The ANTICIPATION Phase:  this is where all the left hand chart reading takes place in preparation for the right hand chart battle. It’s the PROCESS that precedes the ACTION to put on a trade. A technical trader anticipates that a past price pattern will repeat again, so he identifies the pattern, locates a current one and determines a suitable match is present.  Technical analysis is nothing more than finding previous price patterns matched with current market conditions.  Traders anticipate such repetitive behavior based on human nature and seek to take advantage of it.

The ACTION phase involves hitting the BUY key based on the previous ANTICIPATION process.  Since no one can tell the future or what the right hand side of the chart will reveal, the ACTION is based on the confidence that the trader will do what is right once a trade is put on, which is to exit gracefully at a pre-determined loss line or exit humbly at a pre-determined profit target , fully accepting either/or, or an OUTCOME between one or the other, depending on current market conditions.

The REINFORCEMENT phase occurs after the trade is closed.  Whether or not the trade is a win, lose, or draw, the self-talk immediately following trade closure is vitally important for the next trade, and even the next series of trades, as future trades can be negatively or positively affected by building pathways to future success.  These pathways are neurologically based and can make or break a successful trading career.  While it is important to ANTICIPATE right side chart OUTCOMES, what is more important is DEVELOPING right side brain reinforcement.

Don’t focus on making money; focus on protecting what you have

  • You need to determine where you will get out before you get in. You need to specify your exit point when you get in. When you set an exit point, you need to know how much money you are willing to lose on this idea and also at what exit point you think you are wrong in your assessment. You should not place a stop too close, because that is likely to lead to multiple losses.
  • Some times, options can provide the same protection as stops.
  • At the portfolio level, it may also be prudent to specify a maximum loss from the starting stake for each year.
  • Be willing to get out quickly when you are wrong.
  • If you are not sure whether you are wrong or right and you have made a loss, partially liquidate 50%. If you continue to be wrong, liquidate 50% more. Then what is left is not a big deal.
  • When your losses are small, you will bet again. When your losses are big, you are afraid to bet and you lose great opportunities.
  • Never risk more than 1% of total equity on any trade is probably a effective money management tool for many.
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