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Be Humble

Be Humble
​ Seasoned traders observed long ago that after a series of wins, a trader is vulnerable to over-confidence and trading errors. It's quite understandable. Trading is a competitive business, and when you win, someone else loses. Market participants trade because they are greedy for profits, but often sell out of a fear of losing. How do many traders deal with the inevitable feelings of uncertainty ...
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It Takes Guts

It Takes Guts
​ Short-term winning traders have guts. They have to. No one has a crystal ball. You can guess what the markets will do, but you can never know what will happen with complete certainty. Only the traders who risk enough money, and make enough winning trades can hope to achieve glory. And living under these conditions takes guts. Trading can be about 90% market psychology. Do fundamentals play a rol...
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Self-Control

Self-Control
You're in the midst of a perfect trade. You entered where you had planned, and you know when to exit. All you have to do now is wait for the price to reach 53 and sell. But it's not moving fast enough. It seems to be hovering around 51 and 50. You're starting to wonder whether or not it will ever move up. Panic sets in and you sell. About an hour later, the price hits 53 and it now seems obvious t...
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Timely Exit

Timely Exit
​ What is your tolerance for pain? Consider the following scenario. You have 10% of your account balance on the line. For the past two days, prices have been going in the direction you had anticipated, but today, an announcement was made that caused a market move that caused all your profits to be wiped out in an hour. What will you do? See if prices will move back to where you are okay again? At ...
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Recent comment in this post
Jerry Nye
I’m finding that formulating a trading plan inline with your personality is a process of refinements over time!
Saturday, 21 July 2018 05:55
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Staying on the “Sideline”

Staying on the “Sideline”
Don't get irritated or angered because you haven't put on a new trade in a long time. Whenever there is nothing to trade, don't trade. Accept it and stay on the "sideline." There will be an attempt by the "trading gods" to wear you down by giving you bad markets over and over, and for extended periods of time. This will happen, and it will happen on numerous, often successive occasions. Know this ...
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Overconfidence

Overconfidence
​ How should a trader deal with "overconfidence?" Maybe a better question about confidence--trading and otherwise--is not why people are overconfident to begin with, but why they stay overconfident. You see, the problem with overconfidence is not the innate bias toward optimism that most people seem to possess. That's a good thing it keeps the world moving forward. The problem is the inability to ...
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What's my real reason for trading?

What's my real reason for trading?
​ "The Rorschach test (also known as the Rorschach inkblot test, the Rorschach technique, or simply the inkblot test) is a test in which a subject's perceptions of inkblots are recorded and then analyzed using psychological interpretation, complex scientifically derived algorithms, or both. Some psychologists use this test to examine a person's personality characteristics and emotional functioning...
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Confidence

Confidence
When it comes to trading the markets, nothing is certain. How do you cope with uncertainty? Many traders are overconfident. Rather than face the possibility of losses due to market uncertainty, they fool themselves into thinking they are omnipotent. Behavioral economists Brad Barber and Terrance Odean illustrated how novice traders are especially overconfident. They analyzed account records from a...
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Traders "Pro Active" and "Ray Active" – A Story!

Traders "Pro Active" and "Ray Active" – A Story!
Pro Active and Ray Active are both wannabe traders, but their approach to trading is quite different. Ray is consumed with trading for profits. He imagines himself achieving great wealth, and thinks that when he amasses the riches he is after, he'll finally get the respect and recognition he always wanted from his wife, family and friends. He thinks, "If I can only make it as a trader, I can show ...
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Efficiency and Success

Efficiency and Success
How much time do you spend preparing for the trading day? Do you spend hours scouring the markets for a winning trading opportunity? Do you watch hours of commentary or read all the major financial newspapers? You don't need to spend hours and hours reading about the markets if it doesn't directly lead to a profit. For example, most media coverage of the markets is for entertainment value, so spen...
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Greed

Greed
​ In the movie "Wall Street," Gordon Gekko argues, "Greed is good." Greed can motivate you to strive for perfection and keep you persisting in the face of adversity, but greed has its downside. It is often said that the markets are driven by fear and greed. The masses have a natural desire for wealth and all the advantages that money can buy. In their zeal, the masses invest in stocks and believe ...
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The "Crush Spread"

The "Crush Spread"
​ The spread is defined as buying one futures contract, and selling a different, but related futures contract. Specifically, when trading the crush spread, you would buy soybeans and sell its respective products, the soybean meal and soybean oil. This is what is referred to as being crushed. If you buy the soybean meal or the soybean oil and sells soybeans, that is what is referred to as being rev...
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Maintaining Discipline

Maintaining Discipline
Winning traders are disciplined. Discipline means controlling impulses and fighting the urge to abandon your trading plan prematurely. Maintaining discipline is often easier said than done, especially when the market is moving in your favor. It's hard to avoid closing a trade out early in order to lock in profits. Some winning traders face more losers than winners, and when you hit upon a winner, ...
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Trading Opportunities

Trading Opportunities
Good trading times may be just ahead. Are you ready? It's times like these when the right mental edge can make all the difference. If you want to take advantage of trading opportunities for the New Year, it's vital that you approach trading with the proper mindset. Be ready to work hard and do whatever it takes to come out a winner. Unfortunately, many traders aren't up to the challenge. They don'...
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Why Stops

Why Stops
​ Would you ever think of jumping out of an airplane without a parachute? Of course not, but that's what some people do when they trade the markets. They are very willing to put their money on the line, but they don't have much to protect them from a major disaster. Placing a stop, for example, can prevent you from allowing a small loss to turn into a big one, but many traders avoid placing stops....
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Don't Give In To The Death Wish

Don't Give In To The Death Wish
The death wish is resignation, fatalism, dejection, despair — in the face of "luck" repeatedly turning against us. The death wish is admitting defeat and shrugging our shoulders and throwing up our hands (generally after a string of losses) and not caring from then on whether we win or lose. The death wish is throwing money into the pot fatalistically, to punish ourselves. It is saying, "I might a...
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If You Doubt, You May Be Out

If You Doubt, You May Be Out
​ It's almost impossible to have rock solid confidence as a trader. Sure, some traders can't be thrown off track very easily, but it's natural to feel a little afraid occasionally. Let's look at some of the reasons that you might feel shaken. What the markets will do tomorrow or next week is far from certain, and you don't have a crystal ball. Your information is fallible. And without perfect info...
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What is “walk-forward” testing?

What is “walk-forward” testing?
Walk-forward testing is the first real step in testing any system on live data. A trader should be somewhat confident that the system or method can produce results in line with the hypothetical results received from back testing. At this stage of testing, it's important to watch a trading system or method run over live data for a period of weeks or months until a large, statistically valid univers...
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How to Handle Fear

How to Handle Fear
​ The best way to handle fear comes in two steps: 1. A detailed trading plan 2. Risk control Let's look at risk control first. You have no doubt, read it many times: "Trade with money you can afford to lose." Here's another one: "Trade positions that are so small that you may think, "what's the point of even putting on the trade?"" One more: "Do not over-trade!" All of the above carry essentially ...
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Ready to Lose

Ready to Lose
Imagine what you would do in the following scenario. You have been looking at a position for a week. You had a clear and simple trading plan: Just wait for an announcement at the end of the week, watch prices jump, and then sell. As might be expected, things aren't working as you had planned. First, no clear trend has emerged; prices are moving chaotically up and down. Second, it's been two days s...
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Derivative transactions, including futures, are complex and carry a high degree of risk. They are intended for sophisticated investors and are not suitable for everyone. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results, and all of which can adversely affect actual trading results. For more information, see the Risk Disclosure Statement for Futures and Options.