Let us say that we have our first trade of the day going against us; we are stressed out, angry and our minds have become so blurred that it is impossible for us to continue trading objectively. The natural thing to do during a moment of ¨account drawdown¨ is to get out of the positions that we started.  This will make our brain ¨relax¨ in a way, although it will remain alert in case this situation repeats itself again.  In other words our brain will ‘want’ us to take the loss in order to stop feeling the ¨danger.¨ However, after we are mentally ¨forced¨ into taking the loss, we will NOT be ready for trading due to the following reasons:

 

•  We will not be serene, relaxed and in a proper state of mind for the next trade because we have fresh FEAR in our memory.

•  We will still be ANGRY and agitated remembering the loss we just took.

•  We will be trading on REVENGE (to make the money back as soon as possible); and we will be REACTING instead of THINKING.

 

Thus, we will take the next trade AS SOON AS WE CAN, breaking all our rules and losing more money (see ¨THE URGE SYNDROME¨ below).

Note: Revenge trading can get very repetitive within a short period of time. You will be stubbornly trying to do the same thing over and over again. ¨Range-bound¨ markets are very dangerous. (IT CAN HAPPEN IN A MANNER OF MINUTES OR DAYS; THE RESULT IS THE SAME)

 

DO NOT BE STUBBORN. LISTEN to the market and do what IT tells you to do; not the other way around. 

 

STOP!!!!        IF YOU ARE OUT OF CONTROL!!!        STOP!!

You will know if this is happening to you, YOU WILL BE LOSING MONEY and you will not want to quit; YOU MUST QUIT! Or at least step aside from your workstation and calm down (if you can´t stop at all, your EMOTIONS will get the best of you and your account.  You will regret this later on). 

IT IS IMPERATIVE THEN THAT WE CONTROL OUR BEHAVIOUR BEFORE TAKING ANY TRADE. WE DO NOT WANT TO GET ANGRY AT ALL. WE NEED TO NEUTRALIZE ANY OF OUR ¨EMOTIONS¨ AND ENTER A TRADE IN TOTAL CONTROL.

CONTROL YOUR EMOTIONS BEFORE THEY CONTROL YOU.

Be AWARE of any symptoms you feel BEFORE they take over your brain and get the best of your ability to think.

"It's necessary to learn to recognize the feelings that accompany the emotional state. Learning to readily identify an 'emergency' brain state via its characteristic physiological signals is the first, crucial step - because brain studies suggest that the moment you become aware of your internal state, you activate the prefrontal lobes, which in turn, can begin to moderate your response. So it's important to try to notice any changes happening in the body and intensely focus on the bodily changes rather than on the thoughts that trigger them¨. "The next step is to support the effort of the 'thinking brain' to consult with the inner defenders of the 'emotional brain' about the possibility of letting down its guard¨ Dr. DeFoore.

 

 

Now that we have thoroughly discussed the effects of emotion on trading, let's take a moment to classify and review every one of these emotions during a typical trade and try to point out why things can happen the way they do: 

 

PRE-TRADE EMOTIONS:

GREED AND FEAR

DURING-TRADE EMOTIONS:

HOPE, ANGER, PRIDE, GREED AND FEAR.

Let's go back to our computer once again and go through a trade we want to take:

After we have analyzed and gotten ready for the open, we can feel the following two things:

 

1. OVER-CONFIDENCE (Greed, Pride, Ego, Hope, Fear)

2. UNDER-CONFIDENCE or DOUBT (Fear, Hope)

 

When you are OVER-CONFIDENT, you probably:

 

•  Remember your last trade as a big winner.

•  Never traded before.

•  You ¨heard¨ or ¨saw¨ something that makes you feel this way (with either a good reason, or out of ignorance). 

 

DANGER: The danger with being overconfident is that we could:

 

•  Trade the market with an excess quantity of futures contracts (both at the start of the trade and during the trade when you add to your position). (Greed)

•  Not care initially if the position goes against you. (Pride)

•  Not take any profits, no matter how large. (Greed)

•  Ignore or ¨not see¨ obvious warnings by the market that the position will go against you. (Ego, Pride).

•  Give you unreasonable expectations of future profits. (Greed).

•  Trade at any price in order to jump into the market NOW. (Fear of missing out).

•  Hope too much. (Hope).

 

Overconfidence can grow even larger if you find yourself holding an instant winner.  The Greed to add more lots to your original position will be constantly pushing you towards more risk.  This can lead to the point where ANY market correction will wipe your profits away. Needless to mention is the excess emotional state that you will find yourself in.

Once again: 

Unable to think, YOU WILL REACT!

Overconfidence on a winning position will also bring greed as you will wait for more and more profits to be put into your account.  As you get more confident, you will also get overjoyed and excited (YES, FULL OF ADRENALINE ONCE AGAIN).  This will lead us to become distracted and careless; we will fail to see an exit warning ahead of time and we will not take profits when we must. We will be easily frustrated and before we know it:  ANGRY once again (even if we are making money!).   Don't come back now! Keep going! Come on! I could have gotten out at this level, now we are here! It is amazing that even when we are making money, we are not happy.  But it's true!  

When we are UNDER-CONFIDENT or IN DOUBT we will:

 

•  Be in a state of im mobility or indecision.

•  Trade with ¨market orders¨ in order to ¨feel¨ good about a trade.

•  Take profits quickly and let losses ¨run¨.

•  Blindly take small losses quickly due to brain reaction to adrenaline ¨fight or flee¨ syndrome.

•  Instead of thinking, we will REACT.

 

When in a state of immobility or indecision, we will be overwhelmed by all the information coming to us from the market at the same time. We will not know what to do with it. We will almost feel like we should not do anything, but we will trade (anyway) due to our own lack of self control. This will result in bad trades.

WHEN IN DOUBT, STAY AWAY!

When we are scared about trading, our brains will remember the last losing trade and will send fear through our bones in order to avoid the same outcome again.  As a result, our ability to place an objective order will be blinded and it will be tough for us to pull the trigger.  Most of the time when this happens, we will tend not to enter the market on a ¨stop¨ but with a ¨market order¨ due to our fear of loss and our indecisiveness into where to place the trade. 

This is DANGEROUS because we will tend to wait until the market moves past our original entry levels to get confirmation in our minds; we want to ¨feel¨ good about the trade in order to do it.  This could then: 

 

• Make us ¨miss¨ originally planned entry levels (get bad fills) due to late entries with ¨market orders¨ due to ¨fear of missing out¨ (WHICH BRINGS: emotional stress from the start).

Let´s organize it then:

FEAR>>>>>>>>>>>>>> >>UNDER-CONFIDENCE or  DOUBT>>>>>>>>>>>>>¨FEAR OF MISSING OUT¨.

 

MOST OF THE TIME, WHENEVER YOU ¨FEEL¨ GREAT ABOUT A TRADE, THE TRADE WILL BE WRONG.

 

 

¨FEAR OF MISSING OUT¨:

FEAR of ¨missing out¨ on a big profit will make you ¨jump in¨ at the worst possible moment because you feel like you are ¨missing¨ the trade and ¨the train is leaving the station without you.¨ YOU WILL CHASE THE MARKET ON A BIG MOVE AND ENTER RIGHT AT THE TOP OR BOTTOM OF A SHORT TERM  SWING.  IF THIS RALLY OR SELL-OFF TAKES PLACE ON HIGH VOLUME AND VOLATILITY YOUR FILL COULD BE VERY UGLY.

The fear of ¨missing out¨ will tell your brain to jump into the market NOW, because you ¨MUST.¨ You ¨MUST¨ according to your EYES and EMOTIONAL BRAIN.  Simply because the market has gone past your entry already; you don’t want to ¨miss¨ any more potential profits, so you chase it. (see ¨The Urge Syndrome¨ below)

ONCE AGAIN: THERE IS ABSOLUTELY NO TIME WHEN YOU ¨MUST¨ TRADE.   If you are scared, DON´T DO ANYTHING.  Give yourself a couple of days to think things over and relax!  You don't have to do anything!

IF YOU MISS A GREAT TRADE, SO WHAT! DO NOT CARE ABOUT THIS STATISTICAL CERTAINTY. This will ALWAYS happen! THERE WILL BE PLENTY MORE OPORTUNITIES TO COME, GUARANTEED!

When we are scared, we don´t want to take ANY losses. What ends up happening is either of two things:

 

•  You take losses too quickly and overtrade on REVENGE (trying to make it all back, ¨The Urge Syndrome¨).

•  Because you don´t want to take ANY loss at all, you WILL let a small loss grow into a huge one (before you finally  throw the towel).

 

DO NOT TRADE SCARED, IN FEAR OR OVER-CONFIDENT AT ANY TIME!  

• Neutralize every feeling and follow your system. 

• Become a machine and have no feelings, show no feelings.

• ONLY TRADE WHEN A ¨FULLY SET UP ENTRY¨ EXISTS.

RESTRAIN YOURSELF FROM MAKING TOO MANY DECISIONS AND TRADING TOO MUCH.

 

 

 

THE SYNDROMES:

 

THE ¨URGE¨ SYNDROME:

A sudden ¨urge¨ to do something because of ONE SINGLE indicator, chart or market move (¨Fear of missing out¨) which ¨URGES¨ or ¨ENTICES¨ you to ¨jump in¨ RIGHT NOW!  This will result in you putting your hand on the mouse and entering a ¨market order¨ leading to a relatively ¨low¨ fill entry if you are selling and to a ¨high¨ fill entry if you are buying.   This ¨bad¨ entry will give you quick losses and EMOTIONAL INSTABILITY.  You will not know where to place your stop (or you will not want to place a stop) because, since you broke your entry rules, you don't know where the stop should be EXACTLY. 

 

THIS IS A GAME OF PRECISION, EXACT FIGURES AND ZERO EMOTIONS.

What will happen next? You will exit either with a small or large loss (if you get lucky, you will be right and the trade will work, but I don't know anyone that can be simply ¨lucky¨ in a consistent enough manner as to make a living).   This loss will then lead to REVENGE TRADING.  As stated before, this is when we want to trade to ¨get our money back¨ so badly that we do the same thing over and over again. We place an emotional ¨market order¨ at the worst possible short term price. We take another small loss, our anger grows and the snow ball effect begins.  This will lead to LOSS OF CONTROL. You can do this many times during a short time period and lose a significant amount of money before you can stop and realize what you have done. 

This one is worth remembering:

THE URGE SYNDROME >>>>>> REVENGE TRADING >>>>>>>>> LOST CONTROL.

The urge syndrome can come out of nowhere and destroy your equity or a good profit in a very short period of time.  It can be summed up in two ways:

 

• FEAR of missing out on a ¨great¨ trade. After the fact, or after our last trade was a winner and we don't fear the market any more. We get careless and enter without a proper plan or signal.

 

• Bored and the need to do something. 

 

LET´S SUMMARIZE IT AND INCLUDE THE STARTING FEELING NOW: 

 

¨FEAR¨>>>>>>>>>>leads to>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

¨DOUBT OR UNDER-CONFIDENCE¨>>>>>>>>>>>>>which leads to>>>

TRADING ON: ¨FEAR OF MISSING OUT¨ OR ¨SLOPPINESS¨>>>>>>>

which will lead to>>>>>>>>>>>¨REVENGE TRADING¨>>>>>>>>>>>>>>

AND ENDS ON:  ¨LOSS OF CONTROL¨.

 

BEWARE OF THIS!

Mistakes cost money; DO NOT MAKE ANY! Even a tiny mistake can cost you big time. (See: ¨RULE #1¨ below).

WHEN IN DOUBT, DO NOTHING!

WHEN YOU KNOW YOU ARE OUT OF CONTROL OR ANGRY AT A LOSS (AFTER IT JUST HAPPENED), GET AWAY FROM THE MARKETS. STOP TRADING AND DO SOMETHING ELSE UNTIL YOU ARE CALM, OBJECTIVE AND IN CONTROL ONCE AGAIN.

DO NOT BLAME ANYONE OR ANYTHING FOR YOUR OWN FAILURES OR TRIUNPHS. They are all yours to learn from and to cherish.

 

THE ¨IMPORTANT LEVEL¨ SYNDROME:

This happens when we have preconceived perceptions (strong opinion) about the direction of a market and you want to ¨get in¨ above or below an ¨important level¨ in order to ¨feel¨ good about your entry (psychologically). For example: Let us say that you want to short the Nasdaq and the market has been moving above and below 1500.00. You want to get short above 1500.00 because this will make you ¨feel¨ good and give you ¨bragging rights¨ when it tumbles later on. You go ahead and short it simply because the price is above this ¨important level.¨ Depending on your system, we will break the entry rules most of the time because we want to get the fill above this psychological level.

 

You can try to pick a bottom in coffee (for example) and want to buy this market below 80.00 because this is THE level that seems to be giving short term support to the market. As soon as it penetrates 80.00 and you see 79.90 on your screen, you want to buy it. You end up getting long the market completely disregarding all your entry rules simply because now you got it at a 79.90 instead of 80.00. MOST OF THE TIME, THE TRADE WILL BE A BAD ONE

 

 

THE ¨I DON´T CARE¨ SYNDROME:

Whenever you ¨throw in the towel¨ and begin losing on every trade while you are angry and out of control, you start calling yourself names and you tell yourself things like: ¨I don't care any more,¨ ¨this stupid market,¨ ¨I must love to lose!¨ ¨I don't care, I'll lose anyway,¨ etc.

STOP NOW!

YOU CANNOT SAY THESE THINGS ANY MORE! YOU SHOULD NOT SAY ANYTHING NEGATIVE ABOUT THE MARKETS OR YOURSELF PERIOD! (You will understand why on the chapter about the subconscious mind)

The truth is that you DO care and the anger has gotten the best of you. You will likely realize later on how much you DID care (but with less money in your account).

As we will later see in the section on the subconscious mind, these are all words and emotions that you CANNOT repeat very often if you want to become a professional trader.

As stated before, if you know you are out of control; TURN THE COMPUTER OFF AND GO AWAY. STOP TRADING NOW!

 

 

 

THE ¨SYSTEM FRUSTRATION¨ SYNDROME:

This is the feeling that you will get when you ¨miss out¨ on a good trade that you ¨felt¨ would work at a time your system was not properly ¨set up¨ for an entry into the market. You end up doing nothing even though the market did what you expected it to do. This will lead to frustration, doubt and changes with regards to how you use, calculate and execute your system.  

DANGER:

 

•  You could begin trading on what you ¨feel¨ rather than what the system is telling you. We know that in the long run, this will be the wrong way to go.

•  You could become sloppy and overtrade trying to find something ¨better¨ than what you already have.

•  You can decide to change your system without giving it enough time to prove itself to you.

 

 

If you have back-tested your current system and you have found it to be reliable and trustworthy, STICK TO IT. The rules of a system are determined for a reason.

 

REMEMBER:

 

•  NO SYSTEM will be correct 100% of the time.

•  NO SYSTEM will get you ¨into¨ a market every time a large move takes place. Chances are that you WILL ¨miss out¨ on a couple of good trades while following your rules.

 

Once again:

 

IF YOU MISS A GREAT TRADE, SO WHAT! DO NOT CARE ABOUT THIS STATISTICAL CERTAINTY. This will ALWAYS happen! THERE WILL BE PLENTY MORE OPORTUNITIES TO COME, GUARANTEED!

DO NOT EVER FEEL BAD ABOUT MISSING A TRADE!

THIS WILL HAPPEN AT TIMES, BUT YOU CAN´T LET IT TAKE YOUR CONTROL AWAY.

Stick to your plan! What matters is that you come out ahead at the end of the month (or trading period).

Calculate the percentages of your correct trades against your losses and try to stay above a 65% positive correlation.

 

THE ¨PREFERED SIDE¨ SYNDROME:

This is the tendency to prefer one side of the market over another for apparently no reason at all. You rather short the SP500 than buy it. You rather buy the coffee market than sell it.  

This syndrome is created in our minds and it subconsciously makes us ¨feel¨ better if we trade a market from a specific side. Maybe you were long the day the stock market crashed in 1987 and you FEAR the ¨long¨ side. Maybe you have heard that a market usually moves down faster than it goes up. You could have been short Coffee in 1997 when it rallied non-stop until all the shorts went bankrupt. Once again, you FEAR the short side of Coffee which ironically has been the way to make money in this market during the last four years.

Later on during the chapter on the subconscious mind, you will be able to learn why these inner fears control our actions and emotions even when we don’t know they are doing so. We tend to see only what we want to see and fall into a trap whenever the specific market is going against our preferred direction.

Once again, to eliminate this FEAR, you must be aware of it to begin with.

Take another moment now to think about your own trading experience once again. Ask yourself questions, analyze your trading, find weaknesses that need to be recognized, find strengths, etc. All professional traders have gone through this at one point or another in their careers.

 

All the syndromes above presented have one thing in common: THEY MAKE YOU ANGRY AND THEY MAKE YOU LOSE CONTROL.

How can you calm yourself down when you have a loss or a period of lost control? For me personally, I find that a good way to achieve this is to write what happened down and analyze every second of the trade: (this just might make you feel a bit better even though it won’t bring you your money back right away!).    

 

•  Were you calm at the beginning of the trade?

•  Did you analyze and follow your entry rules to the letter? Were you a sloppy, rule breaker from the start?

•  Did you fail to withstand the pressure or did you get ¨stopped out¨? If you got ¨stopped out¨ why did the system fail?

•  Did you lose control?

•  What happened? You overtraded, risked too much money, used ¨market orders¨, hold helplessly to a losser hoping that it would come back?

 

Following this set of questions, you can print a chart of the day and plot exactly what you did on it.

 

•  What time did you enter the market?

•  What was the chart telling you?

•  Were you incorrect in deducting your entry or were you simply SLOPPY?

•  Did you have the ¨URGE¨ to trade? Why?

 

REMEMBER:

The sooner you realize your own weaknesses, the faster you'll be able to correct them and start trading like a PROFESSIONAL.

 

Let's not forget the OBVIOUS. Our bodies need to be in good condition if we want our minds to work as we need them to work for us in the markets.  

Let's now outline the basic human necessities for taking care of our bodies. I will not go into detail with most of these since they are all things that we should already know (and be doing).

Let's quickly go through them:

 

SLEEP:

You must have a good night sleep! Some people are different than others, but in general we need about 6-8 hours of continuous sleep in order to be on our toes in the morning.  For trading, there is NOTHING more important than being alert.  If you come to work half asleep, you are better off not coming at all.  You will lose money that you are better off spending on the week-end. 

If you have trouble sleeping at night due to your overnight positions in the market, close them!  If you can't sleep because you worry about what is going on in the markets, you are in FEAR of ¨missing out¨ or you are GREEDY for not wanting to miss a single tick. DON´T WORRY ABOUT WHAT HAPPENS AT NIGHT! COME BACK TOMORROW AND LOOK FOR OPORTUNITIES THEN.

Do not dream about future profits either! Do not lay awake at night thinking about how you will spend the money that you have not made. 

When the night falls, think about something else.  Spend time with your family or friends and DO NOT think about the markets.  Go to bed and relax.  GET A FULL NIGHT SLEEP, THIS IS INCREDIBLY IMPORTANT.    

 

SEX:

Physiologically, we all need sex in order to fulfill our internal needs.  Make sure that the markets do not interfere in this regard.  Sex is as natural as food.  We need enough of it to stay mentally fit and feel good about ourselves. However, don't over do it either.    

 

LOVE:

We all know that when you are able to ¨love, ¨ you are sharing part of yourself with someone else. You need to share your good and bad experiences with someone you trust.  You also need to distract your mind and mix the right chemicals in your brain in order to feel good.

GO AHEAD, FEEL GOOD AND FIND LOVE!

FIND LOVE IF YOU DON´T HAVE IT; NURTURE IT AND TAKE CARE OF IT IF YOU ALREADY DO!

 

PERSONAL HYGIENE AND TREATMENT:

You need to feel good about yourself every day.  Take a shower, brush your teeth; feel great! You also need to wear something that is clean and you feel good in.  You need to always look your best. 

These good inner feelings will reflect your performance in every aspect of your life. 

 

MATERIAL SATISFACTION:

You need to treat yourself once in a while to a nice night out, or a nice shirt, new shoes, etc. Obviously some times will be better for spending money than others, but you need to reward yourself for the long hours spent at work.

For many people (including myself), the rewards don't even have to be personal! You can buy things for your wife or kids, or donate to a charity. This will make you feel good and will give meaning and purpose to your work.

TRUST ME; GIVING MONEY AWAY MAKES ME FEEL LIKE I HAVE A PURPOSE IN THIS LIFE. You can set aside a certain amount that you want to give away, and there will ALWAYS be someone that needs it and will cherish your help forever (BELIEVE ME, giving money away is not EASY. There is also work involved in this process). TRY IT! Maybe this will work for you too. The rewards are well worth the effort.

ALWAYS GIVE ALL YOU CAN!

 

FOOD:

The food that you eat is obviously very important in shaping who you are as a person (not only what you look like, but also how you behave mentally).  This is one of the most important aspects of controlling your body and mind.

There are thousands of good books out there that can teach you a whole lot about the proper way to eat.  Right now, we will only cover the basics:

We obviously need a balanced diet rich in vegetables, grains, and some meats. 

Do not overdo it on sugar; you can be overly irritable if your blood is full of sugar.  You can also get diabetes or other illnesses. You should do more research into what excess sugar can do to you if you feel that you have a ¨sweet tooth.¨

Let’s quote an expert on the subject:

¨The energy requirements for all our physical and mental activities is derived from the food we eat. The brain requires 20 volts of power for its day to day functioning which is assimilated from glucose and oxygen. Excessive intake of food requires more energy for digestion. Energy is limited; the surplus consumption of energy by the digestive system means less energy for all our mental activities. The excessive temptation towards food is accompanied by our dwindling intellectual activities ¨.

¨According to medical science anger and moodiness are diseases of the human mind. They originate due to an increase in the percentage of uric acid in the body which is caused due to the reduction of enzymes in the body which in turn depend upon a balanced diet.¨

 

Do not over-eat, remember: EVERYTHING IN EXCESS IS BAD FOR YOU.

You must also excrete well. This is funny, but we rarely think about this. The elimination process is as important as the food that you eat. The less efficient this process is in your body, the more poisons will be stored in your cells.

There are countless products to benefit your digestive system, mainly to clean it. If you have gas or are overweight, you could look into this as well.

DRINK LOTS OF WATER. You will lose water naturally when you breathe! We need at least 4 glasses of water per day to stay healthy (if we exercise we will obviously need more).

 

EXERCISE:

Exercise reduces stress, anxiety and depression; it also increases feelings of well-being.

You should walk for at least 30 minutes every day in order to give your muscles a stretch and get the blood flowing through your head.  You can choose from the hundreds of activities that exist out there. 

Exercising will release endorphins into your body which are the body's natural relaxants.

Get lots of sun and enjoy life in the outdoors at least a few minutes every day. This will be good for you.

 

 

Now that we have covered the basic requirements for taking care of ourselves, we will try to quickly cover some methods by which you can relax and get ready for a day of trading ahead:

MEDITATION; BREATHING:

You can learn to meditate at the beginning or end of each day.  This will not only help you relax when you need to go to bed at night and go to sleep, but it will also prepare you in the morning for the trading just ahead. I do this personally every day before the market opens.

Yoga is a very good way to relax and with a little bit of practice, you can set your mind free of stress for at least a few minutes every day.  You can read all about Yoga on the internet, or in your town (where I'm sure someone will be able to teach you relaxation methods); Once again however, I will only cover what I think is the most important part of this whole process: BREATHING

¨Meditation is the art of transforming our habits. Your goal is to observe without any feelings of attraction towards objects. Our body is surrounded by an electro-magnetic field. Once we concentrate on these parts of our body through meditation, we will be able to overcome our anger, fear and endless worries. Through daily practice we can perfect ourselves and give birth to a new personality¨  Mrs.Vidya Jain

In simpler terms, we need to find a quiet place where we can be comfortable and uninterrupted at some point of the day (ideally before the market opens).  The exercise is basically about BREATHING which as we will later learn is our most powerful tool for controlling ourselves when trading.

There are different types of postures that you can adopt when beginning the exercise, you can be sitting or lying down.  The important thing is to try to keep your back straight, aligned with your head and neck AND NOT FEEL ANY DISCOMFORT.  You must be able to remain in this still position for at least 15 minutes. During this time, you will remain quiet, motionless and alert with your eyes slightly closed.

In order to be able to have a successful, relaxing meditation, you must be able to rid your body of any tension. Concentrate your mind on each part of your body, and by a process of auto suggestion, allow every part of it to relax (from head to toe).  Think about your arm muscles relaxing, the tip of your fingers, then think about your leg muscles, the tip of every toe, feel your back relax very calmly. Now think about your spine. Picture a little ping-pong ball moving from the top of your head down to the bottom of your spine.  Picture it moving back up very slowly and how it tickles you and makes you feel very relaxed.

At the same time you are doing this, you must do the following breathing exercises:

Breathe slowly and rhythmically; try to look at a clock and count 3-5 seconds while you breathe in, hold for one second and breathe out for the same 3-5 seconds.  Do not force the air into your chest; breathe with your belly like you normally would.  Breathe in and out slowly from both nostrils and establish a rhythm. Become aware of each and every breath.  Feel the cold fresh air coming into the tip of your nose and feel the warm air coming out of it.  Allow yourself to only think about this for a while, only the air coming in and going out.  Do this from 5 to 10 minutes. Initially, your mind may wander and thoughts may creep in.  Do not try to stop them; simply observe them without getting involved.  Once you become an observer, they will stop bothering you.  You must maintain awareness during this whole process which should last about 15-20 minutes.

An alteration of this same exercise involves breathing in through one nostril and breathing out with the other.  To do this, you simply lightly block one nostril (right) with you thumb while you let the air in through your left side, and then block the left side with your index while you let the air out though the right side.  Breathe in and out exactly like the previous exercise. Furthermore, try breathing and lean your head back; now move it forward.  

This is a very simple yet effective way to relax. Try it and see for yourself.

Within the Yoga world, the regulation of breath, results in steadying of the mind.  In the words of  Mrs.Vidya Jain:

¨It is impossible to canalize and concentrate the mental functioning if the breath is not adequately regulated.     Regulation of breath, reduction in its rate, and the rhythm results in steadying the mind. Simultaneously, urges and impulses, emotions and passions and their impelling forces--the primal drives -- all become amenable to control. When the breath is shallow and its rate high, primal drives and passions are aroused , strengthening the urges and emotions. Quick breathing acts as a vehicle for all these distortions. One can easily pacify the passions by regulating the breath. If one slows down the breath-rate and commences rhythmic breathing, the passion forces would at once be retarded. This is because they are deprived of the vehicle, and without a transport they cannot make much headway¨.

¨Slower breath rate results in reduction of wear and tear in the entire body. Less work for the heart, it reduces high blood pressure and quieter nerves¨. ¨It is said that a yogi's age should not be calculated from the number of years he has spent but from the quality of his breaths- the longer and deeper his breaths the longer is his life. A dog takes about 30-40 breaths per minute and he lives no longer than 12-14 years. While a tortoise takes about 4-5 breaths per minute, his life has been recorded to be for even 150 years. Which means that the longer and deeper the breaths will be so also will the life be longer and more healthy¨.

In order for this to work for you, you must try it with the seriousness it deserves and be fully aware that you will not master the art of relaxing your body until you have done this every day for a couple of months.  NOTHING COMES EASY.

As we will see later on in this manual, it is very important to learn to meditate, as it is during this time that we will be able to change our bad habits on a subconscious level.

¨WITHOUT EXERCISING SELF CONTROL, NO GREAT DEED IS POSSIBLE.¨ Zen saying

 

OTHER RELAXATION TECHNIQUES:

Some of the techniques below can be tried while ¨in a trade¨ in order to calm you down. I personally only use proper BREATHING exercises, but other methods could also work for you:

 

Color therapy: Doctors and Psychologists alike say that colors have a profound influence in our lives.  The color sets the mood and the mood in turn affects our nervous system.

The color of your office walls, house or car can have a mood changing effect.  Make sure that your office is well lit and has light colors in it to make you feel comfortable.

Aromatherapy:   Try relaxing to the smell of something that you like: Flowers, trees, Essences, etc.

Imagery:   While meditating, imagine you are in the ocean, or flying through a great forest or doing something that you love to do.

Massage: Get a 15 minute massage and you will relax (for sure!).

Sound Therapy:   Listen to the sound of the ocean, water drops, river, classical music, or something that you like and will relax you.

Writing: When you write, you are likely to stay serene and calm. However, if you can't concentrate on what you are doing, you probably have too much risk in the trade.

Playing an instrument:  This can keep your mind from exploding while the trade is ¨on.¨

Tea: some people will relax to a warm cup of tea.  If coffee is your thing, then go for it, but caffeine is not meant to relax you. Water is also good for you as previously stated on this manual.

 

 

 

REMEMBER: YOU ARE NOT ONLY DOING THIS FOR THE BENEFIT OF YOUR BODY AND BRAIN, BUT ALSO FOR THE BENEFIT OF YOUR OWN WALLET!

SO GO ON AND DO IT!

 

Your brain is composed of two different sets of minds:  The conscious and the subconscious minds. 

As the name implies, the conscious mind is the one that makes you AWARE of things around you, things that you think about.  The conscious mind organizes thoughts on an INDUCTIVE logical basis.  This means that conclusions and thoughts in your mind are derived from a small number of sources or observations and are then applied generally to the whole universe. In other words, you tend to form generalities about things from a few specific observations that you've had. You go from the specific to the general. For example: What happens to me must happen to everyone in some kind of way. 

Our subconscious brain is not only responsible for both unconscious actions, like breathing, heartbeat, hormone segregation, speech, learned languages, controlling motor actions like: walking, playing baseball and many other functions, but it is also responsible for our unconscious thoughts.  As we will soon discover, this part of our brain, is responsible for the way we ultimately think, the way we see the world and the way we react to different situations. 

We are looking for self control, so let's understand the way our subconscious mind works:

The subconscious mind is basically your whole life experience; the total sum of your past, from the day you were born until right now.  It is all inside your brain in the form of stored electrical connections within different neurons. 

In medical terms:

¨Neuroscience : A memory is a set of connections among groups of neurons that participate in the encoding process. Encoding can take place in several parts of the brain. Neural connections go across various parts of the brain; the stronger the connections, the stronger the memory¨ Jeffrey Schwartz

However, all memories good and bad are stored up somewhere in your brain for later use. Even if you don't consciously remember a certain experience that well, your subconscious mind will remember the FEELING, THE EMOTION. These sets of millions of emotional experiences will then be used subconsciously to behave in the world around you.

Subconsciously, our logic is DEDUCTIVE.  This means that we accumulate a lot of inputs and translate them into a specific output.  Our mind takes what it knows about a lot of things, and applies it to one or a few similar problems.  For example, we may have observed a certain trait about a specific segment of the population (the X people for example: you have noticed that all of them behaved in a certain way); the minute you meet an X person, your mind deducts that he or she is the same as the stereotype you have come to expect from the X people.  Even though this might and will likely be TOTALLY wrong.

The subconscious mind does not know the difference between what is real and what is not; between fact and fiction. It records things by listening to WORDS and FEELINGS.  In other words, our mind remembers specific words we hear and associates them to feelings we may have at the same time.  For example, your friend or relative may have told you as a little kid not to go near a certain fence because there was a mean dog that could bite you.  The way he or she said it and the feeling of fear of the big dog scared you enough to imprint a bad memory on your subconscious and make you fear the sight of the fence.   The memory got recorded so well into your subconscious that even years later, you may come back to that fence and feel scared even if you don't remember why. 

Your subconscious mind will record all past experiences by how you felt during the incident. The memory could have felt great, miserable, scary, painful, ugly, etc.  Your body, then will instinctively ¨react¨ to any new experience in your life according to what your subconscious mind remembers.  In other words, the brain will DEDUCT subconsciously from previous experiences how you should react, feel and think about the new situation you have now in front of you.  It will blind every other point of view unless you are aware of what is happening.

All human behavior and habits come from previously learned experiences.  This is why we all think differently and have different opinions about everything. We all see only what our minds want us to see; everything else is ¨blocked out.¨    It is obviously impossible for someone who was born and raised in New York City to behave, believe or look at the world around him in the same way that someone who was born in a ranch in rural Mexico.  Even when you make both persons observe the same problem, you will get two different perspectives. 

Both good and bad habits are created subconsciously through repetition.  If you are a smoker, think back to how you started.  For argument's sake, let's say that one day you were in school when some of what you perceived to be the ¨coolest¨ kids on your class went out for a smoke.  You wanted to be like them, so you lied to them and told them that you too were a smoker.  You asked for a cigarette and inhaled the smoke which made you feel sick for the next three hours.  However, you were with the ¨cool¨ crowd now and you felt ¨cool.¨   All the ads about how smoking kills you and how your mom said smoking was bad for you got tossed out the window in exchange of the ¨feeling¨ of both belonging and being regarded with ¨higher standards.¨ Naturally, after a few weeks of doing it, it became a habit (associated with ¨feeling cool¨) and then an addiction.

What else does your subconscious do? It takes things literarily. If you tell someone that he or she is a pain in the butt, you might just get one (literarily!). If you scream at your computer saying: ¨these markets suck!¨ THEY WILL my friend, THEY WILL SUCK.

Now that we came back to the subject of TRADING:   SUBCONSCIOUSLY, WE CREATE BAD HABITS THAT NEED TO BE SPOTTED AND ELIMINATED.

 

Bad trading habits include:

 

1. Trading with your hand on the mouse, using ¨market orders¨ excessively.

2. Breaking the trading rules of your system time after time. 

3. Getting emotional and full of adrenaline when trading. We could be subconsciously addicted to adrenaline and so we trade recklessly just to get our fix (winning or losing, but getting our fix).

4. Not having a DEFINED system to trade with. This is the habit of being SLOPPY. We are breaking RULE #1 YOU CANNOT BE SLOPPY. (see ¨The Rules¨ below).

5. Subconsciously we do not think that we can ever win, so we accept failure as an end result.

 

Is it possible that we subconsciously believe that it is ok to lose continuously in the markets? YES. By simply looking at the disclaimers, talking to other traders and knowing that it's ok to lose in some trades; we are constantly telling our subconscious that it's ok to lose. After a while, our subconscious mind will BRING LOSSES TO US.  

‘If we're unaware that something is influencing our behavior, there is little we can do to understand or contradict it.’   Daniel Schacter.

How is it possible then to correct bad habits imbedded in the subconscious mind? Through PRACTICE, PATIENCE AND PERSISTENCE.

As you all know, nothing in this world that is worth getting is easy to obtain. However, I will briefly try to direct your awareness towards the desired actions to take:

We already discussed how the subconscious mind records things: through words and feelings.  It is then no secret that through the power of autosuggestion (words and feelings) we can influence and eventually modify our worst habits.   However, we must first learn HOW to properly do this as well as knowing what not to do in order for our intentions to be fully grasped by our brain.

CHANGE DOES NOT COME OVERNIGHT, like everything else in life, it requires dedication and persistence.

Let's go back to the segment on MEDITATION now and remember how our breathing exercises helped us relax and eliminate all kinds of stress. When we are meditating, our subconscious mind is listening without distractions.  This is the perfect time to repeat certain messages that you want it to remember. 

You must do these exercises seriously and be conscious about their potential benefits, otherwise your subconscious mind will not take them seriously and you'll be WASTING YOUR TIME.

Always REMEMBER: Every negative word that you say when you are trading and every negative emotion that you feel and experience WILL become part of your subconscious brain.  These negatives will only create more negatives for you since your subconscious does not know the difference between what is good or bad for you; it will simply make you react the way you have ¨trained it¨ to react.  If you call yourself or the market ¨stupid,¨ you will charge your mind with negative thoughts that will become your reality.

ALSO REMEMBER: WHATEVER YOU FEEL AND WHATEVER YOU THINK, WILL MAKE YOU WHAT YOU ARE.

There is a book out there that I will recommend that you read.  It is called ¨THE POWER OF YOUR SUBCONSCIOUS MIND¨ by Dr. Joseph Murphy which is a great tool for those seeking to change their bad habits. 

I would like to share a few excerpts by Joseph Murphy which are important with regard to what we are trying to do in the world of trading: (Taken with permission)

In regards to autosuggestion:

¨ You are a gardener, and you are planting seeds (thoughts) in your subconscious mind all day long, based on your habitual thinking. As you sow in your subconscious mind, so shall your reap in your body and environment. P.23

¨Once the subconscious mind accepts an idea, it begins to execute it.¨ P.30

In Regards to Wealth:

¨Wealth is simply a subconscious conviction on the part of the individual. You will not become a millionaire by saying, “I am a millionaire, I am a millionaire.” You will grow into a wealth consciousness by building into your mentality the idea of wealth and abundance. P.105

¨REPEAT FOR ABOUT FIVE MINUTES TO YOURSELF THREE OR FOUR TIMES A DAY, “WEALTH—SUCCESS.” These words have tremendous power. They represent the inner power of the subconscious mind. You are not saying, “I am wealthy,” There is no conflict in the mind when you say, “Wealth.” Furthermore, the feeling of wealth will well up within you as you dwell on the idea of wealth¨.

¨The Feeling of wealth produces wealth; Your subconscious mind is like a bank, a sort of universal financial institution. It magnifies whatever you deposit or impress upon it whether it is the idea of wealth or of poverty. Choose wealth¨. P.106

´Don't Sign Blank Checks:¨

¨You sign blank checks when you make such statements as, “There is not enough to go around.” “There is a shortage.” “I will lose the house because of the mortgage,” etc. If you are full of fear about the future, you are also writing a blank check and attracting negative conditions to you.¨ Pp.107-108

¨A Common Stumbling Block to Wealth:¨

¨There is one emotion which is the cause of the lack of wealth in the lives of many. Most people learn this the hard way. It is envy. ¨

¨To entertain envious thoughts is devastating because it places you in a very negative position; therefore wealth flows from you instead of to you.

¨Rubbing Out a Great Mental Block to Wealth:¨

¨If you are worried and critical about someone whom you claim is making money dishonestly, cease worrying about him. You know such a person is using the law of mind negatively; the law of mind takes care of him. Remember: The block or obstacle to wealth is in your own mind. You can now destroy that mental block. This you may do by getting on mental good terms with everyone¨. P.110

¨Sleep and Grow Rich:¨

¨As you go to sleep at night, practice the following technique. Repeat the word, “Wealth,” quietly, easily, and feelingly. Do this over and over again, just like a lullaby. LULL YOURSELF TO SLEEP WITH THE ONE WORD, “WEALTH.” You should be amazed at the result. Wealth should flow to your in avalanches of abundance¨. P.110

¨Poverty is a Mental Disease:¨

¨Why You Must Never Criticize Money:¨

¨Cleanse your mind of all weird and superstitious beliefs about money. Do not ever regard money as evil or filthy. If you do, you cause it to take wings and fly away from you. Remember that you lose what you condemn. You cannot attract what you criticize¨. Pp.114-115

¨The Three Steps to Success:¨

¨Let us discuss three steps to success: The first step to success is to find out the thing you love to do, then do it. Success is in loving your work¨.

¨The second step to success is to specialize in some particular branch of work and know more about it than anyone else¨.

¨The third step is the most important one. You must be sure that the thing you want to do does not redound to your success only. Your desire must not be selfish; it must benefit humanity¨.

¨Become imaginative; mentally participate in the reality of the successful state. Make a habit of it. Go to sleep feeling successful every night, and perfectly satisfied, and you will eventually succeed in implanting the idea of success in your subconscious mind. Believe you were born to succeed, and wonders will happen as you pray!¨ Pp.129-130

¨As a man imagines and feels, so is he.¨

 

Wow, after I read this, I get excited because IT IS SO TRUE! It’s all in your mind my friend the process of change has begun for you already!

Always remember the following: your subconscious mind will listen the most when you are in a relaxed and stress free environment. Take it seriously and your brain will listen.

To burn something successfully into your subconscious mind, you have to experience the idea, feeling or emotion as if it was happening NOW. Meditate and think about the positives that you have had in your past life experience and imagine yourself THERE, IN THAT EXACT MOMENT IN TIME. Say or think: ¨Wealth-success¨ and FEEL wealthy and successful like at some other point in your past (or through someone that you know). You can also see yourself as what or who you want to be in the future. Feel yourself at that future moment and experience the happiness, the feeling of excitement and wholeness that you will feel.

DO NOT dwell on a loss for too long! DO NOT live and re-live the horrible feeling of losing in the markets for more than you need to.

FOCUS instead on the LESSON TO BE LEARNED AND THE MISTAKE TO AVOID.

Do not let a bad experience imprint FEAR into your subconscious mind.

Everything that you need to do is written in this manual, FOLLOW IT AND CHANGE YOUR LIFE FOREVER.

Now that we have covered the basics of what needs to be done with your mind and body, let’s go into the TRADING part of our study.

 

 

¨INFINITE IS THE POTENTIAL POWER OF OUR WILL. A LARGE PORTION OF THAT POWER, HOWEVER, LIES DORMANT WITHIN YOU¨. Zen saying

In order to begin trading like a professional, you need to understand and imbed into your subconscious mind all of the following:  (in other words, all of the requirements below stated, need to become HABITS for you)

 

1.BEING AWARE OF YOUR EMOTIONS PRE, DURING AND POST TRADE:

We have learned that by being aware of our emotional outbursts, we can control them. A professional needs to be in control at ALL TIMES:

 

•  No emotions BEFORE the trade, just simple analysis and system following.

•  No emotions DURING the trade (well placed stops).

•  No emotions when you take profits or losses. Remain NEUTRAL WHEN TRADING.  ELIMINATE ANY EMOTION. TRADE WITHOUT ANY EXCITEMENT.

 

MAKE YOUR TRADING AS UN-EXCITABLE AS POSSIBLE.

 

2. BREATHING:

Being aware of your breathing can keep you in control. Try to always breathe SLOWLY (see section on breathing) so your body and mind can remain calmed, relaxed, objective and SMART!

The word OBJECTIVE here means:  To not have an opinion. To know that the market can and will move either way; at any time. 

SIT ABSOLUTELY STILL IN FRONT OF YOUR COMPUTER.   DO NOT SHAKE A LEG OR MOVE ANY PART OF YOUR BODY TOO MUCH.  GO FOR LITTLE WALKS IF YOU NEED TO. 

STAY TOTALLY FOCUSED AND ¨IN CONTROL¨ ALL THE TIME WHILE YOU WAIT FOR THE MARKET TO ¨SET UP.¨ 

DO NOT EVER FEEL BAD ABOUT MISSING A TRADE!

DO NOT GET ANGRY FOR TAKING A LOSS!  IF YOU FEEL LIKE YOU ARE GETTING FRUSTRATED AND MAD STEP ASIDE AND TAKE A WALK; PUT THINGS IN PERSPECTIVE.  IF YOU ARE A PROFESSIONAL, SMALL LOSSES WILL BE PART OF YOUR LIFE.

 

3. TRADING WITH REALISTIC EXPECTATIONS:

If your expectations are for ONE trade to give you all your money back, you are going at it all wrong. 

YOU CANNOT BE WAITING FOR ONE TRADE TO GIVE YOU BACK ALL YOUR MONEY!  You will be waiting all your life!

You may get lucky a few times, but you need to concentrate on the bulk of what will happen.  During the bulk of you trading career, most of your trades will be ¨singles¨ (to phrase it as a baseball analogy), you will get some ¨doubles¨ and some ¨home runs,¨ but you need to keep your batting average constant.  YOU NEED TO BE CONSISTENT AT GETTING SINGLES.  In other words, you need to have a trading system that will give you consistent profits with the occasional big profit, and you need to keep your losses small.  This is nothing new, but we are in the process of learning how to actually do it!

A professional trader is always cool under pressure; never shows his true emotions in the face of losses or in the face of profits. He just wants to go into the markets, get his small profit every single day of the year and get out (if day-trading) or get on board a trend and stay with it (if position trading).  Sometimes the system will be wrong and he'll take a loss, but on average, his account will be growing slowly, but SURELY.

Another wrong assumption is to expect the market to go your way A.S.A.P.  This is WRONG! You will have the market go against you at the start of roughly 99% of all your trades (even for one or two ticks).  You need to EXPECT THIS TO HAPPEN!  Only then will you be able to follow your plan and stay with your position until the market goes your way.

DO NOT EXPECT TO GET RICH OVERNIGHT! Learn to take small, consistent profits out of the markets that will accumulate at the end of your period.

DO NOT EXPECT to always make money! You have to know that losing is part of this business.  As a professional, you have to know this for a fact.  Learn to keep you losses small.

DO EXPECT HOWEVER, TO MAKE CONSISTENT PROFITS FROM FOLLOWING YOUR SYSTEM TO THE LETTER. If you don’t have a consistent, mechanical system you can trust, GET ONE.

¨STEADY PLODDING BRINGS PROSPERITY; HASTY SPECULATION BRINGS POVERTY.¨ T.B.  

 

4. TRADING WITH A CLEAR PLAN:

Trading with a clear, mechanical and unbiased plan is essential if you want your business to survive in these shark infested waters.  The plan should always give you clear non-subjective entry and exit signals.  The best way to know if you have a plan like this is to find another trader and explain the system to him/her. You need to define everything about it: chart set ups, time frames, specific levels, oscillator signals, moving averages, cycles, waves, counts, etc, etc. If you can mathematically define the moment in time where your system will give you an entry signal, you have what I am talking about. In other words, both traders should come up with the same output if given the exact same input. If you are both looking at the same charts, oscillators and indicators, you should come up with the same trading signals. If you can't agree on what to do, where to do it and when to do it, the system is SUBJECTIVE.  In other words, CLEARLY DEFINE your entry and exit strategy so someone else can do the same thing that you are doing.  Does your plan fit this description? If it does not, you need to clearly define it and test it to see if it works. 

 

A professional will work like a computer.  Waiting for his plan to give him an entry into the market.  He will be patient and do NOTHING until the market is FULLY set up for an entry.  Then he will place his ¨entry stop¨ place his ¨stop loss¨ after being filled and WAIT (constantly moving his ¨stop loss¨ orders, lowering risk as the market moves).  Trading should be passive and boring! 70% of the time waiting and doing nothing while the market ¨sets up,¨ 10% preparing for a ¨set-up¨ and 20% managing your risk and your position (If you are a long term trader, you will manage your position for a longer period of time; however, we are interested in the decision to enter the market in the first place).

A professional trader will not care and will not consider what happened on the last trade to calculate the next one. He or she will wait for the market and trade according to plan.  He or she will SEPARATE ACCOUNT STATUS WITH CHART STATUS (Rule #4 below).  He or she will not even look at the account status during the trade.  He or she will simply look at the indicators and calculate the next point to lower or raise the ¨stop loss¨ in order to reduce risk. 

This day and age with the ¨market order¨ at the click of a mouse, it is VERY, VERY difficult to sit in front of your computer and do nothing until the right signal comes along. Most of the time, you will get ¨not so good¨ signals where you will be tempted to trade time and time again. Why will you be tempted? 

 

•  Because of your ¨need¨ to do something.

•  Your ¨urge¨ to get back the money that you have lost.

•  The ¨need¨ to feel ¨busy¨. 

 

What you end up doing then is taking small profits and letting losses ¨run¨ (due to bad entries and fear). Exactly the opposite of what needs to be done in order to succeed in this business. DO NOT FALL IN THIS TRAP.

 

THE PROFESIONAL TRADER KNOWS (BASED ON EXPERIENCE) THAT THE SYSTEM THAT HE/SHE IS USING WILL WORK IN THE LONG RUN. BASED ON THIS KNOWLEDGE (100% CERTAINTY), HE/SHE WILL FOLLOW THE RULES AND LEARN TO TRADE WITH NO MISTAKES.

 

TRADING WITH NO MISTAKES MEANS: TRUSTING YOUR SYSTEM ENOUGH TO FOLLOW IT.

 

IF YOU DON´T HAVE SUCH A SYSTEM, CALL ME.

 

 

5. TRADING WITH LOWER RISKS:

This is THE most important aspect of trading, PERIOD.  This is what separates the professional from the beginner. The winner from the loser.

DO NOT RISK MORE THAN YOU CAN AFFORD!  When you risk more than you should, the emotional pressure on you will be too strong and you will not be able to follow your rules when you trade.  This is the most important way to lower your adrenaline during every trade that you do.

A professional will never risk more than 5% of his account on one single trade.

Your greed will tell you that since you started trading with ten lots and lost very quickly, the only way to get the money back as fast is continuing to risk ten lots every time you trade.  Well my friend, your mind is wrong.  Let me give you another fact: 

It is VERY easy to lose; however, it is NOT as easy to make the money back.  In other words, IT IS EASIER TO LOSE THAN TO WIN, especially if you are trading on adrenaline after you have suffered losses. 

Again:

IT IS EASIER TO LOSE THAN TO WIN!

Think about it! You are already starting at a loss BEFORE you trade (since you have to pay for the commissions no matter what happens).

When trading with a lower number of lots, your greed will again talk to you and tell you: ¨How lame! This trade is a good one. If I was trading with the original ten lots, I would make this much; instead, now with only two lots, I will only make this much.¨ LEARN TO CONTROL YOUR GREED.   When it talks to you, learn to DOMINATE IT, NEURALIZE IT. Do not let it dominate you (otherwise, you are better off quitting while you still can).

A two lot trade instead of a ten lot trade will be much easier to handle by you psychologically. You will not get your adrenaline pumping and your mind will be able to stay focused on the trade, the chart and the rules.

Be a true professional and UNDER-TRADE your account.  Trust me, you will not regret it!

 

Think of it this way:  How much money is the futures position really worth? If you are trading one Euro, the contract size is 125,000 Euros.  Is your account this big? Then do not trade with too much risk that you can't afford.  I can hear you now: ¨well Pablo, then you are defeating the whole purpose of trading with leverage¨ yes, but I am teaching you to think like a professional.

TRADE WITHOUT ANY EXCITEMENT!  MAKE TRADING AS UN-EXCITING AS POSSIBLE FOR YOU.

LOWER YOUR TRADING RISKS AND AMOUNTS IN ORDER TO ACCOMPLISH THIS.

Use the ¨yard stick¨ method:

When you have a working order, always measure your risk and place a ¨stop¨. If the risk is larger than your yard stick, do not trade.

 

¨THE WISE ARE CAUTIOUS AND AVOID DANGER; FOOLS PLUNGE AHEAD WITH GREAT CONFIDENCE¨. T.B.

 

 

6. DETACH YOURSELF FROM THE MONEY:

If you are thinking about the money you make or lose all the time, you will be too attached to it AND YOU WILL LOSE.  If you depend on the money from the market, YOU WILL LOSE. Ironically, the people that make money in this business are the people who don't care.  The more you can do this, the better you will follow the rules of your system.

The more you NEED to make money, the more pressure you will have to TRADE and DO something.  This will lead you to trade more often and break the rules of your trading system.  Naturally, you will not make any money this way.

You must not care about the money you make or lose when you trade futures.  You have to be like a robot which does not care about the daily fluctuations of your account.   You will trade from the charts, waiting for a ¨FULLY SET UP¨ entry signal and manage your position as the market moves.

YOU DO NOT CARE REMEMBER? WHEN YOU HAVE A PROFIT, YOU LET IT RUN UNTIL YOU GET CLEAR SIGNALS THAT THE MARKET WILL REVERSE. WHEN YOU DON´T CARE, YOU ARE ABLE TO ¨LET THE PROFITS RUN.¨ (There is one solution if you can’t seem to stay with a winner; look at Rule #3 below)  

   

7. KEEP YOUR TRADING COSTS LOW:

How much money do you need to make every month to cover your costs of doing business? Is this money coming out of your margin account? You must realize that if you have any pressure to make any money, chances are that you will not be able to make it in this business.  The lower the costs, the better it is for you psychologically.

What are these costs we are talking about?

Live feed, internet connection, broker commissions, learning books and subscription services, office space, phone charges, software, etc.

Learn to keep these costs down.  You will have less pressure to trade this way.  

 

8. WHEN TRADING, STAY COMPLETELY ENGAGED IN IT, WITHOUT ANY INTERRUPTIONS:

You cannot have one eye on your charts and the other somewhere else. If you have other things on your mind or you are getting interrupted constantly, DO NOT TRADE. If you know you will need to leave your workstation soon, STAY OUT OF THE MARKET.

Unless you have a long term position and a clearly established ¨stop loss¨ order ¨ sitting¨ in the market or with your broker, you should not trade.

What usually happens when you do trade and need to leave the office is that you will be very impatient with the market and get out with a loss or at the wrong time. You will not be thinking clearly about the charts or your system because you will have other things on your mind. Why go through this? Preserve your capital and come back the next day. Give the markets your FULL attention every time you intend to trade.

Does this sound familiar? You wake up in the morning, turn your computer on and you immediately see something that catches your eye. You take the trade as soon as you open your trading program while not even all your charts are up and running properly yet. DO NOT DO THIS. Give yourself enough time to come to your senses and properly get ready for the day ahead. DO NOT BREAK RULE #1.

AVOID TRADING UNDER ANY STRESS AT ALL TIMES.  

 

9. SPECIALIZE IN ONE CERTAIN SYSTEM (A CERTAIN WAY TO BASE YOUR TRADES ON):

FIND YOUR SYSTEM AND FOLLOW IT.

 

To conclude then:

Make your own lists of what you need to work on, what you need to fix and what you are doing well. DO NOT GIVE UP! STOP TRADING IF YOU MUST, BUT NEVER STOP LEARNING!