     Therefore casinos do not care if a player is going through a winning streak, as long as he is not cheating.

That’s exactly how traders need to think about his trades.    Market is random.    Anything can happen to the current trade.   A trader can increase his probability of winning either through fundamental or technical analysis but the best analysis can never produce a 100% certainty.  In reality, the highest win rate that the best analysis can produce is far from 100%.   However,  as long as the trader has a trading plan that can produce positive expected value,  he can expect consistent result over a reasonably large number of trades,  just like the casino. (more…)

Traders : Don’t Dwell on Mistakes, Focus on Opportunities

  
  Education
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  • Holding onto the baggage of the past, the mistakes of yesterday, is nonproductive. If robs you of your energy and mental and emotional focus on new opportunities. You must see what opportunities exist now and take advantage of them… Focus your time, energy, and money on making money — on new trading opportunities.
  • Yes you need to learn from your mistakes, but don’t dwell on them. Use them as positive learning experiences; as a springboard to becoming a better trader.
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