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