Archives of “blow out” tag

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Goal Setting

  
  Education
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Competitive goals can lead to burnout. Michael Jordan who is a compulsive competitor, exhausted himself in continually reinventing new ways to spark the fire in his enthusiasm.

Destination goals, such as, “I’ll get to this particular place by x date” tend to be difficult to maintain since the reward exist in the non-existent future.

Process goals, are increments of cumulative experiences that instantly offer rewards in the present of now. For example, when I first started day trading, I made no attempt to make a lot of money immediately. My immediate goal was to learn market dynamics without suffering major financial losses.

I convinced myself that once I learned how to not loose money, probability favors my chances of starting to make money!.

This approach allowed me to (1) maintain my self-confidence, (2) stay in the game without capital blow-out, (3) develop a non-emotional response to rapid fire decision making, (4) handle small draw down with minimum psychological upheaval, (5) visualize the feeling that I will be doing this for the next 50 years, and (6) secure the knowledge that my journey was a life long commitment to learning.

I believe it is good to set smaller challenges that generate rewards in the present and not in the non-existant future and let the long term goal of consistence of profit flow naturally from a great set of process actions, such as system design, indicator design, system testing, placement of trades, etc.

“It is the very foundation of strategy to be able to adapt to any situation and continue fighting without losing heart. You gain this ability by practicing day in and day out with intensity.”
–Miyamoto Musashi

Trading Loss

  
  Education
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Trading-Loss-1Losses are part of any type trading. Some are bigger and some are smaller. Every loss hurts, it does not matter whether it is big or small. Learn to respect them and try to minimize them.

A Planned ‘Entry’ leads to a Planned ‘Exit.’ Before you enter into a trade, you have plenty of time to think about Entries/Exits. Once you are in a trade, you have limited focus and may not make rational decisions for the exits (loss/profit).

If you have planned your trade ‘Entry’ with multiple entries/lots at multiple levels, then ‘ADDING’ or ‘Scaling Up’ is part of the plan. Adding is part your strategy. You must know ‘ADDING’ levels and size BEFORE you place your first order. You must also know how you plan to EXIT this trade.

If you are adding more shares/contracts because of a losing position and DID NOT PLAN then averaging down becomes gambling. Most traders blow out their capital by Forced-Adding process. This obviously leads to many psychological issues (Poor discipline, Gun-Shy:Afraid to pull-trigger, Overtrading, Premature Entries/Exits etc.) If you see a Loss at your ‘STOP LEVEL’, get out of the trade than ADD. Never HOPE that this trade will turn-around. 7 out of 10 times, it will NOT turn-around and will end up in a bigger loss. If you have planned ‘STOP’ ahead of your trade, you will feel confident during the trade and may come back to trading with cooler head at a later time/day, in case of a loss.

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