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The Importance of Doing What's Right in Commodity Trading
Like most people, when starting out trading, most focus on the selection/prediction aspect of trading.
Most traders spend their time analyzing the market to predict where it is going instead of developing low risk ideas in which the potential loss is small. Spend time developing low risk ideas, instead of trying to study every aspect of the market. Although a system of some sort is important, it is by far the least important aspect of being a profitable trader.
Profitability is solely dependent on money management and discipline. Center yourself calmly through exercise, diet, meditation and generally leading a balanced lifestyle. Let go of your attachments to the outcome of the trade and look at the trade as an objective event.
Concentrate on sticking to your entry and exit rules for each system and the profits will take care of themselves. Your management of the emotions of greed and fear are vital.
Markets move due to fear, greed and ignorance as much as any other reason. You have to realize that as a trader, during rough times, as much as 70% of your trades will be losers. Profit will generally come from a relatively small number of trades.
True winners make a point not to let their ego (don't dwell on large profits of open or closed trades), emotions, tips or gossip get in the way of what their system tells them to do.
To beat the market go about your business in a disciplined way. DO NOT start to think that "I am smart and can easily make a million." It will cause you to forget to use the wise, patient and conservative RULES you need to follow to make a profit.
Your loss of confidence is the greatest loss you can suffer, so don't overtrade or step in front of a freight trains. Stalk the market as deadly game or else you will become its prey.
Mark Douglas in his excellent book 'The Disciplined Trader' insists that you trade with the goal of doing the right thing (sticking to rules!!), not making money.
Paul Tudor Jones sees his strengths as a "trader who is able to take loses quickly and thinking defensively."
Make time to study and organize a trading plan for each and every trading day. The markets you hold a position in are the ones to concentrate on.
In Jim Slomans book 'The Adam theory of Markets' he says, "To succeed in the markets we must surrender. Never ever let any opinion about the market get in the way of trading."..."Analysis is great, but when analysis and reality diverge, we must always go with reality."
"Knowledge is great, but when knowledge and reality diverge, we must always go with reality."..."We must allow ourselves to mirror the market, follow it surrender to it. We must be willing to let go of what we think we know about it so that we can see it directly."..."Price is reality. Price reflects everything. Price is all we want to look at because price is what the market is doing."
Professional traders know that money is important, but unlike hobbyist, they focus on the market. Don't get greedy and count dollars, ignoring what the market is telling you. To make it you have to level your emotional peaks and valleys. That requires dedication.
Patience is the key word. My experience is that the fewer the number of trades, the more profitable the method. It goes without saying that you must not second guess your system. Take every trade according to the rules.
Now comes the important part - how to handle the inevitable drawdowns. Back testing has told you what kind of a maximum drawdown you can expect. If you can't emotionally or financially handle at least this much drawdown, don't trade the system in the first place. And don't be greedy and overtrade, buying or selling too many contracts (you should have rules for the precise amount of contracts to trade) in an effort to make a lot of money in a hurry. Under capitalization is one reason so many are losers.
Once you have a system that works, don't change it. If you have other ideas, develop another system!
If your goals are not met or if you feel tired or stressed -- STOP and reevaluate the situation. Either close out all positions or let those in profit run their course without adding to them
Richard Wyckoff gave the following advice, "There are several clear signals to pull out of the market and take a break. The first is a technical warning - the situation in which your analysis gives unclear, confused signals. The other two are emotional - relying on 'instinct' rather than research and a growing or chronic indecisiveness about executing trades."
And don't forget the importance of regular exercise of both mind and body. The importance of friendship and making time for these friends. The importance of balance, taking time out to watch the flowers grow, not just working/trading. That only achieves a goal in a very narrow focus and achieves nothing but leads to unproductively and unhappiness.
Be good to yourself; don't be too hard on yourself. Areas you can improve on simply provide you with valuable feedback.
Anything you do gives you experience. As a result, you can look at your decisions and resolve to change them in the future, using them as a learning experience, rather than accepting the failure judgmentally, by thinking 'I have failed.'
Victories, I pat myself on the back, often. I dwell on them as they are the building blocks of my future accomplishments.