| Trading is not an exact science. You can't do X and | | | | stage where you can comfortably accept loss in the |
| get Y every time. It is as much an art as it is | | | | knowledge that your method of trading will produce |
| anything else. There is no magic formula. Trading is all | | | | profits in the longer term is the state we have to |
| about probability. It is the art of correctly applying a | | | | aspire to. |
| set of carefully thought out rules and allocating the | | | | Whenever I think of risk management I always think |
| probability of that event to result in success. | | | | of an article I read on 925 CTA programs between |
| Each trade is an independent event. The market | | | | 1974-1995. It essentially confirmed what I have long |
| does not remember if you lost or made dollars the | | | | held to be true. To summarize the report, of all the |
| last time you traded. | | | | CTA's who managed funds, the most consistently |
| The way you approach the market psychologically | | | | profitable were the ones with the best risk |
| has as much to do with your success as any trading | | | | management systems. |
| plan. | | | | To trade successfully you have to take a long look |
| Risk management is crucial if you want to have any | | | | at yourself. Ask and answer the following questions. |
| hope of becoming a successful trader. Matching a | | | | How much equity do I need to start? How much |
| method of trading with your personality is the only | | | | should I risk on any one trade? Am I |
| way you will ever feel comfortable in the markets. | | | | undercapitalized? |
| An adequately funded account is necessary -- not | | | | As a trader you will probably fall into two main |
| only to be able to take the trades you want, but | | | | categories, traders who like to trade the breakout |
| also so you don't feel every trade is a live or die | | | | and traders who like to join the trend once |
| situation. | | | | established. We could also add congestion traders, |
| The journey to the road of successful trading will | | | | reversal type traders and mechanical signal traders |
| make you confront your deepest fears. Your armor | | | | but for the vast majority of traders you are going to |
| on this journey will be confidence, knowledge and | | | | fall into one of the two categories. |
| belief in yourself that you can achieve your dreams. | | | | If you are a trend trader, you like to define a trend |
| Never, equate your success or failure in the markets | | | | and then find a way in. This may be with the aid of |
| with who you are as a person. | | | | fibonacci retracement levels, moving averages, Gann |
| As humans we have a natural tendency to try and | | | | or one of the other many indicators available today. |
| influence our surroundings and events we take part | | | | Your goal is to enter the trend as early as possible |
| in. This is one reason we, as a species, have | | | | with the least amount of risk. |
| succeeded but it is also one of the fundamental flaws | | | | Breakout traders like to enter the market on the |
| we all have when trying to achieve success as a | | | | breakout of a previously identified range. This may |
| traders. | | | | be support/resistance areas, rectangles, triangles or |
| As traders we have to realize we have no control | | | | one of the many other chart patterns. The secret to |
| over the market and if we accept that then we | | | | this type of trading is to determine a valid break. |
| have to accept that we can not influence the | | | | During this lesson I have tried to give you a glimpse |
| direction of the market. | | | | into the world of trading. I have also taken a slightly |
| The problem of course is we have a tendency to try | | | | negative stance, as I don't want you to get |
| and succeed and when inevitable losses come, it is | | | | unrealistic expectations of what to expect. |
| easy to let those losses effect us emotionally. | | | | On the more positive side, trading is a fascinating |
| Becoming euphoric when you hit a winning streak is | | | | world, which will allow you to really exercise your |
| almost as detrimental as becoming depressed when | | | | brain. There is no other arena where you get to play |
| you have a string of losses. | | | | with some of the best minds in the world on a level |
| We as traders have to try and achieve the state of | | | | playing field. |
| impartiality. We have to accept that we will have | | | | Once mastered, if you can ever use that term then |
| losses as readily as we will have wins. Reaching the | | | | the possibilities are endless. |