About the Psychology of Successful Trading the Stocks & Commodities Markets and Gann Trading Course Access
A good time to start trading financial markets for success is today's date so study and learn all you can without delay. What are Electronic Derivatives and Electronic Derivatives trading? A financial instrument, traded on or off an exchange, including an electronic derivatives exchange, prices of the derivative is directly dependent upon (i.e. "derived from") the value of one or more underlying securities, equity indices, debt instruments, commodities, other derivative instruments, or any agreed upon pricing index or arrangement (e.g., the movement over time of the Consumer Price Index or freight rates). Derivatives involve the trading of rights or obligations based on the underlying product, but do not directly transfer property. They are used to hedge risk or to exchange a floating rate of return for a more desired fixed rate of return.
Market Psychology is Important for
Successful Commodity Futures Trading
1. Understanding and acting in accordance with market psychology is vitally important. It is no good being a good technician if you are really a bad tactician.
2. Market psychology is very different from the psychology necessary for normal business and/or academic success. Many highly successful businessmen and academics have been abysmal failures as market operators.
3. Develop your own system, test it, then stick with it. Other people's systems may work well for them, but probably will not be compatible with your psychological make-up.
4. Accept total responsibility for the results of your trading results. Even if you authorized someone else to trade on your behalf, it was you who made this decision - nobody forced you. Remember losers always look for somebody else to blame. Winners look to themselves particularly if they have to take a loss on some trades - as is inevitable for all traders and all systems.
5. Don't take the advice of others. They could be thinking in a totally different time frame from you.
6. Always place a pre-calculated stop whenever you open a trade and decide how you are going to move this stop for all possible movements of price during the trade. Stick to your plan during the trade.
7. Do not keep calling your broker during trading sessions to inquire about market prices. (The exception of course, is the day trader who would be crazy not to have his own quote system.) Your stop will protect the decision you should already have made. Ringing your broker will adversely influence your decision and may well cause you to act irrationally and hence almost inevitably wrongly.
8. Never worry that you could have done better had you second-guessed your system. Concern yourself only that you followed your system and predetermined stops. No system is perfect. The best systems can only give you an edge - but of course never 100% profitable trades.
9. Do not trade for excitement. Avoid elation over fast profits and depression over losses. If you have a good system it does not matter whether any particular trade makes a profit or a loss. Remember, all systems will generate losses. Only chide yourself if you broke the rules of your system (this applies to profitable as well as losing trades).
10. Always trade with a view to protecting capital and limiting the value (not the number) of losses and never with a view to making large profits. Net trading profits should prevail if you closely adhere to a a good trading system.
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11. Do not over-worry or concentrate a lot about the ratio of the number of profitable trades vs losing trades. A good trading system may generate a relatively large number of small losses (and small profits) and by comparison few large profits. However, adhering to a time-tested good trading-system can produce a good net profit over time.
12. Cut your losses quickly and let your profits run (with a predetermined stop). You should have read this advice so many times that it almost sounds trite - it is not - it is the best summary of all these rules you could have.
13. Reverse the natural reactions initiated by hope and fear, i.e., you should hope that profits will increase and fear that losses will increase. The overwhelming majority wrongly do the reverse i.e., they take profits too quickly (fearing they will disappear) and keep losing trades (hoping they will decrease). They should keep winning trades (until stopped out by rising protective stops) and quickly close losing trades (however, much it may damage the ego - if you are rich enough to afford the ego you do not need to trade).
14. Never become complacent. This frequently happens after a string of good profits, which often are followed by unacceptably large losses. In such a situation, lighten up or stop trading and take a look at yourself. The unacceptable losses will inevitably be the result of complacency and consequent failure to follow the rules. Start trading again only after you have fully recognized your mistakes. If necessary, take a vacation or an extended period of not trading. "A great many smashes by brilliant men can be traced directly to a swelled head-an expensive disease everywhere to everybody, but particularly in Wall Street to a speculator" - Jesse Livermore.
15. Never think as a biased bull or a biased bear. Decide from your system whether the situation is bullish or bearish or neither and act accordingly. By all means "Have an opinion on what the market should do but don't decide what the market will do" - Baruch. "There is only one side of the market and it is not the bull side or the bear side, but the right side." Livermore
16. Never trade for the sake of trading. Only trade when your system indicates a high statistical probability of success. Exercise patience (often difficult) and wait. "It was never my thinking that made the big money for me. It was my sitting. Got that? My sitting tight . . . Men who can both be right and sit tight are uncommon. I found this one of the hardest things to learn ... It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance." - Livermore.
"Knowing when not to trade - patiently standing aside until just the right moment to enter the market - is one of the toughest challenges facing the trader." - Roll
When in doubt get out or do not get in." - Gann
17. Act promptly and decisively and do not procrastinate. When your system indicates a potentially profitable situation - ACT (also, of course placing a suitable stop).
18. Work hard. Always keep your charts and analyses up-to-date and your hard disk organized. You must be organized in order to conform with 17 above. Remember that successful trading is not easy any more than is success in business and/or a skilled profession. A 10-year period of study and experience is usually necessary prior to any spectacular success.
19. The human mind is more flexible than any computer. But it is subject to adverse behavioral patterns. Thus, the best approach for most people is a good trading system, followed by analysis and rigid discipline. Maintain an open mind. Do what is right (which often doesn't feel comfortable). Rigid personalities rarely if ever succeed trading the markets.
20. Follow the rules of Neuro Linguistic programming (NLP). For further details, see "The New Market Wizards" (Faulkner) by Jack Schwager.
(i) Use both "toward" and "away from" motivation.
(ii) Break down potentially overwhelming goals into chunks with satisfaction geared from the completion of each individual step.
(iii) Have a goal of full capacity plus - anything less being unacceptable.
(iv) Fully concentrate on the present i.e., the single task at hand rather than the long-term.
(v) Personally involve yourself in achieving goals as opposed to depending on others.
(vi) Make self-to-self comparisons to measure progress based on past performances.
21. Never be loyal to a trade. Close it when the time is ripe. The market is utterly ruthless and it could not care less about you or your opinion.
22. Never get mad with the market if you make a loss. If the loss is small, it may well be consistent with your system. If it is large, it is almost certainly either your fault for not following the rules or the result of a surprise event beyond your control. Chalk it up to experience and move on, but never consider that particular stock or commodity owes you - it does not.
23. You can't win if you feel you have to win to survive. This is irrational gambling not logical speculating. Never turn to the market because you want money from it for a specific purpose (e.g., a new car, boat, house, etc.) - you will inevitably lose and be worse off.
24. The key to building wealth is:
to preserve capital and to wait patiently for the right opportunities. Then and only then
25. Remember price movements are largely, but not entirely random. They give statistically valid signals and stay trending long enough to make substantial profits in short-term, medium-term and long-term trading. Which time-span you choose will depend on your own individual psyche and lifestyle. However, under no circumstances will you make net profits unless you exercise strict self-discipline along the lines indicated above.
I hope the above will help you. It is the result of 100s of hours ongoing research and study of the opinions and trading used by a large number of traders who have proved themselves to be highly successful over time.
Websites of Interest
reprint permission from webtrading.com