FROM AN EXPERIENCE
What are the components of a good trading plan? Here are 10 essentials that every plan should include.
- Skill assessment - Are you ready to trade? Have you tested your system by paper trading it and do you have confidence that it works? Can you follow your signals without hesitation? If not, it's a good idea to read Mark Douglas's book, "Trading in the Zone", and do the trading exercises on pages 189–201. This will teach you how to think in terms of probabilities. Trading in the markets is a battle of give and take. The real pros are prepared and they take their profits from the rest of the crowd who, lacking a plan, give their money away through costly mistakes.
- Mental preparation – How do you feel? Did you get a good night's sleep? Do you feel up to the challenge ahead? If you are not emotionally and psychologically ready to do battle in the markets, it is better to take the day off - otherwise, you risk losing your shirt. This is guaranteed to happen if you are angry, hungover, preoccupied or otherwise distracted from the task at hand. Many traders have a market mantra they repeat before the day begins to get them ready. Create one that puts you in the trading zone.
- Set risk level – How much of your portfolio should you risk on any one trade? It can range anywhere from around 1% to as much as 5% of your portfolio on a given trading day. That means if you lose that amount at any point in the day, you get out and stay out. This will depend on your trading style and risk tolerance. Better to keep powder dry to fight another day if things aren't going your way.
- Set goals – Before you enter a trade, set realistic profit targets and risk/reward ratios. What is the minimum risk/reward you will accept? Many traders use will not take a trade unless the potential profit is at least three times greater than the risk. For example, if your stop loss is a dollar loss per share, your goal should be a $3 profit. Set weekly, monthly and annual profit goals in dollars or as a percentage of your portfolio, and re-assess them regularly.
- Do your homework – Before the market opens, what is going on around the world? Are overseas markets up or down ( S&P 500 or Nasdaq 100 exchange-traded funds up or down in current session?) Index futures are a good way of gauging market mood before the market opens. What economic or earnings data is due out and when? Post a list on the wall in front of you and decide whether you want to trade ahead of an important economic report. For most traders, it is better to wait until the report is released than take unnecessary risk. Pros trade based on probabilities. They don't gamble.
- Trade preparation – Before the trading day, reboot your computer(s) to clear the resident memory (RAM). Whatever trading system and program you use, label major and minor support and resistance levels, set alerts for entry and exit signals and make sure all signals can be easily seen or detected with a clear visual or auditory signal. Your trading area should not offer distractions. Remember, this is a business, and distractions can be costly.
- Set exit rules – Most traders make the mistake of concentrating 90% or more of their efforts in looking for buy signals but pay very little attention to when and where to exit. Many traders cannot sell if they are down because they don't want to take a loss. Get over it or you will not make it as a trader. If your stop gets hit, it means you were wrong. Don't take it personally. Professional traders lose more trades than they win, but by managing money and limiting losses, they still end up making profits.
Before you enter a trade, you should know where your exits are. There are at least two for every trade. First, what is your stop loss if the trade goes against you? It must be written down. Mental stops don't count. Second, each trade should have a profit target. Once you get there, sell a portion of your position and you can move your stop loss on the rest of your position to break even if you wish. As discussed above in number three, never risk more than a set percentage of your portfolio on any trade. - Set entry rules – This comes after the tips for exit rules for a reason: exits are far more important than entries. A typical entry rule could be worded like this: "If signal A fires and there is a minimum target at least three times as great as my stop loss and we are at support, then buy X contracts or shares here." Your system should be complicated enough to be effective, but simple enough to facilitate snap decisions. If you have 20 conditions that must be met and many are subjective, you will find it difficult if not impossible to actually make trades. Computers often make better traders than people, which may explain why nearly 50% of all trades that now occur on the New York Stock Exchange are computer-program generated. Computers don't have to think or feel good to make a trade. If conditions are met, they enter. When the trade goes the wrong way or hits a profit target, they exit. They don't get angry at the market or feel invincible after making a few good trades. Each decision is based on probabilities.
- Keep excellent records – All good traders are also good record keepers. If they win a trade, they want to know exactly why and how. More importantly, they want to know the same when they lose, so they don't repeat unnecessary mistakes. Write down details such as targets, the entry and exit of each trade, the time, support and resistance levels, daily opening range, market open and close for the day, and record comments about why you made the trade and lessons learned. Also, you should save your trading records so that you can go back and analyze the profit/loss for a particular system, draw-downs (which are amounts lost per trade using a trading system), average time per trade (which is necessary to calculate trade efficiency), and other important factors, and also compare them to a buy-and-hold strategy. Remember, this is a business and you are the accountant.
- Perform a post-mortem – After each trading day, adding up the profit or loss is secondary to knowing the why and how. Write down your conclusions in your trading journal so that you can reference them again later.
Parting Notes
"No one should be trading real money until they have at least 30 to 60 profitable paper trades under their belts in real time in real market conditions before risking real money," says Novak.
Successful paper trading does not guarantee that you will have success when you begin trading real money and emotions come into play. But successful paper trading does give the trader confidence that the system he or she is going to use actually works.
The exercises in "Trading in the Zone" walk the trader through trading a system based on a simple indicator, entering the market when the indicator gives a buy and exiting when it gives a sell. Deciding on a system is less important than gaining enough skill so that you are able to make trades without second guessing or doubting the decision.
There is no way to guarantee that a trade will make money. The trader's chances are based on his or her skill and system of winning and losing. There is no such thing as winning without losing. Professional traders know before they enter a trade that the odds are in their favor or they wouldn't be there. By letting his or her profits ride and cutting losses short, a trader may lose some battles, but he or she will win the war. Most traders and investors do the opposite, which is why they never make money.
Traders who win consistently treat trading as a business. While it's not a guarantee that you will make money, having a plan is crucial if you want to become consistently successful and survive in the trading game.
"No one should be trading real money until they have at least 30 to 60 profitable paper trades under their belts in real time in real market conditions before risking real money," says Novak.
Successful paper trading does not guarantee that you will have success when you begin trading real money and emotions come into play. But successful paper trading does give the trader confidence that the system he or she is going to use actually works.
The exercises in "Trading in the Zone" walk the trader through trading a system based on a simple indicator, entering the market when the indicator gives a buy and exiting when it gives a sell. Deciding on a system is less important than gaining enough skill so that you are able to make trades without second guessing or doubting the decision.
There is no way to guarantee that a trade will make money. The trader's chances are based on his or her skill and system of winning and losing. There is no such thing as winning without losing. Professional traders know before they enter a trade that the odds are in their favor or they wouldn't be there. By letting his or her profits ride and cutting losses short, a trader may lose some battles, but he or she will win the war. Most traders and investors do the opposite, which is why they never make money.
Traders who win consistently treat trading as a business. While it's not a guarantee that you will make money, having a plan is crucial if you want to become consistently successful and survive in the trading game.
(to be contd)
TODAY’S DAY TRADING STRATEGY
OF NIFTY FUTURES – SEPT 13
If trades above 5619 for 30 minutes,
hike atleast upto 5663 is for sure before the end session.
If trades below 5618 and cuts 5604
with good volumes, a slide upto 5589 – 62
is possible.
Good Support @ 5605 and above this
no doubt BULLS rule the market
Resistance exists @ 5671 & 5700
BANK NIFTY
Day Support @ 11365 in 5 min chart
Buy btwn 11416-35
T1 - 11466-482
T2 - 11496-516
Sell btwn 11352-33
T1 - 11302-286
T2 - 11271-251
Nifty, Bank Nifty levels and intraday news updated here gives astonishing success rate (more than 95%) that is more than enough for the readers to attain a decent profit every day.
To mint much more money pls subscribe our service and
enjoy daily market with our guidance.
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SHARE TIPS TODAY
Sell IGL @ 326
T1 – 323
T2 – 320
T3 – 317
WHAT ASTROLOGY SAYS THIS WEEK?
Weekly Stock Market Prediction and Forecast for September 2010 : 13th September 2010 to 17th September 2010
Planetary position during September 2010
Sun will transit from Leo sign.
Mercury will transit from Leo sign. Mercury will retrograde.
Venus will transit from Libra.
Moon will transit from Scorpio and Sagittarius.
Mars will transit from Libra.
Rahu will transit from Sagittarius.
Jupiter will transit from Pisces. Jupiter will retrograde.
Saturn will transit in Virgo.
Ketu will transit in Gemini.
Stock Market Prediction for 13th September 2010
Transiting Moon will be passing through Scorpio Zodiac sign. Transiting Moon will be in applying aspect with Transiting Jupiter, which indicates Market may volatile during first trading session. Market may try to touch both extremes. Market trend would change after 13.40. Market may go up between 10.05 and 10.37. Market would gradually go flat. Market may go flat during last trading session.
Disclaimer
On repeated requests of the readers this astral prediction is started.
Traders are advised to attain some technical knowledge before they get into trades anyway
-EDITOR
MASTER YOUR TRADING MINDTRAPS
The popularization of activity in the financial markets, partly due to the development of retail trading solutions offered on the internet, has created a new population of traders in the market. Most of these traders are non-professionals that are attracted by the potential to generate revenue quickly.
Falsely Created Expectations
Many novice traders may believe that it is very easy to make money, especially when they are trying a broker service using a free practice account.
However, if these traders manage to generate a sudden substantial return, it can lead them to believe that trading is an easy occupation - and one in which revenue can be quickly generated with little work on the part of the trader. For the inexperienced, one good pick can make it seem like market speculation might become the key to success and wealth.
Unfortunately, when these inexperienced speculators overtake this virtual investing environment and decide to start trading live accounts and risking real money on the market, the activity becomes much more complex. In many cases, the days of outstanding day-trading performance come to look suddenly and distressingly like old souvenirs - it is an abrupt initiation into the pitiless reality of the financial markets.
Real Life vs. Practice
When new traders take the leap from the their virtual trading accounts to trading with real money, they are entering into the most difficult step of their initiation to trading: trading psychology.
In other words, while it may be very easy to trade when the risk of loss does not exist, when the trader's hard-earned dollars are thrown into the mix, his or her focus and price objective can go out the window. Often, traders using virtual accounts will feel relatively comfortable even when the market moves against the positions they enter. This allows them to keep their focus on their price objective and wait for the market to get moving in the right direction. Because there is little consequence tied to "virtual money", personal emotion does not interfere. Unfortunately, when a trader's actions come to affect the gain or loss of his or her own personal assets, that trader is less likely to behave in such a methodical way.
Emotions Can Rule the Trade
Emotions can be seen as the trader's worse enemies; they often lead to misjudgment and loss.
Feelings generate what psychologist Roland Barach calls "mindtraps" in his book, "Mindtraps: Unlocking the Key to Investment Success" (1988). Roland Barach provides a collection of 88 lessons explaining the pitfalls, such as fear and greed, that hold many traders back.
Greed
Greed can lead a trader to hold on to a position too long in hopes of a higher price, even as it falls. This emotion has been the main reason behind many trades that have gone from large gains to large losses. To thwart this emotion, try to take an objective look at the reasoning behind your positions. When one of your positions experiences a large run up, ask yourself whether the reasons behind your initial investment still remain; if not, it may be time to close or reduce the position.
Fear
Fear can prevent a trader from entering trades along with taking them out of positions far too early. If an investor is too concerned with potential loss and the risks that come with an investment, he or she can often be dissuaded from a good opportunity. Also, if a trader is more susceptible to fear, he or she may sell out of an investment far too early based on the fear of losing the gain they have made. In many cases, this can prevent a trader from cashing on a much bigger gain.
Paralyze by Analyze
Paralyze by analyze is an interesting phenomenon in which traders get so caught up in analyzing everything about a potential investment that they never actually pull the trigger on the trade. In this case, what often happens is that the investor will constantly question all of the little details found in the analysis in an attempt to perfectly analyze a situation. This is a truly unachievable task that can prevent a trader both from making monetary gains and from making experiential gains by getting into the trade.
There are a wide range of other emotions that can rule a trader but the important thing for any market participant is to recognize these emotions.
Acknowledge Your Emotions
All traders will experience at least one mind trap, but it is the very best traders that learn to recognize, understand and neutralize them. This process forms the foundation of any trader's training. Therefore, if you want to become a (successful) trader, you should first spend some time getting to know yourself and the particular mindtraps you tend to fall into. A skillful trader tends to have a strong desire to master his or her emotions and prevent them from affecting his or her performance.
Trading Nirvana
Traders are only human and, as such, perfection may not exist in trading. However, profitable trading can be achieved when a trader learns to manage his or her emotions. This will be easier for some than for others, but it is only through experience in the market that this skill can be developed. Therefore, before you can learn how to win, you have to take some risks (or at least get into the market) and learn to master the emotions that making (and sometimes losing) money stirs up.
by Nathan Halfon,Director of Institutional Business Development, Advanced Currency Markets
Many novice traders may believe that it is very easy to make money, especially when they are trying a broker service using a free practice account.
However, if these traders manage to generate a sudden substantial return, it can lead them to believe that trading is an easy occupation - and one in which revenue can be quickly generated with little work on the part of the trader. For the inexperienced, one good pick can make it seem like market speculation might become the key to success and wealth.
Unfortunately, when these inexperienced speculators overtake this virtual investing environment and decide to start trading live accounts and risking real money on the market, the activity becomes much more complex. In many cases, the days of outstanding day-trading performance come to look suddenly and distressingly like old souvenirs - it is an abrupt initiation into the pitiless reality of the financial markets.
Real Life vs. Practice
When new traders take the leap from the their virtual trading accounts to trading with real money, they are entering into the most difficult step of their initiation to trading: trading psychology.
In other words, while it may be very easy to trade when the risk of loss does not exist, when the trader's hard-earned dollars are thrown into the mix, his or her focus and price objective can go out the window. Often, traders using virtual accounts will feel relatively comfortable even when the market moves against the positions they enter. This allows them to keep their focus on their price objective and wait for the market to get moving in the right direction. Because there is little consequence tied to "virtual money", personal emotion does not interfere. Unfortunately, when a trader's actions come to affect the gain or loss of his or her own personal assets, that trader is less likely to behave in such a methodical way.
Emotions Can Rule the Trade
Emotions can be seen as the trader's worse enemies; they often lead to misjudgment and loss.
Feelings generate what psychologist Roland Barach calls "mindtraps" in his book, "Mindtraps: Unlocking the Key to Investment Success" (1988). Roland Barach provides a collection of 88 lessons explaining the pitfalls, such as fear and greed, that hold many traders back.
Greed
Greed can lead a trader to hold on to a position too long in hopes of a higher price, even as it falls. This emotion has been the main reason behind many trades that have gone from large gains to large losses. To thwart this emotion, try to take an objective look at the reasoning behind your positions. When one of your positions experiences a large run up, ask yourself whether the reasons behind your initial investment still remain; if not, it may be time to close or reduce the position.
Fear
Fear can prevent a trader from entering trades along with taking them out of positions far too early. If an investor is too concerned with potential loss and the risks that come with an investment, he or she can often be dissuaded from a good opportunity. Also, if a trader is more susceptible to fear, he or she may sell out of an investment far too early based on the fear of losing the gain they have made. In many cases, this can prevent a trader from cashing on a much bigger gain.
Paralyze by Analyze
Paralyze by analyze is an interesting phenomenon in which traders get so caught up in analyzing everything about a potential investment that they never actually pull the trigger on the trade. In this case, what often happens is that the investor will constantly question all of the little details found in the analysis in an attempt to perfectly analyze a situation. This is a truly unachievable task that can prevent a trader both from making monetary gains and from making experiential gains by getting into the trade.
There are a wide range of other emotions that can rule a trader but the important thing for any market participant is to recognize these emotions.
Acknowledge Your Emotions
All traders will experience at least one mind trap, but it is the very best traders that learn to recognize, understand and neutralize them. This process forms the foundation of any trader's training. Therefore, if you want to become a (successful) trader, you should first spend some time getting to know yourself and the particular mindtraps you tend to fall into. A skillful trader tends to have a strong desire to master his or her emotions and prevent them from affecting his or her performance.
Trading Nirvana
Traders are only human and, as such, perfection may not exist in trading. However, profitable trading can be achieved when a trader learns to manage his or her emotions. This will be easier for some than for others, but it is only through experience in the market that this skill can be developed. Therefore, before you can learn how to win, you have to take some risks (or at least get into the market) and learn to master the emotions that making (and sometimes losing) money stirs up.
by Nathan Halfon,Director of Institutional Business Development, Advanced Currency Markets
Importance of Discipline in Trading Markets
Self-control is Key to Running a Stock Trading System Successfully
The type of discipline required to trade profitably in stock markets is the same as that required to lose weight, stop smoking, or run a successful business.
Market, futures markets, commodity markets, currency trading, etc., needs plenty of that complex, elusive, evasive, and often camouflaged human quality -- discipline.One definition (answers.com) of discipline is, “controlled behavior resulting from disciplinary training; self-control” .
The roots and basics of all discipline are the same but according to Jake Bernstein, noted futures trader and author, discipline in trading financial markets is virtually impossible to teach and learn from anyone else. However, there are guidelines one can follow.
The Nature of Trading Systems
Trading systems and methods are normally tested by computer in order to generate hypothetical or ideal results. They are tested with perfect adherence to trading rules that have been programmed in the computer's software. Whatever the winner success rate of the trading system, 60 or 80 or 90 per cent, there are no errors to the routine of trading.In real time, therefore, the trader must duplicate the same ideal conditions if the same performance is to be replicated. There is no room for lack of discipline, since errors can interfere significantly with profits that are obtained on average.
Traders do understand that discipline means the ability to follow their trading system and approach. It is interesting that some traders have virtually no objective trading system, but through dedication and development of discipline, they have achieved success. On the other hand, there are traders with excellent trading systems, statistically capable of massive profits, but those traders have remained unsuccessful because of their lack of discipline to the application of the trading rules.
Read on
- The Business of Trading Financial Markets
- Stock Trading Tips - How to Make Money in the Stock Market
- The Basics of Online FX Trading
Lack of Trading Discipline is Contagious
As in interpersonal relationships, in a relationship with the marketplace, a trader's lack of discipline can cause negative interaction that may result in further tests of discipline and self-control. The frustrated trader is then likely to create more and more errors, compounding into serious losses and spinning out of control.Suggestions for Improving Trading Discipline
The following are guidelines that can be used for improving discipline. They will require action and thorough implementation:- Make a schedule: Keep trading signals up to date, be prepared for when the big move comes and don’t try to trade too many markets
- Stick to decisions: Good traders work in isolation and make commitments, not letting other people (e.g. brokers, other traders) influence their decisions
- Learn from losses: Losses are expensive tuition to avoid repeating the same errors
- Stick with the Trading System: Some traders quickly switch from one trading system to another. This is one of the worst forms of discipline. Traders should stick to their trading system to give it sufficient time to perform.
- Know when to exit: It is important to have an objective measure of when to terminate a given trade, whether the trade is profitable or not.
- Take a break when needed.: Traders need to be self-aware and when mistakes are made as judged by a string of losses, to take a break, recoup energies and remake commitments.
Trading Discipline - Emotional Development
Successful traders do not let their emotions, their temper, or frustrations get in the way of their trading. Novice traders often talk of the mythical beast – the market, and then proceed with revenge trading. For example, in the statement, “I was so annoyed that I bought more as they fell,” the trader aims to get even with the market. Experience is the greatest teacher, with emotional discipline a result of the journey from novice to craftsman.References:
- “On Discipline”, Jake Bernstein, in High Performance Futures Trading, Joel Robbins Ed., Probos Publishing Co.
- “Trading Rules – Strategies for success”, William F. Eng,
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