Tuesday, April 5, 2011

Figure 8: The Trader’s Min


The trader goes through an enormous array of emotions and thoughts
during a trade.  Some are good, some are bad, but it is rare to find a trader
who consistently applies his plan.

Emotion, or lack of discipline, is the greatest enemy of every trader.  This
is so true that one could argue that discipline is a more precious trading
commodity than capital itself, since capital can only be sustained with
discipline.
This is not to say that the trader does not have value to bring – he does.  In
moments of clear, objective contemplation, many traders – even novices –
can be builders of excellent trading systems.  These systems can take
advantage of their understanding of the forces of forex and test out
incredibly.  Once live, however, the system falls apart.  Why?
The simple reason is that emotion has no place in trading.  Emotion causes
the trader to act differently following large wins or losses.  Emotion causes
the trader to act irrationally when large moves occur.  Emotion causes the
trader to apply his trading system inconsistently.  
If you took a survey of successful traders you would find many similarities.
The traders would understand and apply all of the forces of forex.  They
would usually trade incredibly simple trading systems. They would trade
using conservative, well thought out money management philosophies,
and they would trade with absolute consistency.
For the institutional investor, absolute consistency is not a problem, since
they have an array of personnel and resources at their disposal.  For
individual investors, there are three groups.  Those who trade without
consistency, those who trade with manual consistency, and those who
trade with automated consistency.  The novice, of course, is the trader who
thrashes from trade to trade.  The individual investor who uses consistent
discipline or automation as the foundation of his trading activity
maximizes his level of sophistication.


No comments:

Post a Comment