Let’s take a break and look at some trading psychology tips. Today our ideas are coming from one of my favorite books that’s not really trading-oriented. We’re going to be looking at a few highlights from a book called “The Power Of Focus”, by Jack Canfield, Mark Hansen, and Les Hewitt. While there’s no way to do the book justice in our limited space here, hopefully you’ll take away some of the more important pieces of the book. And best of all, you’ll be able to apply them immediately.
Your habits will determine your future. This is not news to any of us, but what I found interesting was something of an aside in the book. The book contends that the results of bad habits don’t show up until well after the habit has been learned. That’s unfortunate too, as we all know that it’s incredibly difficult to unlearn something. The implication is that that you’ll be engaging in a destructive behavior, but you may not know it until it’s far too late to actually do anything about it. In fact, up to 90% of your everyday behavior is based on habits. Have you made it a habit to spend an hour a day preparing and doing trade research? Have you committed to waking up an hour earlier to plan your trading or work day? Or do you hit the snooze button a few times, and miss out on reviewing the news and charts of your positions? Habits are the key to success.
Your goals must have a number. And this doesn’t just mean the total returns on your trades, as an overall goal is still too ambiguous to actually use in making daily plans. You need to know how many trades per day, week, or month it will take to achieve your goal. Of course, you’ll also need to know what type of return you need to average on each trade to reach that goal. As the book states so accurately, “a goal without a number is just a slogan.”
Take decisive action. They say 80% of success is showing up, and that’s probably a pretty good rule of thumb. So how does one “show up” to be a trader? By taking trading action! And if you’re not taking the action you know you should be taking, you absolutely must understand and admit that you’re procrastinating. Stings, doesn’t it? But recognizing the truth is the first step to attacking any problem. The book explains six reasons for procrastination; think about which ones apply to you.
1) You’re bored.
2) You’re overwhelmed.
3) Your confidence has slipped.
4) You have low self-esteem.
5) You don’t enjoy what you do.
6) You’re easily distracted. (more…)
RULE # 1:USE MONEY YOU CAN AFFORD TO LOSE
If you are trading With funds
1) You need for some family projects, you are doomed to failure.this is because you wont be able to enjoy the mental freedom to make sound trading decisions.
2)your trading funds should be viewed as money you are willing to lose. your position should be careful analysed so you don’t jeopardize other funds or assets.
3)one of the keys to successful trading is mental independance.
4)you have got to trade outside influencing factors and that means your trading freedom must not be influenced by the fear of losing money you really have earmarked for a specific need.
RULE # 2: KNOW YOURSELF
1)you need an objective temperament, an ability to control emotions and carry a position without losing sleep. Although trading discipline can be developed, the successful traders are unemotional about their positions.
2)there are many exciting things happening in the market everyday so it takes a hard nosed type of attitude and an ability to stand above short term circumstances.If you do not have this attitude you will be changing your mind and your positions every few minutes.
RULE # 3: START SMALL
1)Test your trading ability by making paper trades. then begin to trade small.start with mini account.
2) beginning traders should learn the mechanics of trading before graduating to more volatile contracts.
RULE # 4O NOT OVER COMMIT
1)One rule of thumb is to keep three times the money in your margin account than is needed for that particular position.Reduce your position if necessary to confirm to that rule.this rule helps you avoid trading decisions based on the amount of money in your margin account.
2) If you are under margined you may be forced to liquidate a position early at a costly loss that could have been avoided.
RULE # 5: ISOLATE YOUR TRADING FROM YOUR DESIRE FOR PROFIT.
1)do not hope for a move so much that your trade is based on hope. The successful trader is able to isolate his trading from his emotion. Although hope is a great virtue in other areas of life, it can be a real hindrance to a trader.
2)When hoping that the market will turn around in their favor beginners often violate basic trading rules. (more…)