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Bob Heisler wrote:
> Hi Claus,
>
> In order to trade successfully a person MUST learn how to control their
> emotions while in the market. There is no way to avoid that.
So how do you learn to control your emotions? Do you will it to be so? No.
Obviously, you need some tools that enable you to understand market structure
enough to know what is going on. Secondly, you need tools that tell you what
your response to what is going on should be. Then you also need to spend the
time studying, living with and ultimately becoming one with these tools such
that you can react instinctively with the ebb and flow of market swings. You
control your emotions when you have the ability respond appropriately.
> While a
> system or proper trading education may be of help, we still need to conquer
> the demons we all have - and greed and fear are among them.
Whether you are a discretionary trader or a systems trader, you will only
conquer your demons if you have an edge that you believe in. Both styles of
successful traders use systems. For system traders all the rules of their edge
are hard coded. This is not the easiest thing to accomplish, but it can be done.
For the discretionary trader his rules and edge exist in his approach which is
coded between his ears. That being said, a system is another tool to use as a
guideline for the trader's actions to illustrate what the effects of taking a
certain action at a certain time might produce. If that action produces profit
and can be repeated successfully enough times to increase an equity curve that
trader has a guideline from which he can start to shape his greed into a
reasonable expectation of gain thus controlling it. Further, he also has a set
of rules (A PLAN) which define correct behavior. Thus he now also has a
benchmark which he can measure against to determine how to avoid bad behavior
(control his fear) or enhance good behavior. In a nutshell you don't just wake
up one day and say I AM GOING TO CONTROL MY EMOTIONS.
You have to figure out what you need to do to succeed and through developing
that edge you should be able to take the mystery out of what the market is
telling you to do.
> I don't know
> how many traders are able to do that, but I do know that 85% or so lose
> money. So maybe it's that remaining 10-15% that have learned to control
> their emotions.
By having a specific plan which you understand and believe in completely, by
being a behaviorally flexible person, by being properly capitalized and by only
"trading the markets and not the money" will enable you to be one of the 10-15%.
To the earlier points regarding entries, your trading time frame determines the
relative importance of your entry. The shorter the time frame the more critical
the entry. However, your time frame should not be so short as to effect your
execution and expectations for profitability. That being said the concept of
entry and exit efficiency lies at heart of the matter. 100% efficiency means
that you enter and exit at the exact beginning and end of a market swing. No one
does this but everyone would like to have as high an efficiency as possible,
thus your entry is important. If you can see the forest for the trees then you
know that entering at close to 100% efficiency provides the least risk per
trade. Your chances of having a stop hit are much less and having a successful
trade are higher.
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