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11 Steps for Successful Trading

  
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  1. You must have a Mission Statement.  What’s your real motivation behind your trading?
  2. You must spell out your trading/investing Goals and Objectives.  You cannot get from A to Bvery easily unless you truly know where B is.
  3.  You must spell out your Trading/Investing Beliefs and Market Beliefs.  Please remember this very important statement, “You cannot trade the market.  You can only trade your beliefs about the market.”  Therefore, it’s a very good idea to identify your beliefs about the market first. 
  4.  Spell out your exact Trading Strategies.  How do you go about analyzing the market and what are the key things you look at in your market analysis?  What trade set-ups do you use before entry? What are your timing signals for market entry?  What is your catastrophe stop loss?  Where and when will you take profits?  Will you use a trailing stop?  Will you scale into the market?  What exactly is your trade management system once you’re into the trade?    
  5.  What are your Position Sizing Strategies?  This is part of money management and is very important in reaching your trading goals and objectives in terms of profitability. 
  6. What are your typical Psychological Problems in following your trading plan?  What is your plan for psychological management for dealing with these problems?
  7. What are your Daily Trading Procedures?  What should you be doing on a daily basis, not only to become organized, but to become methodical in everything you do as a trader, on a day-to-day basis.
  8. Do you have an Education Plan to Help Improve Yourself on a continuing basis?  If not, you should have one.  Like anything else in life, you need to be continually working on yourself to become better and better.
  9. What is your Disaster Plan?  What can go wrong, and how will you deal with each item?
  10. What is your Planned Income and Budget for Trading Expenses?  This is pretty simple and straightforward; write down everything you can think of and try to be as realistic as possible.
  11.  How do you Prevent Trading Mistakes and Avoid Repeating Them… if they occur?  Really sit back and think about this and write down any and all mistakes that you might make during your trading.  Once you do that, come up with a solution to each potential mistake that you might make so you don’t allow that to happen.

Confidence: How to Apply the Goldilocks Principle as a Trader Read more

  
  Education
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An absolutely crucial characteristic all successful traders share is confidence. Success is only achieved when a trader has the confidence to execute his ideas without being overcome by emotional fears. I believe that creating a game plan and sticking to it will foster confidence in the long run because the trader defines all aspects of his trade that he can control; the rest is left to the market. Confidence based on winning trades is fleeting, but confidence based on the ability to objectively execute ideas leads to long-term, unbreakable confidence.
Yet I often see two primary psychological problems that traders experience with regard to confidence. There is overconfidence and underconfidence, both of which lead to very serious complications in one’s trading. Overconfidence occurs when the trader has had a string of winners and feels indestructible. A common statement of reflection once destruction occurs is usually something like: “I thought I knew more than the markets” or “I thought I had trading all figured out.” The trader usually begins to get sloppy in their trading and takes poor risk/reward trades, believing it will just work out for them. Hard-earned profits can disappear in a very short time if overconfidence is present — unless the trader has learned the techniques to recognize this and nip it in the bud quickly. (more…)

Psychological problems

  
  Education
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There are two parts to fixing any psychological problems:
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1. Recognizing that it exists
2. Accepting it so you can move on
In trading, this is where it’s so crucial to take responsibility for your own actions because it induces change and you can start making improvements. If you don’t recognize and accept a problem, then you won’t get anywhere!
What are some of these issues  ? Here are a few along with their causes and/or effects:
1. Anger over a losing trade – Traders usually feel as if they are victims of the market. This is usually because they either 1) care too much about the trade and/or 2) have unrealistic expectations. They seek approval from the markets, something the markets cannot provide.
2. Trading too much – Traders that do this have some personal need to “conquer” the market. The sole motivation here is greed and about “getting even” with the market. It is impossible to get “even” with the market.
3. Trading the wrong size – Traders ignore or don’t recognize the risk of each trade or do not understand money management. There is no personal responsibility here.
4. PMSing after the day is over – Traders are on a wild emotional roller coaster that is fueled by a plethora of emotions ranging throughout the spectrum. Focus is taken off of the process and is placed too heavily on the money. These people are very irritable akin to the symptoms of premenstrual syndrome. (more…)

The Trading Mindset & Common Psychological Issues

  
  Education
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Plutchik’s Wheel of Emotions


How does someone know that they reached the trader’s mindset? Here are a few characteristics:

1. No anger whatsoever.
2. Confidence and being in control of the self
3. A sense of not forcing the markets
4. An absence of feeling victimized by the markets
5. Trading with money you can afford to risk
6. Trading using a chosen approach or system
7. Not influenced by others
8. Trading is enjoyable
9. Accepting both winning and losing trades equally
10. An open mind approach at all times
11. Equity curve grows as skills improve
12. Constantly learning on a daily basis
13. Consistently aligning trades with the market’s direction
14. Ability to focus on the present reality
15. Taking full responsibility for your actions

Developing the trader’s mindset takes time. It usually takes traders 2-5 years before they can read through the above list and honestly say that it describes themselves.

Let’s take 100 traders using the same trading system or approach. It is highly likely that no two of them will trade it exactly the same way in all aspects. Why is this? Because our mindsets, beliefs, and understandings are unique. It is no surprise that most traders fail and the reason why is because they lack the trader’s mindset. This article covers those in Stage III and IV within the 4 Stages of Learning. More importantly, it applies to those that survived Stage II.

There are two parts to fixing any psychological problems:

1. Recognizing that it exists
2. Accepting it so you can move on

In trading, this is where it’s so crucial to take responsibility for your own actions because it induces change and you can start making improvements. If you don’t recognize and accept a problem, then you won’t get anywhere!

What are some of these issues that I speak of? Here are a few along with their causes and/or effects:

1. Anger over a losing trade – Traders usually feel as if they are victims of the market. This is usually because they either 1) care too much about the trade and/or 2) have unrealistic expectations. They seek approval from the markets, something the markets cannot provide.

2. Trading too much – Traders that do this have some personal need to “conquer” the market. The sole motivation here is greed and about “getting even” with the market. It is impossible to get “even” with the market.

3. Trading the wrong size – Traders ignore or don’t recognize the risk of each trade or do not understand money management. There is no personal responsibility here.

4. PMSing after the day is over – Traders are on a wild emotional roller coaster that is fueled by a plethora of emotions ranging throughout the spectrum. Focus is taken off of the process and is placed too heavily on the money. These people are very irritable akin to the symptoms of premenstrual syndrome.

5. Using money you can’t afford to lose – Usually, a trader is pinning his/her last hopes to make money. Traders fear “losing” the “last best opportunity”. Self-discipline is quickly forgotten but the power of greed drives them, usually over a cliff.

6. Wishing, hoping, or praying – Do this in church, but leave this out of the market. Traders do not take control of their trades and cannot accept the present reality of what’s happening in the market.

7. Getting high after a huge win – These traders tie their self-worth to their success in the markets or by the value of their account. Usually, these folks have an unrealistic feeling of being “in control” of the markets. A huge loss usually sobers them up pretty quickly.

8. Adding to a losing position – Also known as doubling, tripling, quadrupling down, typically, this means that the trader does not want to admit the trade is wrong. The trader’s ego is at stake and #6 comes into effect as the trader is hoping the markets will “work in their favor”.

9. Compulsive trading – Similar to #2, except these traders have an addiction to trading and quite possibly gambling issues. They need to constantly be trading, even if there is no rational reason to do so. They are always excited whether they win or lose.

10. Afraid of “pulling the trigger” – This usually means that the trader does not have a system or approach already in place. They have not calculated risk/reward and many times, these trades are unplanned. This also comes after a string of losses. They don’t want to be “wrong again”. There is no trust from within. (more…)

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