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The MASTER TRADER

  
  Education
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The MASTER TRADER…
…is rational.  He does not trade for egotistical reasons.
…is skilled in self-mastery thus able to deal with market reality.
…is able to see through the noise in the markets and find low-risk, high reward trade opportunities.
…is hard working and has the discipline to follow through with well thought out plans.
…is committed to his methodology and able to cut losses when called upon to do so.
…is humbled by his need to rely on the support of others.
…is adaptable to market changes.
…is up to the challenge of the trading game.  Enjoys profits and endures losses.
…is able to handle both success and failure without self-destructing. 

Psychology and Gaining Confidence

  
  Education
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Hi All,

There has been a lot of talk on the  psychology of trading and getting rid of fear etc. I think that one way to help is to understand the performance parameters of your trading system and this means extensive
backtesting and changing the way you think when entering a trade.

Now whenever I have placed a trade I have assumed that I was wrong and so if the market did not immediately prove my position correct I would be taking measures to reduce my position and, if necessary,
get out. This kept my losses small and when correct I was able to do nothing and just move my stop up. This is contrary to the way most people trade in that they place a trade assuming they are right and wait
for the market to prove them wrong.

IAlso if you have backtested a system thoroughly you will know what percentage of profitable trades you can expect. From this you can also determine the number of consecutive losing trades that you can
expect for a given number of trades. The formula is quite straight forward and is:
Consecutive losses = LN(N)/-LN(S) where
N = Number of expected trades
S = (100-strike rate %)/100

Now if you place say 30 trades a month and you have a 50% success rate, you can expect to have 5 consecutive losing trades.

But the more trades you place the bigger the chance of consecutive losing runs. So if our trader has 12 x 30 trades a year = 360 they can expect to have nearly 9 consecutive losing trades.

Of course the opposite is also true in that you could expect to get 9 consecutive winning trades as well. The problem is that I have seen many systems that have only a 40% success rate and in the same
example above this would result in 12 consecutive losing trades. Psychologically this is very difficult to handle yet if you had backtested your system thoroughly it is easily seen that this is to be expected and
means that your system is operating within normal parameters.

Food for thought I hope

Top Ten Reasons Traders Lose Their Discipline

  
  Education
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Losing discipline is not a trading problem; it is the common result of a number of trading-related problems. Here are the most common sources of loss of discipline, culled from my work with traders:

10) Environmental distractions and boredom cause a lack of focus;

9) Fatigue and mental overload create a loss of concentration;

8) Overconfidence follows a string of successes;

7) Unwillingness to accept losses, leading to alterations of trade plans after the trade has gone into the red;

6) Loss of confidence in one’s trading plan/strategy because it has not been adequately tested and battle-tested;

5) Personality traits that lead to impulsivity and low frustration tolerance in stressful situations;

4) Situational performance pressures, such as trading slumps and increased personal expenses, that change how traders trade (putting P/L ahead of making good trades);

3) Trading positions that are excessive for the account size, created exaggerated P/L swings and emotional reactions;

2) Not having a clearly defined trading plan/strategy in the first place;

1) Trading a time frame, style, or market that does not match your talents, skills, risk tolerance, and personality.

The 7 Emotions of the Winning Trader

  
  Education

Choose the emotions that you participate in carefully.

  1. Contentment: The trader must be satisfied that they are trading the right system for their risk tolerance and beliefs about the market. Their should be no internal conflict about your trading method. Your entries and exits should flow out with emotional stability.
  2. Hopefulness: A trader must have the belief that he will win in the long term and it is worth the effort to capture the future profits. If you don’t believe in your trading method you won’t make it in the markets.
  3. Optimism: Winning traders believe that they are always getting closer to that next big winner or string of wins.
  4. Positive Expectations: To be successful the trader must expect that in the long run their robust system will produce profits and not lose faith in what they are doing during draw downs.
  5. Enthusiasm: The winning trader enjoys the trading process and loves playing the game that is the markets.  We need the energy of inspiration to drive our work ethic.
  6. Passion: The traders that end up as the big winners are the ones that have the drive to keep learning, keep growing, and put in the work needed because of the energy that comes from their passion. A focused passion is what  gives birth to perseverance and success.

  7. Empowerment: The best traders in the market can not even imagine doing anything else but trading. They truly get joy from the freedom of being a trader and love what they do. They know who they are , they know what they need to do to be successful, and they do it. They save all their energy from internal conflict and focus like a laser on winning. They pick themselves to be winners in the markets.

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