Emotions – the rascal spoiler to your trades

There are already many books and articles written on similar topics such as:-

•  Secrets to profitable trading
•  Sure fire trading methods
•  Make money strategies to trading
•  etc…

Hello! There is no single system that can be 100% perfect because we are dealing in human emotions in trading – forex, options, stocks, equities, commodities and so on.

The key to successful trading is to be able to control your emotions in your trades. To be void of emotions is very difficult. Many will agree that by just investing in the stock market is highly risky because the prices move up and down. We know that many so called “Big Boys” are behind the moves but holding and not selling usually result in massive losses (on paper at least). Prices that went way below your entry price may not go back to the same level for a long time.

My view is every trade consists of majority emotionally bias and minority mechanics base. However, having said that, how then do we control our emotions? The key is to set each and every trade automatically.

1.  Pick a stock to buy systematically base on charts (you got to join a charting school to learn the technique)
2.  Do not time your entry (purchase) base on what you think (that’s emotion).
3.  Do not time your entry base on what you heard (that’s also emotion).
4.  Time your entry base on the system’s rules (from the chart school). Set the entry automatically.
5.  Enter “stop” (to cut loss or protect profit) everyday. Set it automatically.

So all you got to do now is to instill discipline upon yourself to do the above tasks. That is the only difficulty left. Otherwise, you will do more harm buying on listening to news, rumours, your friend’s friend tips, etc. Or, you will not sell even when making good profits on paper because your broker convinced you that there will be more upside.

Let me share with you some simple philosophies of some great traders. First, I pick a few sentences from Jesse Livermore’s book “How to trade in stocks”

All through time people have basically acted and reacted the same way in the market as a result of greed, fear, ignorance and hope. That is why the numerical formations and chart patterns recur on a constant basis. Formula for success: -      Market timing -      Money management -      Emotional control p/s: go to end of this page for more quotes from his book.

Next, I picked an article from an Australian forex trader’s site (see below box) and the supposedly secrets can be summed up like this:

4 of 9 points is about trading dynamics and the rest are emotionally linked

NIAL FULLER’s Learn To Trade The market  http://www.learntotradethemarket.com/ PICK ONE trading method  ANTICIPATE your trades MAKE A DIARY OF YOUR TRADES DON’T LISTEN  DON’T GET GREEDY  GET SOME BALL  DON’T CHANGE  MAKE SURE YOU CAN SLEEP  ALWAYS PAY p/s: go to end of this page for more

If you are a Malaysian and like to learn more:

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From Jesse Livermore’s book “How to trade in stocks” Let the market confirm your opinion. Ignore personal opinion. Markets never wrong. Don’t become an “involuntary investor”. Never average losses! Be very fearful of abnormal movements. When you see a danger signal, don’t argue with it. Get out quickly. Profits always take care of themselves but losses never do. One cannot be successful by speculating everyday or every week; that there are only a few times a year to speculate. Interest in too many stocks at one time can be a costly mistake. FOLLOW THE LEADERS If you cannot make money out of the leading active stocks, you are not going to make money out of other stocks.  MONEY MANAGEMENT If you are fortunate enough to double your capital, draw out half for reserve. Use uptrend and downtrend rather than bullish or bearish stage. MARKET TIMING Watch for pivotal points – support and resistance points. Never too anxious to cash in your profits but play the deal out to the end. Why would you be afraid of losing something you never really had? When the upward trend had reached its pivotal point, there would be danger signals. PATIENCE Wait until the preponderance of evidence is in your favour. Use Top Down Trading. Be patient. Top Down = the market – the industry – the sister companies. Check and follow the line of least resistance. Understand the Industry Group Movement is essential to successful trading.   FAVOUR THE STRONGEST STOCKS IN THE STRONGEST INDUSTRY. Follow the current leader. This may not always be the conventional leader of the group. Sometimes, a well-managed stock in the group will assume leadership. SELLING High price is never a timing signal to sell a stock. Just because a stock is selling at a high price does not mean it won’t go higher. Similarly, just because a stock has fallen in price does not mean it won’t go lower. NEVER BUY ON DECLINES. NEVER SHORT ON RALLIES.   Familiarize with the actions of the past for anticipating future movements - repetition of similar price movements. Don’t anticipate moves with your hard earned money until confirming signals from the market that your judgment is correct. Distribution down – stocks falter as they rally back to the old high because public holding on to falling stocks will wait until it rallies back to the price where they bought so they can sell it to get their money back MONEY MANAGEMENT 30-30-40 rule Never sustain in loss of more than 10% of invested capital Margin call on declining position – never cover; sell out! Cash reserve – you do not have to be in the market all the time Stop loss – don’t try to figure out why it is going in the wrong direction. The fact that it is losing is enough evidence to close out. Never buy and hold forever – nothing is permanent. Things change.     Avoid cheap stocks

NIAL FULLER’s Learn To Trade The market  http://www.learntotradethemarket.com/  The Secrets to Profitable Forex Trading Today I am officially letting the “cat out of the bag”; I am going to give you my 9 BIG secrets to profitable trading…OK OK, they aren’t really “secrets”, but they are 9 very important things I personally do or have done that have helped me become a better trader. Unfortunately, there are no “secrets” to making money in the markets, but there are things that you need to do that you most likely aren’t doing, which will greatly increase your odds of becoming a profitable trader. So, without further ado, here are my 9 not-so-secret secrets to successful Forex trading: 1) PICK ONE trading method and keep it clean and simple. Don’t go wasting time trying to make sense of 15 indicators plastered all over your charts like a piece of abstract art. The truth about trading strategies is that finding one that gives you a high-probability edge in the market is not that difficult. But if you over-complicate it and confuse yourself in the process, you are going to do a great deal of harm to your trading account. Look, your trading strategy should make sense and it should be effective, but it should also be so simple that you could explain to a 5 year old, I’m serious. The trading method that I have used for years is price action (duh); it’s simple, effective, and flexible, and it doesn’t take rocket science to understand or implement. If you want to master trading you can pick one price action strategy and learn how to trade it in every market condition; make it your bi$#!….REALLY master it before moving on. For example, say you choose to learn the pin bar setup first, the best way to learn this setup is to trade it from key levels within the structure of a trending market, do that first, and make sure you are consistently profitable for 3 months or more trading only that strategy before moving on. 2) ANTICIPATE your trades and follow some kind of written plan. What I mean by “anticipate” your trades is to make sure you never jump in the market on a whim or without any pre-defined reason. You want to always make sure you are basing your trades on logic and objectivity, not irrationality and emotion (like most traders). So, you should have all the key levels drawn on your charts, and assuming you have mastered price action trading, you can simply sit back and wait for a setup to form at a key level in the market. This is called “pre-empting” your trades…instead of randomly jumping in and out of the market, you are watching pre-defined areas in the market and waiting for price action setups to form near them. Once your trade setup forms, you plan your entry, enter the stop and target, and then let the market do the “hard work”. Seriously, go play golf or something, don’t sit there and think about your trade after you enter it, stop thinking for a while and you might just make some money in the markets. 3) MAKE A DIARY OF YOUR TRADES to keep a written on-going track record of your progress. I cannot tell you guys with enough emphasis how important your trading journal track-record is, except to say that if you don’t keep a trading journal or at least regularly analyze your trading history and equity curve, you are extremely unlikely to ever make consistent money in the markets. The actual process of updating your forex trading journal will help you stay disciplined and organized. This is part of developing the positive trading habits that are so crucial to becoming a long-term profitable trader. I don’t care if you think updating your journal is boring right now, stop complaining and start doing the things that YOU KNOW you need to do to become successful. I can promise you that if you keep screwing around by being unorganized and half-assing it, you are never going to pull the sort of money from the market that you want. You NEED to look at your track record on a regular basis to see something tangible that reflects back to you your ability or inability to trade. This will work to keep you on top of your game. 4) DON’T LISTEN TO ANYTHING BUT THE CHART, because the chart reflects everything! That’s right, the price movement on a raw, indicator-free price chart, reflects all variables that affect a market. So, don’t get bogged down analyzing economic news and watching CNBC, just learn to read the price chart and then let the price action dictate your trading decisions, not what some talking head on TV thinks. Also, NEVER trade what you think is going to happen, only trade what you actually see happening in the charts. What I mean is this, just because you “think” the EURUSD is going higher doesn’t mean it actually is, and your thoughts have no bearing on the EURUSD or any other market. The only thing that matters is what the price chart is telling you, so learn to read and trade from that instead of outside sources. 5) DON’T GET GREEDY or you will never make a profit. Greed is perhaps the most prevalent reason why most traders fail. The late Rene Rivkin, a famous Australian stock broker and trader, had a classic line about greed: “Leave some for the next guy”. Here are some tips on how to avoid letting greed get the best of you: • Aim for a target before you place the trade – Yes, that’s correct; you should already have a target in mind before you enter a trade, and it’s best to pre-define your exit before you enter. Exiting is not an exact science, and there are times when deviating from your initial exit plan makes sense, but you should always decide before you enter a trade what your ideal exit strategy is and then try to stick to that plan as much as possible. Don’t change your exit strategy once your trade is live just because you “think” the trade is going to charge on in your favor forever, only change it if you have a very obvious price action-based reason to do so. • Never move your stop loss further from entry – What I mean by this is entering a trade and then the market starts to move against you immediately, do you move your stop further away from the market price, or do you hold it in place? Obviously, the only logical course of action is to accept your loss and hold your stop where you pre-defined it, yet many traders email me saying they have moved their stop away and now have a very big open loss they don’t know what to do with. The answer is you have to take the bigger loss because you did not take the smaller loss…always take the smaller loss by not EVER moving your stop further from entry. • Be happy to take a logical profit – If you have a nice 1:2 risk reward profit and there is no obvious reason to try and trail your stop, then by all means take the profit! Don’t just leave a trade open because you are mesmerized by the potential for the market to move further in your favor. Come back down to reality and realize the market ebbs and flows and it’s more likely going to move back against you soon then move in your favor if it’s already given you 2 times your risk. • Only trail stops once your trade is well into profit – I only attempt trailing my stop if my trade is up about 1.5 times my risk and I am in a runaway trend or a strong breakout move that clearly has potential to keep going. Don’t start moving your stop up just because the trade pops in your favor the first 10 minutes you enter. Give the trade some room to grow and breath. Trading is like a garden, you have to give it time to grow to taste its fruit. • Don’t live in hope – I like to think of hope as the catalyst for greed. Traders often hope that their trades will go on forever in their favor, or they hope that if they move their stop loss just a little further away, the trade will come back for them. While hope is generally a good thing in every other area of life, in Forex trading it can cause you to do irrational things that destroy your trading account. 6) GET SOME BALLZ, because trading is not for the emotionally weak or for wussies. That’s right, if losing 5 trades in a row makes you cry and whinge, then forget about becoming a trader. Don’t trade if you don’t have the money to lose, it’s really that simple. You can lose money in trading, many beginners seem to forget or ignore this fact. So, you should not be trading with money that causes you to treat every trade like it’s life or death, you really should almost not care at all if you lose on one trade, because ONE trade DOES NOT define you as a trader. Your success as a trader is the result of many months of trading results, not just one or two. Don’t get all excited if you win a trade either, or a series of trades. Instead, stay neutral and act like a strong minded professional with skill, rather than a little school boy who just won $100. You need to be strong to be a successful forex trader; you to focus and believe in yourself, and it’s OK to bet a little harder on a trade if you are confident, but keep in mind this is only advisable if you are 100% sure you have mastered your trading strategy already. 7) DON’T CHANGE YOUR METHOD> STICK TO IT< BELIEVE IN IT, because all trading methods will have losses and losing periods. So, don’t run away and freak out in the face of some losing trades. Instead, you need to hang in there and tough it out, just make sure you are consistent with your strategy and that you are using something like price action that is simple, logical, and has proven itself over time. A random entry method based on flipping a coin would probably make more money than a trader following 3 different trading methods and running around looking for the Holy Grail every day. The Holy Grail to long term success is in fact…sticking with something, believing in it… and not hesitating when the opportunities present themselves. 8) MAKE SURE YOU CAN SLEEP AT NIGHT, because if you are having trouble sleeping due to your trading, it means you’ve risked too much. Don’t take a position size that you know is too big, because then you almost certainly will be too emotionally involved with the trade which will result you in not sleeping and becoming even more emotional. Not to mention, your frazzled and obnoxious existence from risking too much will probably make your wife or roommates want to kill you or send you to the loony bin. You need to learn to RELAX…the market is not going anywhere, you need to trade a position size that you can handle emotionally, not one that causes you to have a near melt-down every time the market moves against you by a pip or two. If you find you are waking up over and over to check the latest quote on your laptop or iPhone, you know you are IN OVER YOUR HEAD. Some people risk too much money for the “rush”, some do it out of stupidity or greed, whatever the case, make sure you are risking a decent amount, but not an amount that makes your heart pound, and not an amount that causes you to fall asleep at your computer desk! 9) ALWAYS PAY YOURSELF, because if you don’t, who will? When you make money in the markets you need to pay yourself, don’t re-invest all your profits in some vain attempt to grow your account to infinity. Let’s be honest here, you are in the markets to make money so that you can buy things, whether it’s a house, a car, or trying to buy freedom from your job, you aren’t going to buy anything if you keep all your money in your account. Pay yourself and reward yourself, it will help to motivate you and will reinforce positive trading habits. Now that the “cat is out of the bag”, and you guys know my 9 “secrets” to profitable trading, you have nothing to hold you back but your own fear and lack of motivation. So, get off your butt and drink a few coffees, or do whatever you need to do, but if you really make an effort to implement these 9 tips, you will see your trading improve.