Article: Make This Your Breakout Year
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Are you reading that title and thinking, "I've been trying to do that for so long!" or "Said that last year." "Trading is the hardest thing I have every tried to do." Well, you are what you think! So let's discuss some constructive actions you can do to get on the super highway to success and off the old dirt back road.
This article is more for the traders that think it is impossible to have a winning week. For those of you who have winning weeks and then give it all back, the problem is often one of the following: a different market, not knowing when not to trade which is a trading decision, and/or patience to let your setup come to you.
The first step is to stop trading real money. This will allow you to focus entirely on learning to trade and also stop the psychological damage that usually goes with the frustration of losing.
Do you expect too much?
There are two areas many traders expect too much from. The first area is from your system. Your system's job it to give high probability signals for you to take. Will they all be winners? NO! But they should all have the odds with them. Traders run around trying new things all the time trying to find the system that doesn't miss a trade or signal a loser. Perfectionism is NOT possible in the market. Your job is to take your setups, win some money, lose some money and make more than you lose. Constantly changing your system often shows an unwillingness to deal with an emotional issue that might be holding you back. The most common one is taking a loss for what it is and not a direct attack on your ego.
The second area is from yourself and where you are on the learning curve. Too many traders think trading looks easy and wonder why they can't "get it" even though they have heard "Trading is one of the hardest but yet most rewarding endeavors you will ever learn to do." Accept where you are on the learning curve now. Don't put a time deadline on yourself as to when you will be ready to trade live. Once you accept that it will happen when it happens, the learning becomes so much easier without the pressure.
Settle on a system and have setup rules
When watching the charts posted daily, you will see traders progress through the learning process of setting up what works for them. Setups and exits are working. Then the market changes, so they change their charts as they go off in search of the perfect system. There is NO such thing!! If you do change things when at this stage of learning, it is recommended you run it side by side your normal charts. By doing this you transfer your knowledge to the newly defined indicators and may also better judge how well they work. The traders who are constantly change their charts or system, do not believe THEY are the Holy Grail they so desperately seek. Nobody or anything else. You control whether money goes into or out of your pocket.
Your system should be in your comfort zone. Do you like scalping, intraday trend or counter trend, long or short time frames, etc? Trying to learn a system that isn't in your comfort zone usually doesn't work as you are now fighting the emotions of being out of your comfort zone and the emotions of trading. Finding the answers takes time.
Start with a trading system that makes sense and talks to you when you look at a chart. Many systems work. Pick one and learn it. Stick with it until you know it well. Not just the basics, but learn all the little nuances too. You will develop a feel for what the market might be going to do next. Over time you will add and remove tools from your trading system to come up with your own trading cocktail. The daily posts show the confluence of all the various methods. They show the same area for entries/exits, whether the method is price action, pivots, trend lines, Fibonacci levels, CCI, bands or 2XBline, etc. A good system will usually work on all time frames and with most markets with little or no adjusting.
Now you have a system and it is time to pick a setup. It is recommended when you start out to pick a setup that it is with the trend. By doing this, entries and exits are more forgiving. Often the setup time frame is picked by the reward you wish to receive by being right. All you need to own is one setup to be profitable. You do not need every point the market is offering. Going after all the points the market offers, will cause you to try to trade too many different types of setups at once. Pick ONE setup that you like and take it to profitability in your real account. Once that is accomplished, then you can add another setup. Find the easiest setup for you to see and practice it with simulation trading before trading the setup in your real account. Watch any other trade setup as a future one to learn. Do not sit there and feel emotions over missed money. Missed money is better than lost money. Patience -- you can't learn to run before you can even walk.
Are you marking charts?
By annotating your charts, you are training your brain to see your setup on your charts with your colors. These should be confirmed as being correct. You wouldn't want to have to undo all that learning from a misunderstanding. After two weeks you will find it much easier to notice things without having them marked on the chart.
By posting charts marked with your entry/exit for others to evaluate, constructive comments may be made that might have kept you out of the losing trade or in a winning trade longer, thereby increasing your knowledge. It also shows an acceptance on your part to making mistakes.
Do you have rules for losers?
A loss is not a personal attack on your ego. It is part of the business of trading. Keep your losses small. When you do have a loss, learn to immediately forget it and ask yourself, "Do I want to reenter? Is my setup still valid?"
An example of rules might be:
1) One trade not following rules -- take a break - no questions asked.
2) Three losers for the day -- Quit! Accept that, for whatever reason, you are not dancing with the market. You are just getting your toes stepped on. To continue trading often does some emotional damage that will have to be dealt with later. Take the rest of day off, or just observe and learn. Later analysis might show 1) not your type of market 2) you didn't have the patience to wait for your setup to come to you or 3) lack of focus, i.e. phone call needing to be made, errand that has to be run. Basically, the feeling that you should be doing something else is usually not a good time to trade.
There is a story about a trader who had done very well. He rewarded himself by purchasing a fancy new car which he picked the from the dealer on a Friday morning. He made the decision to trade that day and enjoy the car after markets closed. He experienced his worst losing day in months because his focus was on playing with the new car in the parking lot and not on what his charts were telling him.
The other big focus distraction can be results thinking. Is this trade going to be a winner or loser? If your results for today will make your first profitable week, or month, then you are focused on that and not what the market is telling you. Chances are your trading will not be profitable. Even when you are in a trade, if you find yourself thinking of anything else other than the listening to the market, then it is time to exit the trade! Try asking yourself questions to maintain your focus.
Have you practiced by paper trading first?
Today with the ability to practice, practice, practice before using real money, there is no reason to pay the expensive tuition often required years ago. Many traders feel it isn't the same emotionally, and they are right unless you have the correct mental approach to paper trading. You want to have the same attitude towards paper trading that athletes have for all the training they do for their one race that counts for the Olympic gold.
It is practice that not only trains the brain to see your setups without thinking, but also by using discipline numbers, will give you direct feedback on how you did with your system with what the market was offering that day. By tracking these discipline numbers daily and consistently doing well, you will find you have more confidence in yourself and your chosen setup when you go live in your real account. Do not go live until you can trade the various types of markets successfully at actual speed. If you don't use actual speed for your final "test", you might find yourself doubting if you learned patience to wait for your setup.
Have you kept track of your progress?
Don't compare yourself to others...there is always someone better. Compare your progress to yourself and where you were a month ago. You can't know where you are now if you don't know where you were, if you don't keep a record. By tracking your progress, you will know when you are ready to go live and have the confidence to do so.
There was a trader who was so proud of his 5 points for the day when he first started trading futures. Then someone said they had made 20. What an attitude shift on his part! He went from being elated over a job well done to 'oh my, what was wrong to have missed that much.' Luckily a lesson was learned that day. He is still learning. The trader with the 20 points was the goal he was working for. How silly for him to expect to already be there!
Do you have trouble pulling the trigger?
This can be a problem both in simulation and live. It usually says you don't have total confidence in yourself and/or your system. If you have been keeping track of your progress as suggested above, just tell yourself, you can't win the game if you aren't even playing! Wait for your setup as defined by your rules - you know, the one you can see from across the room - and then acknowledge your fear but tell yourself you have done your homework, you have paper traded profitably, you have learned how to manage a trade, and then hit the order button!
Switching from paper trading to a real account
When you feel you are ready, start out with one trade a day. It is amazing how much this will reduce the pressure of trading a full day and will also help you pick your best setups and not overtrade. When you have a couple of consecutive weeks (months) of profitability or feel comfortable then go to two trades a day. At each step you may unveil more emotional issues to deal with. Accepting losses seems to be the biggest problem. Not being able to accept losses as part of the business of trading and taking them as a personal blow to your ego is why many run around tweaking their system, trying new systems etc. Stop, and instead of running around, just deal with the problem of accepting losses. No one is saying you have to like losing. What is being said is that you need to accept losses as part of the game and not a personal attack on your ego. Be happy you took the loss because you did your main job - preserved your capital to be around for tomorrow.
Do you put in quality screen time?
You feel you are staring at charts for hours on end and you should know how to trade by now. Not true. Quality time is more important than quantity time. Have a plan on what you are going to work on when you sit down. Make sure to include reviewing losers. I know you rather go over your winners but you will learn more from your losers. Entries, exits, staying in a trend trade are a few of the things you might decide to work on. If you are having trouble in an area, post charts and ask questions of fellow traders. If you don't know what you are missing, how can you progress? Silliest thing is to do the same old thing and expect different results.
You are what you think!
Discourage negative thinking! You are what you think. Don't use "I can't..., or I will never....". If you think you can't, then you won't and the whole process of learning becomes harder. If you catch yourself making negative statements, add "until now" to the sentence as Nqoos recommends. This at least tells the brain there is hope you can. Look in the mirror in the morning and tell yourself, "I am a successful trader." Be who you want to be. Stop negative thoughts by thinking positive ones.
- Treat each trade like the first one of the day.
- Focus on the trade and what the market is telling you.
- Keep your losses small. Let the winners run.
- Do your homework by marking charts and posting for discussion.
- Ask questions -- there is no such thing as a silly one.
- You will see the result in your account balance.
You, and only you, can make this year your breakout year!
Article by Judy MacKeigan (Buffy). Buffy can be reached in the BLine chat room #2 in the Ensign Windows program or by using the free EChat program.
Last modified 10/27/08 9:48 PM
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