Trading your way to Success

A few weeks I received the message below from a newbie trader and due to the educational aspect of the subject matter I've decided to include it here.

I started trading 3 weeks ago; now my account is down 19%. It is not the losing that bothers me as much, since I perceive it as a necessary tuition fee. What really upsets me is the fact that I always make the same mistakes, again and again, without the ability to break from them.

From the books by Mark Douglas, I know that in the end it is a trader's psychological ability that determines his success. Every day, before the markets open, I even try by telling myself repeatedly to be disciplined and stick to my plan. However, once I am in the environment, I just cannot control my emotions, and make all the mistakes again:

- rush to enter into a position due to the fear of losing out;
- when the price does not move immediately as expected, I begin to panic and close the position, before the stop is hit;
- then the price begins to move in my original trade's direction; I blame myself for not sticking to the stop and mourn the profit I could have made, and miss the second opportunity to enter;
- after that, the price takes off, and I just sit there, frozen, thinking of the mistake I made and the profit I missed, unable to enter when a new signal comes along.

This process repeats, and I am so upset and frustrated with myself. How can I break all these bad habits and learn discipline? Or am I simply not cut out for trading???

I'm always amused to hear similar complaints. What it says to me is that you started at some point that you "assumed" would remain the same for the remainder of your trading life....but it didn't. Markets aren't static - they can peak at some point and then range trade for decades on end. I love to study history. Can you imagine the guy who started in let's say 1955, who believed that the market would stay the same, what he might have to say about 1978? A high percentage of traders throughout the 70s and 80s made their money by exploiting the market's inefficiency. It was the same thing during the 90s when I got into trading.

The advent of electronic, online trading left many inefficiencies to be exploited. Sure, the markets were extremely volatile, but that was due, in part, to advent of electronic trading. If anyone actually pays attention, he/she would see the way traders are always looking for the next great market to trade in hopes of exploiting its inefficiencies. (The newest trend being the currency markets) The reason the markets are forever becoming more difficult to trade is EFFICIENCY. The more efficient the market becomes, the more difficult it will be trade.

First let me just say that I made my first trade in 1993 - the time when 'day trading' was exploding. My early trading results were catastrophic. I took large risks and had minimal protection. Often, I took overnight positions in highly volatile stocks. Eventually, I developed several strategies that limited not only my financial exposure but also the profit potential.

Guess what? I've been learning new tricks since I've been in this business. This business is exactly the same as it's always been. You need to shift, adjust, understand that no technique, no method lasts forever. But people have been making money in the stock market for well over a century. That hasn't changed at all.

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I'm having a great year this year. I'm not trading the same way that I did when the FTSE World Index was first calculated. I'm not sure that I'll be trading the same way next year that I do this year.

But what I'm confident about is that the stock market will still be moving around, just like it always has. It's my job to figure out how to make a buck out of it. Whining about how it "changed" is not going to help me in that task.

I think this business is a great business...but not an easy business. This is a business where a guy can make a fortune starting with a small amount of money. The first thing though you have to do is to learn the business of speculation. That takes some time and alot of effort.

To answer your question... You show strength to state your feelings and concerns now you must develop and evolve from that. Its fear keeping you back and you already recognise this, which is the first step perhaps to move on from it. But I'd back away for a while if I were you. A loss of 19% is a lot for 3 weeks. You sound like you're trading a small account, or trading too big of a position for the capital that you have. You need to look over what you're doing BEFORE you start trading again. You need a plan. It sounds like you're trading way too emotional. Until you have some type of plan that you can assure yourself works, I wouldn't trade again.

You have no discipline yet you continue to trade. As if continuing to make the same mistakes is going to help you learn discipline. It is easy to become upset and frustrated when you don't follow your rules and then end up handing cash out to people who can. Even worse, you kick your own arse after you don't follow through with your plan. Telling yourself that you will be a disciplined trader and stick to your plan is NOT sufficient in becoming disciplined. Your trading should come to a halt asap (if you fill the need to put your money in the market because you may miss out, you can send me a check and maybe I will double your money, then again maybe I won't). You need to go back to paper trading. There isn't any emotion involved, as you can't lose anything. I doubt you will do this because of the urge to be in the market. Obviously if you can't take a little time out of the market to develop your skills, in a week or two, you'll be out of the market anyways. If you can halt your trading, you are on the right path towards becoming disciplined.

While you are paper trading, see if you can follow your rules. Start the day with making only one trade. If you follow your rules with that one trade, put on another. As soon as you don't follow your rules, you must quit paper trading for the day. Don't even allow yourself to watch the market after that. Once you can make 50 paper trades following your rules, I would think about starting to put money back into the market, small, very, very small. Once in the market, your goal is to make trades according to your plan. Profits don't matter at this point, as your only goal is to follow your plan and learn to be disciplined. Again, follow the same rules, as soon as you don't follow your plan, you're done for the day. Don't allow yourself to increase your size until you do 50 trades following your plan.

Some traders would blame your hardship on the market, whether it be the summer days or hedge funds manipulating the market, I don't buy it. The only person to blame is yourself. The only person who can change your behavior is you, well to a point. I guess if other traders and institutions take all your money your behavior in terms of trading will extinguish. Better start doing something different.

The first month, indeed, possibly the first 6 months of trading is the most frustrating, painful and difficult.


Because you're using parts in yourself you've never really used in such a defined way.

Your views, the ones you're uncovering that you have now, will be used to view the market and make determinations in the future as you progress.

Not sure about others, but what you described is exactly what I went thru, what most traders go thru when they first start, I think.

I could have NEVER made it in spread betting for the first 6 months had I been trading live money.

Like a weight-lifter, it takes TIME to develop your trading wits (muscles) and market senses.

I believe the market is 80% psychology. If so, most fail because of psychological reasons. It effects how you feel about your trades and decisions you make when managing your open positions.

I'll give 2 examples...most old timers may already know but some new traders may find interesting.

Spread Betting - Online Trading

Scenario A: Lets say you start out your day buying stock XYZ. An hour later, huge positive news comes out about XYZ...coupled with market events....your stock begins to soar.....up $5000 by 11:15am you're up, say...$8000.....but you don't close out and take the believe stock will rally some more in the afternoon after basing on doldrums. But 2pm comes around and markets have reversed, and your stock that was once up $8000 for the now only up $5000. You're mad you didn't take the profits earlier...nevertheless you wait until the close believing it will rally in the last hour. 3pm is here...your stock is now only up $1000....totally giving back all the gains from the just can't believe say heck might as well wait till the close to see what happens. Right before the close your position, with a $100 profit.

Scenario B: You buy stock XYZ. Suddenly....devastating news comes out about your stock tanks....and tanks 10:30am your down $ 11:30am....your now down $8000...frozen in just can't bring yourself to sell now and take the monster loss....Stock bottoms on dol-drums and begins to rally back 2pm your now down only $'r only down $2000....right before the sell....for a $100 loss. do you think you feel with scenario made $100 bucks that you feeling??

Scenario lost $ do you feel about it??

You see what I'm getting at....If all that matters in trading is a Profit/Loss.......a win is a win and a loss is a loss...we should always be happy with a win right??.....and pissed with a loss.....right?

Another think you're smart? think you know best when it comes to managing your positions?

How many of you ever exited a trade early....fearing it was gonna turn sour and you got out with a break even or near break's an exercise:

Go back to your last 50 to 100 trades....look at all the trades you exited other words closed out BEFORE you let the play either hit its target or hit its original stop level.

Do you think you would have made more money or less money if you had just left them all alone and let them either hit the target and take profit...or let them hit original stop and take full loss????

You think you're meddling in them resulted in better profits???
See...we just cant help moths to a flame.... we are wired in a way that makes it almost impossible to trade with out some emotion............emotion we could do without.

Here's the steps on how to overcome the emotional swing pendulum...Good trading is all about GOOD habits:

  1. Trade a size which you're are comfortable with and which allows you to remain logical and objective.
  2. Give yourself time, to gain experience. Time/experience will dampen the emotional affect of trading.
  3. Have a proper trading plan which has been tested and verified. This will prevent your berries from being caught in a jam.
  4. Manage Risk which ties in with point number 1.

Market Success = (IQ(0.1) + EXPERIENCE(0.2) + KNOWLEDGE(0.2) + ATTITUDE/PSYCHOLOGY/EQ(0.5))*$$$$$$$$$$$$

So simple isn't it. Yet we don't follow the basic rules !!

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