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Ric,
What was the question?
Cheers,
Norman
<BLOCKQUOTE
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----- Original Message -----
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black">From:
ric
ingram
To: <A title=realtraders@xxxxxxxxxxxxxxx
href="mailto:realtraders@xxxxxxxxxxxxxxx";>realtraders@xxxxxxxxxxxxxxx
Sent: Wednesday, February 06, 2002 10:20
AM
Subject: [RT] Confidence is (nearly)
all
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
ExperienceThis 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
ExperienceAt 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 AreasTo 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, - ...SummaryOh,
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.<A
href="http://www.traderscalm.com/"; eudora="autourl">www.traderscalm.com
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