Danger : Accumulating Loss makes Margin Call
Floating your loss 17%
Floating your profit 29%
Cut your loss 35%
Closing your profit 17%
Let’s learn about how our brain works with money fear taken from By Jason Zweig, Money Magazine senior writer/columnist (Your money and your brain) :
1. Which is riskier: a nuclear reactor or sunlight?
2 .Which animal is responsible for the greatest number of human deaths in the U.S.? a) Alligator b) Deer c) Snake d) Bear e) Shark
Now let's look at the answers. The worst nuclear accident in history occurred when the reactor at Chernobyl, Ukraine melted down in 1986. Early estimates were that tens of thousands of people might be killed by radiation poisoning. By 2006, however, fewer than 100 had died. Meanwhile, nearly 8,000 Americans are killed every year by skin cancer, commonly caused by overexposure to the sun.
In the typical year, deer are responsible for roughly 130 human fatalities - seven times more than alligators, bears, sharks and snakes combined. Deer, of course, don't attack. Instead, they step in front of cars, causing deadly collisions.
None of this means that nuclear radiation is good for you or that rattlesnakes are harmless. What it does mean is that we are often most afraid of the least likely dangers and frequently not worried enough about the risks that have the greatest chances of coming home to roost.
We're no different when it comes to money. Every investor's worst nightmare is a stock market collapse like the crash of 1929. According to a recent survey of 1,000 investors, there's a 51% chance that "in any given year, the U.S. stock market might drop by one-third."
In fact, the odds that U.S. stocks will lose a third of their value in a given year are around 2%. The real risk isn't that the market will melt down but that inflation will erode your savings. Yet only 31% of the people surveyed were worried that they might run out of money during their first 10 years of retirement.
Fear: The hot button of the brain
Deep in the center of your brain, level with the top of your ears, lies a small, almond-shaped knob of tissue called the amygdala (ah-mig-dah-lah). When you confront a potential risk, this part of your reflexive brain acts as an alarm system - shooting signals up to the reflective brain like warning flares. (There are two amygdalas, one on each side of your brain.)
The result is that a moment of panic can wreak havoc on your investing strategy. Because the amygdala is so attuned to big changes, a sudden drop in the market tends to be more upsetting than a longer, slower decline, even if it's greater in total.
So… we as a forex trading don’t realize with a slower decline of our margin because of our uncontrolled emotion and money management can caused margin call next day. But we seemed that afraid with one big surprise loss than the accumulation of the smaller one, and that’s our normal brain if in panic situation.
Let’s try to admit and wise to control our stop loss, cutting the loss as minimal you can do is safer and secure than waiting for small latent margin call situation. Trying to manage the margin to get profit after the loss is very important as a profitable trader.
Tame your brain and manage your brain to facing money is very challenge effort for traders (you can read the article before in the blog about 8 ways to tame your brain). But will protect you as a profitable profit not as a contributor fund to your broker again and again until you feel desperate. Keep try traders !
Bahaya Laten : Akumulasi Loss menyebabkan Margin Call
Dari artikel mengenai bagaimana cara otak kita bekerja terhadap uang dapat disimpulkan bahwa manusia lebih tidak menyadari bahaya kecil yang berkesinambungan dibandingkan dengan satu kejadian yang langsung membahayakan diri mereka. Dalam forex pun demikian, banyak yang tidak menyadari penurunan margin semakin hari karena tidak adanya kontrol emosi dan management resiko akan menyebabkan margin call pada akhirnya. Tetapi sepertinya kita lebih takut kepada kejadian Margin Call yang besar-besaran dari satu posisi dibandingkan akumulasi dari beberapa kekalahan yang ada. Otak kita senantiasa bekerja dalam kepanikan jika terjadi hal tersebut.
Mari kita mengakui dan bijaksana untuk mengatur stop loss kita, menutup kerugian seminimal mungkin lebih aman daripada harus menunggu bahaya latent yang tersembunyi setelahnya. Memelihara margin sangat penting untuk kembali mencari keuntungan.
Menjinakkan otak Anda dan mengatur otak Anda dalam menghadapi uang adalah tantangan bagi trader tersendiri (Anda dapat membaca artikel sebelumnya dib log ini mengenai 8 cara menjinakkan otak Anda). Namun hal ini akan melindungi Anda terus sebagai trader yang profit, bukan sebagai penyumbang rutin bagi broker Anda sampai Anda merasa putus asa.
Anticipation Vs. Prediction
figure 1
By Scott Black
Anticipation Vs. Prediction
Oftentimes, technical analysis is referred to as some sort of black magic used to time the market. However, what many outside of the financial world don't realize is that traders don't try to predict the future. Instead, they create strategies that have a high probability of succeeding - situations where a trend or market movement can be anticipated.
Let's face it - if traders could pick tops and bottoms on a consistent basis, they would be spending more time out in a Ferrari F430 convertible enjoying a nice stretch of highway. Many of you have probably tried picking tops and bottoms in the past and are through with the game. Perhaps you've already following in the footsteps of many professional traders, who attempt to find situations where they can anticipate a move and then take a portion of that move when the setups occur.
The Power of Anticipation
When deciding on whether or not to make a trade, you likely have your own method of entering and exiting the market - you should decide on these before clicking the buy/sell button. Technical traders use certain tools such as the moving average convergence divergence (MACD), the relative strength index (RSI), stochastics or the commodity channel index (CCI) along with recognizable chart patterns that have occurred in the past with a certain measured result. Experienced traders will probably have a good idea of what the outcome of a trade will be as it plays out. If the trade is going against them as soon as they enter and it doesn't turn around within the next few bars, odds are that they weren't correct on their analysis. However, if the trade does go in their favor within the next few bars, then they can begin to look at moving the stops up to lock in gains as the position plays out. ('Bars' are used as a generic term here, as some of you may use candlesticks or line charts for trading.)
Figure 1 is an example of a trade taken on the British pound/U.S. dollar (GBP/USD) currency pair. It uses an exponential moving average crossover to determine when to be long and when to be short. The blue line is a 10-period EMA, and the red is a 20-period EMA. When the blue line is over the red, you are long and vice versa for shorts. In a trending market, this is a powerful setup to take because it allows you to participate in the large move that often follows this signal. The first arrow shows a false signal while the second shows a very profitable signal.
This is where the power of anticipation comes into play. The active trader typically monitors open positions as they play out to see if any adjustments need to be made. Once you had gone long at the first arrow, within three bars you would already be down more than 100 pips. By placing your stop at the longer-term trend moving average, you will probably want to be out of that trade anyway, as a potential reversal might be signaled. On the second arrow, once you were long, it would only take a few days before this trade went in your favor. The trade management comes into play by trailing your stop up to your personal trading style. In this case, you could have used a close under the blue line as your stop, or waited for a close underneath the red line (longer-term moving average). By being active in position management - by following the market with your stops and accepting them when they are hit - you are far more likely to have greater returns in the long run than you would be if you removed the stop right before the market blasted through it. (For further reading, check out Trailing-Stop Techniques.)
Figure 1 illustrates the difference between anticipation and prediction. In this case, we are anticipating that this trade will have a similar result based on the results of previous trades. After all, this pattern was nearly identical to the one that worked before, and all other things remaining equal, it should have a decent enough chance to work in our favor. So did we make a prediction about what would happen in this case? Absolutely not - if we had, we wouldn't have put our stop-loss in place at the same time the trade was sent. Unlike anticipation, which uses past results to determine the probability of future ones, making an accurate prediction often involves a combination of luck and conjecture, making the results much less, well, predictable.
Limited Emotion
By monitoring the trade(s) in real-time and adjusting accordingly, we ensure that emotions aren't able to get the better of us and cause a deviation from the original plan. Our plan originated before the position was taken (and thus had no conflict of interest) so we use this to look back on when the trade is active. Since we already have a plan that involves no emotion, we are able to do as much as possible to stick to that plan during the heat of battle. Make a point of minimizing emotion, but not completely removing it. You're only human, after all, and trading like a robot is nearly impossible for most traders, no matter how successful they are. We know what the market will look like if our anticipation both does and does not occur. Therefore, by using the chart above, you can see where the signals clearly did and did not work as they were happening based on the price action of each bar and its relation to the moving averages. The key is to take ownership of your trades and act based on your trading plan time and time again. (For more insight, see Ten Steps To Building A Winning Trading Plan and Having A Plan: The Basis Of Success.)
Conclusion
Objectivity is essential to trading survival. Technical analysis provides many views of anticipation in a clear and concise manner, but as with everything else in life, it doesn't provide a guarantee of success. However, by sticking to a trading plan day in and day out, our emotions are minimized and we can greatly increase the probability of making a winning trade. With time and experience, you can learn to anticipate the direction of your trades and improve your chances of achieving better returns.
Limiting Losses
By Jason Van Bergen
It is simply not possible for any trader - whether amateur, professional or anywhere in between - to avoid every single loss. The disciplined trader is fully cognizant of the inevitability of losing hard-earned profits and, as such, is able to accept losses without emotional upheaval. At the same time, however, there are systematic methods by which you can ensure that losses are kept to a minimum.
The System
Every trader should employ a loss-limit system whereby he or she limits losses to a fixed percentage of assets, or a fixed percentage loss from capital employed in a single trade. Think of such a system as a circuit breaker, or collar, on the trade. After a certain percentage has been lost from his or her trading account or principal traded, the trader may very well stop trading entirely or may immediately exit the losing position. With this system, exiting a losing position is a single, unemotional decision that is not affected by any hopes that “the market is sure to turn around any minute now.”
A 2% Limit of Loss
A common level of acceptable loss for one's trading account is 2% of equity in the trading account. The capital in your trading account is your risk capital, the capital that you employ (that you risk) on a day-to-day basis to try to garner profits for your enterprise.
The loss-limit system can even be implemented before entering a trade. When you are deciding how much of a particular trading instrument to purchase, you would simultaneously calculate how much in losses you could sustain on that trade without breaching your 2% rule. When establishing your position, you would also place a stop order within a maximum of 2% loss of the total equity in your account. Of course, your stop can be anywhere from a 0% to 2% total loss. A lower level of risk is perfectly acceptable if the individual trade or philosophy demands it.
Every trader has a different reaction to the 2% rule of thumb. Many traders think that a 2% risk limit is too small and that it stifles their ability to engage in riskier trading decisions with a larger portion of their trading accounts. On the other hand, most professionals think that 2% is a ridiculously high level of risk and prefer losses to be limited to around 0.5-0.25% of their portfolios. Granted, the pros would naturally be more risk averse than those with smaller accounts - a 2% loss on a large portfolio is a devastating blow. Regardless of the size of your capital, it is wise to be conservative rather than aggressive when first devising your trading strategy.
Monthly Loss Limit of 6%
So, you have now established a system whereby your loss from each individual trade is limited to 2% of your risk capital. But it doesn't take a rocket scientist to realize that even losing a moderate 1% of your account's value in ten days within a month results in a rather devastating 10% of your account's value within that month (not withstanding any profits that you might have made in the other 12 odd trading days within the month). In addition to limiting losses from individual trades, we must establish a circuit breaker that prevents extensive overall losses during a period of time.
A useful rule of thumb for overall monthly losses is a maximum of 6% of your portfolio. As soon as your account equity dips to 6% below that which it registered on the last day of the previous month, stop trading! Yes, you heard me correctly. When you have hit your 6% loss limit, cease trading entirely for the rest of the month. In fact, when your 6% circuit breaker is tripped, go even further and close all of your outstanding positions, and spend the rest of the month on the sidelines. Take the last days of the month to regroup, analyze the problems, observe the markets and prepare for re-entry when you are confident that you can prevent a similar occurrence in the following month.
How do you go about instituting the 6% loss-limiting system? You have to calculate your equity each and every day. This includes all of the cash in your trading account, cash equivalents and the current market value of all open positions in your account. Compare this daily total with your equity total on the last trading day of the previous month and, if you are approaching the 6% threshold, prepare to cease trading.
Employing a 6% monthly loss limit allows the trader to hold three open positions with potential for 2% losses each, or six open positions with a potential for 1% losses each and so forth.
Making Necessary Adjustments
Of course, the fluid nature of both the 2% single trade limit and the 6% monthly loss limit means that you must re-calibrate your trading positions every month. If, for example, you enter a new month having realized significant profits the previous month, you will adjust your stops and the sizes of your orders so that no more than 2% of the newly calculated total equity is exposed to a risk of losses. At the same time, when your account rises in value by the end of the month, the 6% rule of thumb will allow you to trade with larger positions the following month. Unfortunately, the reverse is also true: if you lose money in a month, the smaller capital base the following month will ensure that your trading positions are smaller.
Both the 2% and the 6% rule allow you to pyramid, or add to your winning positions when you are on a roll. If your position runs into positive territory, you can move your stop above breakeven and then buy more of the same stock - as long as the risk on the new aggregate position is no more than 2% of your account equity, and your total account risk is less than 6%. Adding a system of pyramiding into the equation allows you to extend profitable positions with absolutely no commensurate increase in your risk thresholds.
Conclusion
The 2% and the 6% rules of thumb are highly recommended for all traders, especially those who are prone to the emotional pain of experienced losses. If you are more risk averse, by all means, adjust the percentage loss limiters to lower numbers than 2% and 6%. It is not recommended, however, that you increase your thresholds - the pros rarely stray above such potential for losses, so do think twice before you increase your risk thresholds.
Seven Time-Tested Money Management Rules to Insure Survival over the Long Run
1. Always Preserve Capital. Traders should limit loss to 1% of total capital for any one position.
2. Always trade in the direction of the larger trends, with the most emphasis on the Primary Tide that lasts many months or years. In a Bull Market, look only for opportunities to enter long and close long. In a Bear Market, look only for opportunities to enter short and close short.
3. Always use Actual Stops. Short-term traders should limit losses to a maximum 2% for each position. Longer-term traders and investors should limit losses to 7.2% on the long side and 8.4% on the short side for each position.
4. Always exit losing positions before the close of the day for short-term Ripple traders (with a time horizon measured in days). Longer-term traders should also set a time stop appropriate to the cycle they are trying to capture, in order to avoid tying up capital in positions that are not moving as expected.
5. Always consider Bet Size and Diversification. Commit a maximum of 5% of total capital to any one position.
6. Always calculate your Reward/Risk Ratio. Enter a position only when your analysis indicates 3 points of potential reward for 1 point of risk.
7. Always take a time out from trading any time you lose 5% of your capital. This breaks bad momentum and limits negative spirals into deep holes. It gives us time to calmly reevaluate the situation. A few days off helps clear the head. A time out helps limit revenge trading. The desperate attempt to quickly make back the loss most often causes even more trouble.
Capital conservation should be the first rule in trading and investing. Capital takes time to accumulate, but it can disappear fast if the technical trading rules are not well known and respected. Beginners particularly would be well advised to take these rules to heart and to start trading only a small fraction of their capital using the minimum size orders until they acquire their real-time market education as inexpensively as possible. Ignore this, and the tuition could be substantial.
Ten Steps to Building a Winning Trading Plan
Matt Blackman, the host of TradeSystemGuru.com, is a technical trader, author, keynote speaker and regular contributor to a number of trading publications and investment/trading websites in North America and Europe. He also writes a weekly market letter.
There is an old saying in business: "Fail to plan and you plan to fail." It may sound glib, but those who are serious about being successful, including traders, should follow these eight words as if they were written in stone. Ask any trader who makes money on a consistent basis and they will tell you, "You have two choices: you can either methodically follow a written plan, or fail."
If you have a written trading or investment plan, congratulations! You are in the minority. While it is still no absolute guarantee of success, you have eliminated one major roadblock. If your plan uses flawed techniques or lacks preparation, your success won't come immediately, but at least you are in a position to chart and modify your course. By documenting the process, you learn what works and how to avoid repeating costly mistakes.
Whether or not you have a plan now, here are some ideas to help with the process.
Disaster Avoidance 101…
Trading is a business, so you have to treat it as such if you want to succeed. Reading some books, buying a charting program, opening a brokerage account and starting to trade is not a business plan - it is a recipe for disaster. "If you don't follow a written trading plan, you court disaster every time you enter the market," says John Novak, an experienced trader and developer of the T-3 Fibs Protrader Program.
John and his wife Melinda, who is also his business partner in Nexgen Software Systems, run a number of educational trading chat rooms to help traders learn how to use their software and, more importantly, learn how to trade. In a nutshell, their software identifies Fibonacci areas of support and resistance in multiple time frames and provides traders with specific areas to enter and exit the market. Once a trader knows where the market has the potential to pause or reverse, he or she must then determine which one it will be and act accordingly.
"Even with the best program, market data and analysis, odds for consistent success range from slim to none without a written plan," says Novak. The Nexgen website offers examples of trading plans and useful market information for the benefit of both clients and non-clients alike.
"Like the markets, a good trading plan evolves and changes, and should improve over time," says Melinda Novak.
A plan should be written in stone while you are trading, but subject to re-evaluation once the market has closed. It changes with market conditions and adjusts as the trader's skill level improves. Each trader should write his or her own plan, taking into account personal trading styles and goals. Using someone else's plan does not reflect your trading characteristics.
Building the Perfect Master Plan
What are the components of a good trading plan? Here are 10 essentials that every plan should include.
1.Skill assessment - Are you ready to trade? Have you tested your system by paper trading it and do you have confidence that it works? Can you follow your signals without hesitation? If not, it's a good idea to read Mark Douglas's book, "Trading in the Zone", and do the trading exercises on pages 189–201. This will teach you how to think in terms of probabilities. Trading in the markets is a battle of give and take. The real pros are prepared and they take their profits from the rest of the crowd who, lacking a plan, give their money away through costly mistakes.
2. Mental preparation – How do you feel? Did you get a good night's sleep? Do you feel up to the challenge ahead? If you are not emotionally and psychologically ready to do battle in the markets, it is better to take the day off - otherwise, you risk losing your shirt. This is guaranteed to happen if you are angry, hungover, preoccupied or otherwise distracted from the task at hand. Many traders have a market mantra they repeat before the day begins to get them ready. Create one that puts you in the trading zone.
3. Set risk level – How much of your portfolio should you risk on any one trade? It can range anywhere from around 1% to as much as 5% of your portfolio on a given trading day. That means if you lose that amount at any point in the day, you get out and stay out. This will depend on your trading style and risk tolerance. Better to keep powder dry to fight another day if things aren't going your way.
4. Set goals – Before you enter a trade, set realistic profit targets and risk/reward ratios. What is the minimum risk/reward you will accept? Many traders use will not take a trade unless the potential profit is at least three times greater than the risk. For example, if your stop loss is a dollar loss per share, your goal should be a $3 profit. Set weekly, monthly and annual profit goals in dollars or as a percentage of your portfolio, and re-assess them regularly.
5. Do your homework – Before the market opens, what is going on around the world? Are overseas markets up or down? Are index futures such as the S&P 500 or Nasdaq 100 exchange-traded funds up or down in pre-market? Index futures are a good way of gauging market mood before the market opens. What economic or earnings data is due out and when? Post a list on the wall in front of you and decide whether you want to trade ahead of an important economic report. For most traders, it is better to wait until the report is released than take unnecessary risk. Pros trade based on probabilities. They don't gamble.
6. Trade preparation – Before the trading day, reboot your computer(s) to clear the resident memory (RAM). Whatever trading system and program you use, label major and minor support and resistance levels, set alerts for entry and exit signals and make sure all signals can be easily seen or detected with a clear visual or auditory signal. Your trading area should not offer distractions. Remember, this is a business, and distractions can be costly.
7. Set exit rules – Most traders make the mistake of concentrating 90% or more of their efforts in looking for buy signals but pay very little attention to when and where to exit. Many traders cannot sell if they are down because they don't want to take a loss. Get over it or you will not make it as a trader. If your stop gets hit, it means you were wrong. Don't take it personally. Professional traders lose more trades than they win, but by managing money and limiting losses, they still end up making profits.
Before you enter a trade, you should know where your exits are. There are at least two for every trade. First, what is your stop loss if the trade goes against you? It must be written down. Mental stops don't count. Second, each trade should have a profit target. Once you get there, sell a portion of your position and you can move your stop loss on the rest of your position to break even if you wish. As discussed above in number three, never risk more than a set percentage of your portfolio on any trade.
8. Set entry rules – This comes after the tips for exit rules for a reason: exits are far more important than entries. A typical entry rule could be worded like this: "If signal A fires and there is a minimum target at least three times as great as my stop loss and we are at support, then buy X contracts or shares here." Your system should be complicated enough to be effective, but simple enough to facilitate snap decisions. If you have 20 conditions that must be met and many are subjective, you will find it difficult if not impossible to actually make trades. Computers often make better traders than people, which may explain why nearly 50% of all trades that now occur on the New York Stock Exchange are computer-program generated. Computers don't have to think or feel good to make a trade. If conditions are met, they enter. When the trade goes the wrong way or hits a profit target, they exit. They don't get angry at the market or feel invincible after making a few good trades. Each decision is based on probabilities.
9. Keep excellent records – All good traders are also good record keepers. If they win a trade, they want to know exactly why and how. More importantly, they want to know the same when they lose, so they don't repeat unnecessary mistakes. Write down details such as targets, the entry and exit of each trade, the time, support and resistance levels, daily opening range, market open and close for the day, and record comments about why you made the trade and lessons learned. Also, you should save your trading records so that you can go back and analyze the profit/loss for a particular system, draw-downs (which are amounts lost per trade using a trading system), average time per trade (which is necessary to calculate trade efficiency), and other important factors, and also compare them to a buy-and-hold strategy. Remember, this is a business and you are the accountant.
10. Perform a post-mortem – After each trading day, adding up the profit or loss is secondary to knowing the why and how. Write down your conclusions in your trading journal so that you can reference them again later.
Parting Notes
"No one should be trading real money until they have at least 30 to 60 profitable paper trades under their belts in real time in real market conditions before risking real money," says Novak.
Successful paper trading does not guarantee that you will have success when you begin trading real money and emotions come into play. But successful paper trading does give the trader confidence that the system he or she is going to use actually works.
The exercises in "Trading in the Zone" walk the trader through trading a system based on a simple indicator, entering the market when the indicator gives a buy and exiting when it gives a sell. Deciding on a system is less important than gaining enough skill so that you are able to make trades without second guessing or doubting the decision.
There is no way to guarantee that a trade will make money. The trader's chances are based on his or her skill and system of winning and losing. There is no such thing as winning without losing. Professional traders know before they enter a trade that the odds are in their favor or they wouldn't be there. By letting his or her profits ride and cutting losses short, a trader may lose some battles, but he or she will win the war. Most traders and investors do the opposite, which is why they never make money.
Traders who win consistently treat trading as a business. While it's not a guarantee that you will make money, having a plan is crucial if you want to become consistently successful and survive in the trading game.
Lessons From A Trader's Diary
By Boris Schlossberg, Senior Currency Strategist
Almost every successful businessman will tell you that record keeping is critical to running an efficient business. Whether designing sophisticated aeronautics or simply selling scented soap, all businesses record and analyze their transactions to refine and optimize execution. When it comes to trading FX, however, very few traders diligently record and review their trades. FX trading, with its instantly dealable rates and self-organizing accounting software, makes it easy to forsake the discipline of keeping a trading diary. Yet a diary can improve a trader's performance far more than any piece of advanced technical analysis software or even a $2,000-per-day trading seminar. This article will outline what to record in your journal and will provide an example from the writer's own trading diary.
Why is keeping a trading diary so valuable? First, as human beings with faulty memories, we simply forget many of the circumstances surrounding our best and worst trades and, as a result, we learn little from them if they are not recorded. Second, the gap between what we think we do and what we actually do during trading can be embarrassingly large - a problem that can easily be identified with proper note taking. Finally, the mere act of keeping a diary introduces a methodical element to trading that prevents us from trading randomly and impulsively - the culprit behind most trading disasters.
Keeping a diary need not be cumbersome or complicated. Here is a list of three key issues that should be covered in every trade:
1. What did you trade and why?
The reason for a trade can be either fundamental or technical (preferably both), but there must be a reason. Too many retail traders put on a trade because they think that prices have either risen or fallen "enough", without any technical or fundamental justification for their opinions. Worse, many traders get into positions out of sheer boredom, forcing a trade and then spending the rest of the time trying to justify it. Even if boredom is the primary driver for the trade, having a diary will make the trader record that fact and he or she will be able to see the consequences of such behavior.
2. Where is your stop and limit and why?
It is astonishing how many traders get into a trade without any clear idea of where to take a profit or when to get out if the trade moves against them. However, by writing down specific stop and limit orders, the trader consciously plans ahead for any contingency that may occur. Even if a trader disregards the initial stop in the heat of the battle, the act of recording all of that activity will be invaluable in doing post-trade analysis and enforcing better discipline on the next trade.
3. Did the trade work out as planned?
There is often an enormous gap between how the trade setup looks on charts or through the prism of backtesting software and the emotional reality of having money at risk. Comparing the difference between the two can help traders understand their strengths and weaknesses and improve long-term performance.
Because trading is such a visual craft, attaching a chart with annotations will complete the diary process by providing a pictorial reference point for further study.
Conclusion
The act of maintaining a diary crystallized my dominant behavioral patterns, clearly showing that I am not capable of holding most of my positions long enough to achieve a 2:1 risk/reward pattern. In my case, it is even more critical to choose only the highest probability setups that have an expectancy rate of better than 60% in order for my trading to succeed.
For other (more patient) traders, the diary process may reveal that they should expand their risk parameters in order to allow for the possibility of capturing larger gains. Regardless of the conclusion, the process of diary writing reveals the true human nature of trading that those clean, crisp charts and the coldly efficient results of backtesting systems simply cannot convey. It also demonstrates why computerized systems have such a difficult time trading markets. In fact, I have witnessed the results of hundreds of systems trade in real time and not one of them was profitable in the long term. Trading requires all of our emotional and analytical capabilities in order to produce success. The act of keeping a trading diary helps us better understand the demons that drive us and, in turn, makes us better traders.
Comment attachment from Bigdaddy11 & Article : What Trading Teaches Us About Life
This was a comment for blog topic : Avoid Making the Prediction in the Market from my friend Bigdaddy11. Since he attached a good article, so I publish it in to one topic it self, so you read directly from this blog.
Comment :
Predict the market is nonsense.....
even it's just for entertaining.
So...instead of thinking how to predict the market, better we learn what trading teachs us about life:
What Trading Teaches Us About Life
By Brett N. Steenbarger, Ph.D.
Trading is a crucible of life: it distills, in a matter of minutes, the basic human challenge: the need to judge, plan, and seek values under conditions of risk and uncertainty. In mastering trading, we necessarily face and master ourselves. Very few arenas of life so immediately reward self-development--and punish its absence.
So many life lessons can be culled from trading and the markets:
1) Have a firm stop-loss point for all activities: jobs, relationships, and personal involvements. Successful people are successful because they cut their losing experiences short and ride winning experiences.
2) Diversification works well in life and markets. Multiple, non-correlated sources of fulfillment make it easier to take risks in any one facet of life.
3) In life as in markets, chance truly favors those who are prepared to benefit. Failing to plan truly is planning to fail.
4) Success in trading and life comes from knowing your edge, pressing it when you have the opportunity, and sitting back when that edge is no longer present.
5) Risks and rewards are always proportional. The latter, in life as in markets, requires prudent management of the former.
6) Happiness is the profit we harvest from life. All life's activities should be periodically reviewed for their return on investment.
7) Embrace change: With volatility comes opportunity, as well as danger.
8) All trends and cycles come to an end. Who anticipates the future, profits.
9) The worst decisions, in life and markets, come from extremes: overconfidence and a lack of confidence.
10) A formula for success in life and finance: never hold an investment that you would not be willing to purchase afresh today.
hope it's usefull.....
**bigdaddy11**
