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Control in Trading

New traders may get lucky for awhile and bad traders may win big in the short term but in the long term the market gives every trader exactly what they have earned. While traders can win in the long term with many different types of robust trading methods a trader with no self control will not even survive long, they will not be able to make a plan and follow it, they will let fear and greed over take their mind and end up with large losses and the belief  “trading is just too hard” but trading is not hard what is hard is self control, discipline, focus, and keeping the ego in check.

What a trader can control:

  1. Their entry.
  2. Their exit.
  3. Their trading plan.
  4. Their emotions.
  5. Their ego.
  6. Their method.
  7. Their position size.
  8. Whether to trade or not to trade.
  9. How much you are willing to risk per trade.
  10. Themselves.

What a trader can not control.

  1. Market movements.
  2. Volatility.
  3. The trend.
  4. Whip saws.
  5. Political decisions.
  6. News Headlines.
  7. Macro economics.
  8. Every other traders decisions.
  9. The future.
  10. The past.

One  key to trading is to only focus on what you can control, do not worry and stress about what you can not control, and most importantly, be able to know the difference.

What As A Trader You can Control and What You Can not ?

We can control:
How much we risk per trade.
How big a position size we take.
What time frame we trade.
What market we trade.
Our style of trading.
Whether we stick with our trading plan or go off of it.
If we honor our stop losses and trailing stops.
How we react to a winning or losing trade.

 We can not control:

Whip saws when the trend reverses on us.
Gaps in opening prices both up and down.
Headline risk.
Natural disasters.
Whether a trend continues or reverses the moment we open a position.
Whether any individual trade wins or loses.
How many winning or losing trades we have in a row.
 The battle for your long term trading success is won or loss in your head. The decision to whether keep going after losing money or to quit is made at the point of maximum frustration with the markets. To keep going you have to keep positive, and keep trading. Knowing the difference between you making a mistake or the market simple not matching your style will go a long way in keeping down your stress and negative self talk.

Donchian rules

Richard Donchian is known as the father of trend following. His original trend following ideas form the basis for all trend following success that has followed. Below in an excerpt from an article written in 1995 about his 5 and 20 day moving average system:

Title: Donchian’s five- and 20-day moving averages. 
Author: Richard Donchian
Publication: Futures (Cedar Falls, Iowa) (Magazine/Journal)
Date: November 15, 1995
Publisher: Oster Communications, Inc.
Volume: v24 Issue: n13 Page: p32: ISSN: 0746-2468

………………………………………………………………………………….
On Wall Street there are two conflicting adages:

1. “You’ll never go broke taking a profit.”

2. “Cut your losses short and let your profits ride.”

Experience has shown that in commodities trading, the first of these “old saws” is dangerous and misleading, while the second may well be regarded as the one lesson the inexperienced commodity trader should learn if he wishes to have a better-than-even chance to come out ahead.

Every well-designed, trend-following, loss-limiting method for trading in futures (or stocks) rests on the basic principle that a trend in either direction, once established, has a strong tendency to persist, at least for a time. Among the many trend-following approaches now in use are the Dow Theory, point-and-figure chart techniques, swing methods (other than the Dow Theory), trendline methods, weekly-rule methods and moving average methods. We’ll focus on moving average methods and, in particular, the comparatively simple five- and 20-day moving average method.

The Method (more…)

Trading Mantra

There are some things we can control as traders and some things that we can not. We need to learn the difference to limit our frustration and win in this game.

We can control:
How much we risk per trade.
How big a position size we take.
What time frame we trade.
What market we trade.
Our style of trading.
Whether we stick with our trading plan or go off of it.
If we honor our stop losses and trailing stops.
How we react to a winning or losing trade.

 

 
We can not control:
Whip saws when the trend reverses on us.
Gaps in opening prices both up and down.
Headline risk.
Natural disasters.
Whether a trend continues or reverses the moment we open a position.
Whether any individual trade wins or loses.
How many winning or losing trades we have in a row.
 

 

The battle for your long term trading success is won or loss in your head. The decision to whether keep going after losing money or to quit is made at the point of maximum frustration with the markets. To keep going you have to keep positive, and keep trading. Knowing the difference between you making a mistake or the market simple not matching your style will go a long way in keeping down your stress and negative self talk.