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--- In realtraders@xxxx, ric ingram <ringram@xxxx> wrote:
> Hi,
>
> As traders we talk about ourselves as trading:
>
> - grains,
> - currencies,
> - stocks and shares,
> - equity indices,
> - ...
>
> We also say we trade:
>
> - futures,
> - options,
> - forwards,
> - ...
>
> We often describe ourselves as being:
>
> - buyers and holders,
> - long term traders,
> - medium term traders,
> - day traders,
> - ...
>
> We can consider ourselves;
>
> - trend-followers,
> - spreaders,
> - volatility breakout players,
> - bulls or bears,
> - scalpers,
> - faders,
> - cycle traders,
> - Gann traders,
> - ...
>
> All these can be true descriptions.
>
> Of course some traders are composites, trading many instruments,
instrument
> types, trading durations and styles.
>
> But every trader, whether aware of it are not, trades their
confidence level.
>
> Based on assisting many types of traders each at different levels
of
> success, trading success can be seen as mostly a mirror of
confidence levels.
>
> So how is a high confidence level achieved and how can confidence
be
> measured?
>
> And how can trader confidence be built and developed and honed over
time?
>
> ------------
>
> It will help in the later discussion of confidence building if we
look
> first at some common problems of trader confidence:
>
> - shallow confidence (compared to deep-rooted
confidence),
> - over-confidence.
>
> Shallow confidence is short-lived, easily shattered and thus of
limited
> value to a trader.
>
> An analogy might be of a teenager trader who is brimming with
shallow
> confidence. He/she has not experienced a major and rapid market
move and
> is innocent or naive about margin changes and computer problems and
> difficulties getting through to his/her broker and increased bid-
offer
> spreads, let alone the clearing house instructing her/his broker to
close
> out her/his positions.
>
> Over-confidence can undermine the other components of confidence
over
> time. So over-confidence is not just a 'disaster waiting to
happen', it
> can also undermine real confidence in its wake.
>
> An analogy for over-trading based on over-confidence again might be
the
> teenage driver who thinks he/she can go round corners at 120 miles
an hour
> on public roads and survive. The ensuing crash (this time or
next) might
> dent the confidence in driving for years to come.
>
> The common features in these analogies is:
>
> - lack of experience,
> - lack of learning from experience.
>
> Shallow confidence can lead to:
>
> - 'pulling the trigger' problems,
> - over-riding trading signals,
> - going for tips,
> - increased stress,
> - trend-followers 'cutting profits short',
> - ego damage,
> - self-sabotage,
> - ...
>
> Over-confidence can lead to:
>
> - over-trading,
> - increased stress,
> - ignoring warning signs,
> - feelings of invulnerability,
> - ego damage,
> - self-sabotage,
> - ...
>
> So to build deep-rooted, reality based confidence is a matter of:
>
> - gaining sufficient experience,
> - learning to learn from experience,
> - using learnings skills and experience in focused
areas.
>
> Gaining Sufficient Experience
>
> This is probably the key reason why most traders fail - they trade
with the
> big-boys without the gaining sufficient experience.
>
> I will use equity index markets as an example. Similar concepts
apply to
> other instruments.
>
> A typical unit size traded on equity index markets is $500 a
point. Even
> so-called 'mini' contracts are $50 a point.
>
> This is just too big for most new players to gain the experience
and
> preserve their capital while gaining that experience.
>
> The result is a drop-out rate of 95% who have learnt something but
are not
> quite sure what they have learnt. Some come back for more when
they have
> saved more capital, still not realising the problem of trade
size. They
> have not heard of risk of ruin calculations, and anyway, they did
not come
> to trading to do that kind of work.
>
> Experience takes time. So to get the experience of trading
without being
> shunted out of the game prematurely, traders need to learn on an
> inexpensive field of play.
>
> Technology has come to the rescue. Internet dealers exist where
you can
> place a 1 cent a point play on the S & P 500. That is 5,000
times
> smaller than the 'mini' contract and 50,000 times smaller than the
> full-sized contract.
>
> If a 1 cent trade up trade on the S&P 500 is placed and the index
falls to
> zero before the trader can exit, he/she has just lost the price of
a cheap
> restaurant meal. Not his/her ego. Not his/her entire trading
capital.
>
> Experience is now available more cheaply by over a 1,000 fold - yet
many
> traders do not take the opportunity - some prefer the ego value of
playing
> in the big-boys game, others are just ignorant of alternatives.
>
> They are perhaps in denial of the need for time to gain experience,
or are
> ignorant of the opportunities afforded by the internet, and many
will pay
> the price of loss of participation in the trading game or worse.
>
> The internet can also save traders costs as real-time prices
(updates every
> 20 seconds or better) are provided free of charge. Also the
equivalent of
> a $20 (or more) brokerage round turn can be less than five cents.
>
> So lack of experience is no longer a function of availability of
capital or
> opportunity - more a reluctance to see yourself as 'in training'
and act
> accordingly.
>
>
> Learning from Experience
>
> At school we are rarely taught how to learn.
>
> It is just, mostly falsely, assumed we have learnt how to learn at
home.
>
> To learn from experience we have to digest that experience.
>
> Most of us are too shallow to fully digest the implications of our
> experiences and to modify our beliefs and behaviours to effectively
learn
> from any experience.
>
> Common aspects of shallow learning include:
>
> - wallowing in emotions (just fun you know and
showing off),
> - not realising the importance of timing,
> - not knowing about the power of our beliefs,
> - unwilling to change our beliefs,
> - not knowing how to change beliefs,
> - unwilling to modify our behaviour,
> - unaware of how to consolidate behavioural change,
> - ...
>
> You have perhaps learned how to learn when:
>
> - you understand some of your inner tendencies that
stop you
> learning,
> - you love learning,
> - you have an inkling of how much you still have to
learn,
> - even traders who are not in learning mode and talk
of
> nothing but their last entry and forecast have
something to
> teach you,
> - ...
>
>
> Focusing on Key Areas
>
> To make best use of our experiences, we need to use the time
wisely,
> spending as much time and using as much experience as possible on
fruitful
> learning processes.
>
> Practical areas for focusing on learning skills that directly
impact
> confidence levels include:
>
> - understanding market behaviours,
> - designing trading systems/methodologies that are
coherent
> with identified market behaviours,
> - understanding effective trader behaviours,
> - modifying your trader behaviour to be congruent
with
> identified effective trader behaviours.
>
> There are several techniques that have a direct impact on
confidence including:
>
> - risk of ruin considerations,
> - position sizing ideas,
> - service concepts,
> - ...
>
> Summary
>
> Oh, that I was wise enough to know this about 20 years ago. I
would have
> developed as a trader much more rapidly and enjoyed life more.
>
> In practice, I was not ready for this information - I was too
shallow in
> too many aspects for much of it to stick.
>
> Are you ready?
>
> Do you know any later or better stages - if so why not share your
> experience and wisdom instead of lurking?
>
> Unconditional regards, Ric.
> www.traderscalm.com
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