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