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Monthly Archives: April 2012
April 17, 2012Posted by on
Once we learn the strategies to trade options and stocks, have a proven system in place and feel we have a solid trading plan and some successes behind us…it is time to watch out. Humility is our friend and no matter how great we become as traders, we will always make mistakes.
There are three keys to remember as time and success builds:
- Be humble enough to admit we made a mistake
- Be coachable enough to learn from our mistakes
- Review your rules, reassess and apply as necessary
Typically with a good trading system in place, we will maintain consistency. For instance, maybe we are a 70% trader where 7 out of 10 trades are typically winners and three are losers. Certainly with our system we know when to ‘book’ our profits as wells as minimize our losses to keep us in a positive net trading profit. Even with a good set of rules in place keeping us in non-emotional trading, our egos like to sneak up on us and try to take control of our trading choices. for instance, let’s say we’re having an exceptionally good streak of trading wins and our egos start to think, ‘maybe I got it going on and got this trading thing down.’ ALERT: This is the time to beware and is often the time we give back much of our wins. It may even be a good time to take a break, stop trading, for a few days or weeks, to pull ourselves back together before trading again. Sometimes the best trade is the one that was never made.
A proven rules-based trading system is meant to keep us in the profit zone of larger gains than losses and away from the emotions of trading. It is like when we were kids swimming at the public pool. There was a shallow end and a deep end. They were separated by a rope with floaters to keep us in the ‘safe’ zone of shallow water and warn us when we were getting in too deep. A rules-based trading system serves a similar purpose. Regardless of how educated we get or how long we have been trading, we must, must, must stay within the boundaries of our rules to keep us in the profit zone. It is for our own good, for our safety profiting in all markets. The most successful traders are not the ones that have the highest IQ but instead are coachable enough to learn a rules-based system and stay within the boundaries of the system, month after month and year after year.