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Trading Discipline -Anirudh Sethi

  
Analysis, Education
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The foundation of all functional trading strategies is discipline. Without discipline, you’ll be harmed by the risks of active trading. These risks include fear, greed, and missed opportunity. Only by holding yourself accountable and remaining disciplined in this current time will you be ready to achieve your trading goals.

If you put you focus in your trading strategy before learning discipline, the process of your strategy won’t really matter. Discipline is what makes successful trading strategies possible. Discipline is why technical indicators, risk management techniques, and trading principles pay off finally at the end.

It is very easy for traders to feel overwhelmed. Once losses begin to compile, it can often be very tempting to take an early exit. Once gains accumulate, it can be very tempting to press your luck. Disciplined traders aren’t distracted by any particular price movement. They realized that their trading strategies produce net gains over-time when applied correctly.

As the foundation of trading, discipline is what is going to allow you to place your trading knowledge to good use.

 

3 Steps to Becoming a Trading Discipline Master:

Becoming a successful trader must require time and practice. However, there are still quite a lot of things you can do to enhance your level of discipline. When designing an efficient trading strategy, keep these subsequent things in mind:

  1. Have a transparent set of trading discipline rules to follow— If you don’t have guidelines how will you be ready to follow them? You can’t. So, set up some rules and begin to follow them.
  2. Start with something easy and grow your discipline — the efficient trading strategy for you is one you fully understand. Traders are likely to lose their sense of discipline when they are overwhelmed, nervous or confused. Once you begin small and start to possess success following your rules, you’ll gain confidence. Not sure where to start? Find the best trading strategies for your needs
  3. Make Your Goal Following Your Rules – Traders want to get money! However, we need our foundation first. If you can’t build a foundation then you’ll never ever make money trading. So, until you master following your rules, make it your goal to follow the principles, then from there when it’s established then you start to tweak elements of your strategy which will launch you into profitability. Here you’ll learn on the way to fade the momentum in Forex

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EXPLANATIONS OF COMMON TRADING PROBLEMS

  
Analysis, Education
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Why Traders Naturally Cannot Follow Their Trading Plan

  • The brain automatically engages “distinct mechanisms” to handle these two scenarios differently: (i) risky situation where the probabilities are known, and (ii) ambiguous situation with incomplete information where historical probabilities provide only a clue. For the latter, there will be a “uncertainty circuit” that will raise a red flag to say “more information needed”.
  • This results in traders trying to do exactly what they planned while their brain fights them to find more information or to scramble in the face of a clear, but maybe only subconsciously perceived, threat.
  • Just because you decided on taking a long or short trading position, your “brain on uncertainty” doesn’t change how it goes about making judgment calls in uncertain circumstances. The basic process steps through the context-belief-perception cycle because it can’t help it.
  • Uncertainty means — at least to part of your neural and white matter networks — that a black bear, ready to eat all your apples (and you with them) could be just around the corner. The more uncertainty, the more you can realize how much you are relying on contextual clues in order to make sense of the situation.

There are only 3 types of traders.

  
Analysis, Education
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There are only three types of traders, they are defined by how well they execute their trading plan (rules applied to strategy).

A trader that performs worst than their trading plan.  These traders often have a weak understanding and belief in their trading plan.  How they feel is more or as important as making money.  They fail to see past the current trade.

A trader that performs the same as their trading plan.  These traders have a strong understanding and belief in their trading plan.  They get a majority of their satisfaction from making money.  They can see past the current trading day.

Those that perform better than their trading plan.  These traders have spent time in the previous two groups so they not only understand and believe their trading plan, they have 100’s or thousands of experiences that “prove” it to them.  The only satisfaction is following their plan and knowing that the money will follow. They can see past the current trading year.  They find areas and times to be aggressive and times to hold back.

The purpose of trading is to at least perform as well as your trading plan.  Any trader will tell you that he has spent time in all three and is always susceptible to be in any of the categories.  Each category is filled with important lessons, the lesson is often that I do not want to end up back there.

Those that under perform their trading plan are usually not honest with themselves about their level of belief in said trading plan.

"Unlearning" A Lifetime Of Lessons

  
  Education
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unlearning-sign6When it comes to market timing, you’ve got to UNLEARN responses that you’ve spent your whole life learning. Market timing isn’t about you. It is just a strategy that works over time. In other fields, probability plays little if any role. You put in effort, make sure you meet the expectations of the people who pay you, and you’re a success. In the traditional workplace, it makes sense to put a little ego and pride into your work. Your effort and talent often have a direct payoff. But with market timing, the odds can go against you, no matter how much work you put in. The perfect trade can go wrong. That’s hard to accept for most people because it means that being a successful (profitable) market timer or trader, to some extent, is just a matter of the odds randomly working in your favor. But there is good logic behind this randomness. And a successful timing or trading strategy uses this logic to profit. A successful timing strategy will exit losses quickly. It will not stay with a bullish or bearish position to sooth the ego of the strategy’s designer. It will also stay with a successful trade and not exit quickly to lock in a profit. That may feel good for a day, but if the profitable trend lasts two, three, five times longer, you have lost out on a huge profit. Recognizing that odds are part of trading takes some of the glory out of it. But on the other hand, understanding odds helps you cope with inevitable drawdowns.

Building Winning Algorithmic Trading Systems-Kevin J. Davey :Book Review

  
  Education
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kevin

On balance expert systems trump human experts, hence the drive to make trading more systematic and mechanical. The problem is that Building Winning Algorithmic Trading Systems, the title of Kevin J. Davey’s new book (Wiley, 2014), can be tough. Davey recounts his sometimes gut-wrenching journey “from data mining to Monte Carlo simulation to live trading” and provides traders with useful information that will help them avoid his mistakes.

The author joins a rather small fraternity of systems developers who have shared their thoughts, for better or worse, with the reading public. I think here—and this list is in no way meant to be exhaustive—of Howard Bandy (Quantitative Trading Systems), Tushar Chande (Beyond Technical Analysis), Urban Jaekle and Emilio Tomasini (Trading Systems), Perry Kaufman (Trading Systems and Methods), Robert Pardo (The Evaluation and Optimization of Trading Strategies), and Thomas Stridsman (Trading Systems That Work).

The strength of Davey’s book is that it covers the entire process of designing, developing, testing, trading, and monitoring a system. It also includes Easy Language code for three sample strategies, and on the password-protected companion website (the password is given in the book) there are five helpful spreadsheets.
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Trading Your Personality

  
  Education
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It’s been said too many times to count – that you must trade according to your personality. In the movies they might call it “being true to yourself” or something cheesy, but it’s a necessity in this job.

Recently I was asked which chart patterns I prefer to trade, continuation chart patterns or reversal chart patterns. My answer was that while I will actually trade either, I suppose the continuation and breakout type of patterns are the ones I trade more often than reversals or buying on support levels.

I don’t think one setup is superior to the other, they both have their pros and cons, and you have to go with what fits your style best.

Buying on support is an anticipatory play, which may take a few extra days to get moving. It can give you a lower cost basis than another trading strategy, but will require greater patience on your part while you wait for the stock to find traction.

Buying a stock which is breaking out puts you (by definition) in a stock that’s already on the move. This is a confirmation play. You get instant feedback on how your trade is developing and how much momentum the stock has.

The setups you select for your trades need to incorporate your personality tendencies on managing those trades once you are in them. For me, I tend to be a bit impatient and I want to know as soon as possible whether or not I’m right or wrong on a trade. Other traders don’t live in the left lane, and they’re willing to give a stock some time to get moving one way or another. They place their protective stop and turn their attention to something else in the meantime while waiting for their trade to make a move. Personally, I prefer to have my money at risk for the shortest timeframe possible. I really prefer the times when the market conditions are producing breakout plays and continuation patterns like the bull flag or ascending triangle patterns.

So, when you’re doing your homework and looking for quality setups to trade, be sure to consider the ones which fit your personality and your style of trading. Those will be the trades which you ultimately will manage the best.

10 Mental Errors

  
  Education
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The weakest link to any trading strategy is the trader that is suppose to be executing it. It is usually the mental and emotional errors of the trader that cause the 90% of unprofitable traders to lose money. Trading success is determined more by the mindset of the trader than their skills with math, economics, or macro knowledge.

  1. The ego takes over the trader and being right becomes the #1 priority. This causes the trader not to take losses becasue they don’t want to be proven wrong.
  2. Greed causes traders to trade too big because they want to make a huge amount of money in one trade.
  3. Fear causes a trader to exit to early with a very small profit because they are afraid it will disappear.
  4. Discouragement causes a trader to quit before they have given themselves or their systems enough time to win.
  5. Coat tailing is when a trader follows a guru’s trades instead of learning to trade correctly themselves.
  6. Style drift is when a trader changes their method instead of sticking to it and letting it play out when the right market environment emerges.
  7. Arrogance leads a trader to trade too big and take on too much risk, this usually happens after a big winning streak or outsized win. (more…)

Concentration

  
  Education
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ConcentrationYou can be super motivated to trade, filled with deep optimism, have millions of trading capital available, and a solid trading strategy, but if you don’t devote your full concentration to the trade that you have on at the moment, you will lose money.

It’s essential that you learn to concentrate while executing a trade and scrupulously monitor the market action during a trade

Why is concentration difficult? While in school did you have trouble studying in a noisy library? It’s easy to concentrate when we are in a quiet room and when we are calm and at ease. But trading is often chaotic and full of stress. It’s easy to become shaken and lose your ability to concentrate. When you aren’t fully focused on your ongoing experience, it’s easy for self-doubts to creep into your consciousness. You may start having second thoughts and may want to sabotage your trading efforts.

The more you can stay focused on your ongoing experience, the more you can trade effortlessly and skillfully. But how can you concentrate more easily? (more…)

Seven Things Successful Traders Do

  
  Education
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1. Develop information avenues for market conditions and upcoming events

There are many factors that go into driving price action. Quite a few of these things are publicly known and broadcast far in advance. Find yourself a website that offers a calendar of upcoming economic events that can have an affect on currencies you trade. There is always the threat of getting whipsawed out of a position that looks pristine with the impact that news has on the markets.

Listening to analysts and advisers can provide insight on circumstances you may have overlooked. On the other hand, you want to be careful about basing your trading decisions on the information provided by one or two other people. Each trading you decision you make needs to be the right one for you, for your strategy, for your profitability. There are a lot of analysts out there and not all of them have a good grasp on what they are talking about.
 

2. Strive for consistency to generate repeated, positive results

Humans are creatures of habit. Working to turn your habit into instinct will provide a significant edge in your trading analysis. How do you do that? Repetition. A trader must continuously practice their method, edge, and trading circumstances to make it a natural extension of themselves. One could look at a martial artist as a metaphor for this practice. The martial artist practices, practices, and practices more to make their maneuvers an extension of their person so they don’t have to think about them when the time arises. Traders should do the same to incorporate their trading plan and practices into successful execution. (more…)

12 Difference between Losers & Winners Traders

  
  Education
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1.       Losers trade against the trend, but winners trade the impulsive wave of the current trend.

2.       Losers have no money management because they aim quick profit; but winners target steady profits by risking 2 or 3% of their investment.

3.       Losers don’t set stop loss order expecting to be faster then the market in case of reversal; winners know that any time news can make the price reacts suddenly. Therefore use protective stop loss in case of news release.

4.       Losers have no trading plan, they emotionally jump in and out of the market when the price moves; winners build solid entry and exit plans.

5.       Losers cut early their winning trades and let losses run and wipe out their account; but winner s cut quickly their losses. When the trade is positive, they set the stop loss to the break even to protecting their profit. Otherwise, they open to 2 lots to closing the first lot when the stop loss value is reached and let the second winning trade run with a trailing stop from the breakeven until it is touched.

6.       Losers do trade many strategies at the same time, but have mastered none of them; winners master one successful strategy and move to the other.

7.       Losers think the market or the broker is against them, winners don’t fight against the market they try to understand it; they know how to choose between brokers with objective criterions.

8.       Losers think Forex is gambling; but winners develop skills, discipline, self control, and patience, they work hard for being successful traders. Winners learn from their mistakes and constantly improve their main trading strategy.

9.       Losers perform emotional trading after the release of alarming news, winners respect their trading plans.

10.   Losers do overtrading, they even trade at the daily pivot point; winners trade the best opportunities at support or resistance according to the price reaction.

11.   Losers can trade a bad risk reward opportunity; winners aim good risk reward with ratio such as 1/3 or 1/4. A won trade protects their portfolio from several small losses.

12.   Losers use any strategy or expert advisor without back testing it; but winners know that long term profitability is one of the key of Forex trading success. Winners don’t focus on the percentage of winning trades.

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