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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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Deal with major brokerage firms and reputable brokersCOMPUTERIZED TRADING SYSTEMS Trading systems facilitate trader discipline. Computerized systems offer additional advantages. The speed and efficiency with which a computer identifies patterns and generates signals is one obvious advantage. Computers can quickly achieve the number crunching necessary to recognize trading signals. However, it is possible for a trader to calculate these signals manually (in the time required), and the traders ability to evaluate a complete rule-based system is limited as well. Computer systems offer direction and suggestions about what to do in a given market and help limit the range of choices. This makes the traders task less overwhelming, because the possibilities and opportunities become more clearly defined. Trading systems approach the market consistently and objectively. Programs are designed logically. Rules are uniformly applied to defined market conditions. Trading systems are effective since rules are not the victims of trader judgment. The whimsical nature of a trader is diminished by a system. The emotional aspect of trading can be significantly reduced as well since systems are void of emotion and judgment. Unfortunately, the emotional tendency of a trader is to outguess the system, even when its producing profitable trades. If a trader can discipline himself or herself to follow a system with rigor, emotions will not rule the decision-making process. Trading systems are designed to think, not to feel. Another positive feature of trading systems is that they generally include money management rules that help to facilitate trading discipline. One of the more common arguments against trading systems is that they can become popular enough to influence the underlying price. This concern has been voiced both by the market federal regulatory agencies and by individual traders. The concern is that the similarity of computerbased systems used to manage large positions may cause large traders to respond in the same way at the same time, thereby causing distortion in the markets. While it is not guaranteed that past price patterns guarantee future price patterns, it is also not true that markets are random. Another argument against the use of trading systems is they define market behavior in limited ways when the market can, in fact, behave in an infinite number of ways. It is believed that because systems are mathematically or mechanically defined, this reduces relationships of events to percentage odds of what could happen next. While the criticism is valid in that systems do capture a very limited number of possibilities, this characteristic is also what makes systems useful. The ability to reduce information to observable patterns gives the trader some semblance of order and direction. Without this, many traders feel overwhelmed and directionless. One of the more controversial techniques to develop from computerized trading is the concept of optimization. Optimization is a process by which data is repeatedly tested to find the best results. The best moving average size, point and figure method, or other parameters are made to fit the raw data. It is important to understand the methods of optimization and to provide proper precautions regarding optimized trading systems. Performed properly, extensive testing can reveal a great deal. However, excessive optimizing can be misleading, deceptive, and costly. Trading systems give the trader a way to interpret, quantify, and classify market behavior. Since trading systems define potential opportunity and provide specific trading signals, following these signals can facilitate the development of profit-making trading skills as well as strong exit and entrance discipline. Computerized trading systems have vastly expanded the scope of information available to todays traders. Systems can now be thoroughly back-tested and perfected using the computer to test many if-then scenarios. Trading systems offer a way to define and categorize market behavior by reducing information to patterns that generate trading signals. While systems are without emotion, traders are not and often try to outguess a system. Misuse and lack of discipline are major causes of losses in trading systems. CONCLUSION The investment elements mentioned in this chapter are designed to guide you on the road to trading success. Trading can be a humbling experience. It can also be highly profitable. Perhaps it is human nature to get a little overconfident and cocky when the money starts rolling in. But thats the time when you need to fight against your own bravado. Remember, it takes only one big mistake to send you back to ground zero. Start small and let your account grow consistently. Theres always more to be learned and a better trade down the road. In addition, there a number of things you can do to protect your account. Use the following six guidelines to safeguard your share of market profits: 1. Do your own research before you invest. Dont invest in companies that minimize or avoid disclosure of their financial condition. Always read the fine print in your information sources and avoid hot tips. 2. Deal with major brokerage firms and reputable brokers. Know your brokerage firms financial condition and who owns the firm. Be sure you know what your agreement specifies. 3. Keep a written record of all trades. Write your orders in advance. When you receive trading confirmations, make sure to compare them with your written records. 4. Put your broker to work. If trading confirmations are slow in coming, complain to your broker. Balance all monthly statements. Ask your broker to explain any discrepancies. If trouble persists, go to a supervisor. If it continues, change firms. 5. Change brokers who talk about sure winners. Resist all sales manipu lation emphasizing double-digit rates of return, shares that will double, hot stocks, and guaranteed profits. 6. Never put greed before safety. Sometimes you have to protect your self against yourself, and that can be the most difficult job of all. Remember the market will be here tomorrowbut to use it, you need investment capital. Hopefully, this information will help you avoid or deal effectively with many of the issues that you might experience. Investors who know how to choose a good broker, how to analyze information, how to order skillfully, and how to protect themselves are investors who know how to make money. How to Spot Explosive Opportunities Meet all the criteria for a good investment. Use your investment capital in the most efficient manner. Produce substantial returns in a relatively short period of time. Throughout the years I have been investing and trading, I have thought of myself as being fairly successful, while in the eyes of others, I have been perceived as extremely successful. However, contrary to popular belief, I know that deep down inside I still have more room to grow. Over the past few years, I have been able to accelerate my profitability by being patient (as much as I could be) and by being selective when I made an investment. I have to admit that I love the day-to-day excitement and the financial rewards of trading. However, I make a great deal more money by looking for opportunity intelligently. In other words, instead of being in the markets just because I feel I need to be, now I wait like a cheetah in the jungle, looking for a wounded animal to pounce upon. Although the cheetah can catch any animal, wounded or not, it preys on the sure thing. I have learned that this is the best way to tradewait for everything to look right, then attack with speed and confidence. Initially it may not be easy for you to do the same. However, this confidence and patience will come over time as you build up experience and increase your investment account through successful trades. |
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