Posting some trading advices from the books I read, so keep me alert. This is from Dr. Alexlander's Come to my Trading Room:
THE MATURE TRADER
Successful traders are sharp, curious, and unassuming people. Most
have been through losing periods. They graduated from the school of
hard knocks, and that experience helped smooth their rough edges.
Successful traders are self-assured but never arrogant. People who survive
in the markets remain alert. They trust their skills and trading methods,
but keep their eyes and ears open for new developments. Confident
and attentive, calm and flexible, successful traders are fun to be with.
Successful traders are often unconventional people, and some are
very eccentric. When they mix with others, they often break social rules.
The markets are set up for the majority to lose money, and a small group
of winners marches to a different drummer, in and out of the markets.
Markets consist of huge crowds of people watching the same trading
vehicles, mesmerized by upticks and downticks. Think of a crowd
at a concert or in a movie theater. When the show begins, the crowd
gets emotionally in gear and develops an amorphous but powerful
mass mind, laughing or weeping together. A mass mind also emerges
in the markets, only here it is more malignant. Instead of laughing or
weeping, the crowd seeks each trader¡¯s private psychological weakness
and hits him in that spot.
Markets seduce greedy traders into buying positions that are too
large for their accounts and then destroy them with a reaction they cannot
afford to sit out. They shake fearful traders out of winning trades
with brief countertrend spikes before embarking on runaway moves.
Lazy traders are the favorite victims of the market, which keeps throwing
new tricks at the unprepared. Whatever your psychological flaws
and fears, whatever your inner demons, whatever your hidden weaknesses
and obsessions, the market will seek them out, find them, and
use them against you, like a skilled wrestler uses his opponent¡¯s own
weight to toss him to the ground.
Successful traders have outgrown or overcome their inner demons.
Instead of being tossed by the markets, they maintain their own balance
and scan for chinks in the crowd¡¯s armor, so that they can toss
the market for a change. They may appear eccentric, but when it
comes to trading they are much healthier than the crowd.
Being a trader is a journey of self-discovery. Trade long enough, and
you will face all your psychological handicaps¡ªanxiety, greed, fear,
anger, and sloth. Remember, you¡¯re not in the markets for psychotherapy;
self-discovery is a byproduct, not the goal of trading. The primary
goal of a successful trader is to accumulate equity. Healthy trading
boils down to two questions you need to ask in every trade: ¡°What is
my profit target?¡± and ¡°How will I protect my capital?¡±
A good trader accepts full responsibility for the outcome of every
trade. You cannot blame others for taking your money. You have to
improve your trading plans and methods of money management. It will
take time, and it will take discipline.
Discipline
A friend of mine used to have a dog-training business. Occasionally a
prospective client would call her and say, ¡°I want to train my dog to
come when called, but I do not want to train it to sit or lie down.¡± And
she¡¯d answer, ¡°Training a dog to come off-leash is one of the hardest
things to teach; you must do a lot of obedience training first. What
you¡¯re saying sounds like, ¡®I want my dog be a neurosurgeon, but I do
not want it to go to high school.¡¯¡±
Many new traders expect to sit in front of their screens and make
easy money day-trading. They skip high school and head straight for
neurosurgery.
Discipline is necessary for success in most endeavors, but especially
in the markets because they have no external controls. You have to
watch yourself because no one else will, except for the margin clerk.
You may put on the stupidest and self-destructive trades, but as long as
you have enough money in your account, no one will stop you. No one
will say hold on, wait, think what you¡¯re doing! Your broker will repeat
your order to confirm he got it right. Once your order hits the market,
other traders will scramble for the privilege of taking your money.
Most fields of human endeavor have rules, yardsticks, and professional
bodies to enforce discipline. No matter how independent you
feel, there is always some agency looking over your shoulder. If a doctor
in private practice starts writing too many prescriptions for painkillers,
he¡¯ll soon hear from the health department. Markets impose no
restrictions, as long as you have enough equity. Adding to losing positions
is similar to overprescribing narcotics, but nobody will stop you.
As a matter of fact, other market participants want you to be undisciplined and impulsive. That makes it easier for them to get your money.
Your defense against self-destructiveness is discipline. You have to set
up your own rules and follow them in order to prevent self-sabotage.
Discipline means designing, testing, and following your trading system.
It means learning to enter and exit in response to predefined signals
rather than jumping in and out on a whim. It means doing the
right thing, not the easy thing. And the first challenge on the road to
disciplined trading involves setting up a record-keeping system.
Record-Keeping
Good traders keep good records. They keep them not just for their
accountants but as tools of learning and discipline. If you do not have
good records, how can you measure your performance, rate your
progress, and learn from your mistakes? Those who do not learn from
the past are doomed to repeat it.
When you decide to become a trader, you sign up for an expensive
course. By the time you figure out the game, its cost may equal that of
a college education, only most students never graduate¡ªthey drop out
and get nothing for their money except for memories of a few wild rides.
Whenever you decide to improve your performance in any area of
life, record keeping helps. If you want to become a better runner, keeping
records of your speeds is essential for designing better workouts.
If money is a problem, keeping and reviewing records of all expenditures
is certain to uncover wasteful tendencies. Keeping scrupulous
records turns a spotlight on a problem and allows you to improve.
Becoming a good trader means taking several courses¡ªpsychology,
technical analysis, and money management. Each course requires its
own set of records. You¡¯ll have to score high on all three in order to
graduate.
Your first essential record is a spreadsheet of all your trades. You have
to keep track of entries and exits, slippage and commissions, as well
as profits and losses. Chapter 5, ¡°Method¡ªTechnical Analysis¡± on trading
channels will teach you to rate the quality of every trade, allowing
you to compare performance across different markets and conditions.
Another essential record shows the balance in your account at the
end of each month. Plot it on a chart, creating an equity curve whose
angle will tell you whether you are in gear with the market. The goal
is a steady uptrend, punctuated by shallow declines. If your curve
slopes down, it shows you¡¯re not in tune with the markets and must
reduce the size of your trades. A jagged equity curve tends to be a sign
of impulsive trading.
Your trading diary is the third essential record. Whenever you enter
a trade, print out the charts that prompted you to buy or sell. Paste
them on the left page of a large notebook and write a few words
explaining why you bought or sold, stating your profit objective and a
stop. When you close out that trade, print out the charts again, paste
them on the right page and write what you¡¯ve learned from the completed
trade.
These records are essential for all traders, and we will return to them
later in Chapter 8, ¡°The Organized Trader.¡± A shoebox crammed with
confirmation slips does not qualify as a record-keeping system. Too
many records? Not enough time? Want to skip high school and dive
into neurosurgery? Traders fail because of impatience and lack of discipline.
Good records set you apart from the market crowd and put
you on the road to success.
