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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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Common Trading Errors. Famous traders have soared, crashed, soared, and crashed againWhen and How to Regroup What do you do if things do not go as planned? Do you regroup or throw in the towel? I assume you used the Campaign Trading Method, and your first and second campaign stakes are gone. You still have another opportunity to succeed. Take a deep breath. Things do not always go as planned. There is strength in adversity. And learning. It is frustrating to have a losing streak, but even the best traders have them. Famous traders have soared, crashed, soared, and crashed again. I rolled 16 consecutive lemons once in the late 1970s. I was literally a weekend away from throwing in the towel. Very often small changes or adjustments may make a big difference. But you need to dig deep to find them. Examine all three areas of your programtrading method, money management, and attitude. Common Trading Errors Peruse the list below, and honestly decide if any of these errors might have been a cause: Trading without a stop-loss order: Neglecting to set a stop-loss order, placed in the market and not a mental stop, is asking for financial disaster. Did you suffer a large loss because of not entering a stop-loss order on a trade? Trading without a take-profit objective: These, too, should be in the market once you have entered a trade and had it confirmed by your broker. Did a healthy profit deteriorate because you wanted more? Trading too many pairs at one time: This is usually caused by trading too many pairs concurrently. I recommend only a single trade at any one time for the novice; three at the very most. Did you have too many balls in the air, and one or more of them fell through? Trading in high volatility markets: Were the pairs traded high volatility markets? The novice should stay with low and midrange volatility pairs. Trading the news: Did you attempt to trade the news? Or did you incur a large loss because of a news event while you had an open position? Keep your FOREX calendar handy, and try to be flat and out of the market at least until the post-news shockwave has set in for an hour or two. Trading exotic and obscure pairs: Were you tempted to trade exotic pairs? The liquidity in these markets is poor and fills on orders can be dreadful. Pyramiding: Did you add to a losing position in hopes of breaking even on a bounce? This is a very common new trader error and can result in a large loss. Pyramiding a winning trade is risky business; pyramiding a losing trade spells disaster. Trade plan: Did you stick with your predetermined trade planor vary from it? Did you follow your trading method, attitude, and money management heuristics for each and every trade? Whipsawing: Were you whipsawed? This means being caught in a volatile sideways market and constantly reversing your position attempting to catch the trend that never comes. This happens to everyone and is part of the game. If we dont catch our entry after two tries, we move on or go to the sidelines. You should never quickly reverse a position. That implies you have suddenly reversed all of your planning and trade analysis. Overconfidence: After a couple of winning trades, it is easy to catch the King Kong Syndrome; the warm feeling that everything you touch will turn to gold. It wont. Each trade is a clean slate. The market doesnt know if you are hot or cold. False expectations: Currency trading offers no guarantees. Do not become discouraged by losses but do not expect to make a fortune overnight. Take care of the dimes, and the dollars will take care of themselves. Being prepared: Did you come to the trading session fully prepared with your FOREX calendar and trade plan in hand? Or did you just sit down and decide to make a couple of trades? Currency trading is serious business and requires a serious attitude all of the time. Clouded judgment: Are you as objective as you can be, keeping fear and greed at bay? The leverage in FOREX is substantial, and losing focus even momentarily can be harmful. Money management: Did you follow your money management parameters closely? It is easy to stray from ones plan slightly and soon find you are far down the wrong road, unable to turn back easily. Emotional upheaval: Did you trade at a time when for whatever reasons you were emotionally agitated or worried about something? Bringing sadness or elation to the market will skew your judgment in almost every case. Never trade when under emotional duress or stress. Review your trades, and see which ones get a checkmark for any of these common errors. Do you see one or two predominate? Performance Review Next, look at things from a different perspectiveperformance. Analyze each campaign separately, then together. You will need the log of your trades. This is available on your broker-dealers web site on a page named Trade Summary or something similar. You will want at least this information: Date, Pair Traded, Profit/Loss Per Trade, Aggregate Profit/Loss. If your broker hasnt calculated it for you, pick out the highest winner, highest loser, average winner, and average loser. You can use pips or dollars; we are only concerned here with percentages. Look at the two key profit-loss ratios. Which one needs the least change to move you into the winners column? Do you need more winners or perhaps a bigger win-lose ratio? If you stayed with the CTM of money management with a fixed profitto-loss ratio, at least it is easy to identify the problem: You had too few winners. If so, it is likely your trading method does need some work. Attempt more long-term perspective before making a trade. Look at the Market Environments of directional movement and volatility. Spend more time studying the long-term perspective chart for your trade profile. If you strayed from the campaign method, calculate the average profit-tolose per trade. How far away was it from the suggested parameters for your trading profile? Was it a matter of too few wins or large losses? Review the trades vis--vis all the MEsdirectional movement, volatility, thickness, shape, time rhythm, price rhythm. Build an ME Profile for each trade. Do you spot any patterns in the Market Environments or profiles in which you excel, or those in which you struggle? I have found a high correlation between thick markets and successful trades. In doing ME profiles for other traders I have almost always found some correlation between MEs and trade performance. Throw out the best trade and the worst, and look again. It is not uncommon for new traders to do well for most of their trades but have one or two losers that destroy overall performance. If this occurred, where was the problem? Near the beginning of the campaign or perhaps toward the end? That may tell you something of value. The CTM does prevent large losses from occurring. You may at least direct your focus to finding more winning trades. Heuristics Review The last regrouping step is to study your trade heuristics. Perhaps they are too complexor too simple? Can you think of a question or two you could have asked about the worst trades that would have stopped you from making them? If so, add it to the appropriate part of the heuristic. Is there a question that would have made you take a trade you passed that would have been a big winner? When to Say Uncle We all bring different skills and abilities to the table of life. We cannot all be good at trading. Why some people excel at trading and some do not remains a mystery to me. It may be a situation similar to chessif you are wired for it, you will succeed; if not, you will not. My hunch is that it has to do with attitude, but I cannot prove it. But be sure you know when to say Uncle. Summary The Campaign Trading Method of money management is designed to give you three solid tries at success in FOREX trading. If you lose all three campaigns, should you try again? That is a question only you can answer. If you have additional risk capital, you may want to take a month away from trading. Make notes while you are away. Start from scratch and rebuild your trading program if small adjustments did not work. And, on where you have been before. Keeping good records is a key to success. It is easier to know where you are going when you know where you have been. Good records are critical for reviewing performance and making corrections in your trading program. Since small midcourse corrections can make large differences on your bottom line, good record keeping is necessary in order to find those small changes. Business Records These pertain to the business of FOREX trading. They include all communication with your broker-dealer, the vendors you use for third-party tools, your Internet bookmarks, and, if you trade as some legal entity, the documentation pertaining thereof. Accounting Records These are the records you need for tax purposes. Your broker will supply those pertaining to your trading. You will also need any receipts for the cost of doing business. Your accountant can guide you on what is and what is not a legitimate expense. If the tax man cometh, cheerhe ignores losers who have no more money. No matter where you live in this world, there is a Caesar unto whom you must render. Good accounting records and a competent accountant will aid you in not rendering more than your fair share. As mentor Charlie Goodman said upon winning a twin-quin for $3,000 at the greyhound races and having 20 percent deducted from his check, Where were they when I was losing! Trade and Performance Records Your trading platform keeps a record of all your trading activity. Some are better than others, but they all provide the core information. Most brokers do a fantastic job of this task. Many even offer a statistical page overview of your trading performance. If not, you should definitely calculate and maintain your own. Here is what I suggest at a bare minimum: The pertinent money management ratios and statistics are also recommended, as are at least the primary market environments for each trade. Performance records are those for diagnosing errors and keeping you on target with your trading plan. I review performance on a weekly and monthly basis. Plan to spend a few hours a month on this task. You will almost certainly discover small characteristics about your trading. You can use some to minimize losses, others to maximize profits. It does not take much to turn a loser into a winner or vice versa. Think of trading in terms of a process with a continuous feedback loop. Trading is a dynamic, not static enterprise. Record keeping can be very involved or simple. I like to keep it simple as possible while still recording enough information to evaluate performance on an ongoing basis. You may certainly jiggle the tumblers as you begin trading and see for yourself what information is worth preserving. FOREX trading is a continuous processunlike stocks and futures, which begin and end at a set time. No one can trade 24 hours a day. When you begin a new trading session you are bound to have missed something. At the end of a session write a few pick-up notes about your thinking on markets you are trading. When you come to the next session, a quick review of those notes will help you get in sync again quickly with the markets. I take 10 minutes before each session for reviewing pick-up notes and 10 minutes at the end of each session to write them. The Rogers Method Trader Joe Rogers takes performance recording and the feedback loop to the next level. He uses the Camtasia suite of tools to record just about everything that happens during a trading session. Smile, Youre on FOREX camera! For an idea of what Joes method involves, go to www.camtasia.com. The SnagIt Tool For a less intensive version of the same concept, use the SnagIt tool (see Figure 18.1). You can annotate charts on the fly to remember what your thoughts were at the time you made a trade or did an analysis. Go to www.techsmith.com for more information. It is great for marking MEs and making short notes. Techsmith is also the maker of Camtasia. Using SnagIt, you can select and capture anything on your screen, then easily add text, arrows, or effects, and save the screen capture to a file or share it immediately by e-mail or IM. Capture Anything Capture an article, image, or Web page directly from your screen. Or, capture windows, menus, icons, and regions from any application that runs on your PC. Edit and Transform The SnagIt image editor makes it easy to add creative and professional touches to your screen capture. Transform your images with a fullfeatured paint tools palette, a variety of edge effects, and practical options for color and size adjustment. Share Easily E-mail, copy and paste, print, and IM your screen captures, or upload them to your Web site, SnagIt helps you communicate any way you prefer. Planning Records Always come to every trading session with a plan! A daily or session trade plan is a must; I would not touch my mouse without one in front of me. I also maintain a weekly trade plan because I am primarily a day trader and have a bit longer-term perspective. The trade plan will vary from trader to trader depending very much on your trading method, your money management parameters, trader profile, and heuristic. The touchstone of any plan, however, is contingency planning. Know what action you will or will not take, given a wide range of possibilities during the trading session. You will almost certainly include items specific to your personal trading method on the Daily Plan. Keep a notepad handy for ideas you might have while sitting on your hands. Summary View trading as a process with a continuous feedback loop. Strive to review your performance regularly and make evolutionary not revolutionary changes to your trading program. Do not be afraid to dig deep for small factors; even the smallest may make a large difference in performance to the bottom line of a trading campaign. It may sound obvious, but seek to minimize losing trades and maximize winning trades. For many traders it is the big loser or the big winner in a campaign that tells the tale. |
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