They say the game of golf is not played on the green, it’s played between your two ears. Trading futures, forex, options, or stocks is much the same way. Your mental game must be up to par. If not, failure is inevitable. In the end I hope you find the discipline to be a speculator and not just your ordinary gambler.
Book 6 : Fortitude and Frailty Pg. 52
“A large force cannot necessarily overpower a smaller force ... If the small force is adequately organized it can wreak havoc upon the slowness of the larger army. These are called hit-and-run tactics. ”
I teach my clients how to use accumulation/distribution, open interest, volume, and the commitment of trader's report to see the patterns evolving from the hedgers and larger speculators. These two groups develop their positions over long periods of time. Therefore, they are always telegraphing their position. The goal is to use their superior strength in your favor by catching the waves that they initiate and moving with the ebbs and flow of the market by using sound risk management techniques.
Book 7: Manipulation of Circumstance Pg 57
"Manipulation must be employed as deception/no-deception... Deception/no deception means you proceed without preconceived notions of victory or defeat. This is accomplished by proper planning."
The trick to that is being able to apply money management, technical analysis, and risk management techniques together in order to be a complete trader. When I work with clients I teach them how to utilize synthetic options, collars, and retail hedging techniques in order to be able to trade both sides of the market, while protecting as much capital as possible. This is part of the proper planning that you need in order to have an edge in the markets. Even with all of these tools at your disposal you must still approach each new opportunity with fresh eyes. A trader's greatest asset is his ability to set aside the psychological need to be right so he can be profitable.
Book 7: Manipulation of Circumstance pg 61
"The spirits of most warriors, with rare exception, vary with time. In the morning a warrior is filled with vitality and seeks to do battle, in the afternoon he may tire if the expectancy of combat has not been fulfilled, and in the evening he will long for home and seek to be there instead of being on the field of battle."
I am going to let you in on a secret. If you are trading spot currency, futures, or options on their own you have cut your slim chances of success to none. Don't get me wrong, you will have winning trades, but it will only take that one trade, that unexpected trade, to wipe out everything you labored to build.
Book 4: Tactical Dispositions
The good fighters of old first put themselves beyond the possibility of defeat, and then waited for an opportunity of defeating the enemy.
For the rest of you what I am going to write may or may not register right away, that's okay. I want you to meditate on it, research it, and email me. I remember when I wrote that gasoline would be $4 at the pump a few years back and people wrote me all sorts of hate mail. Since then gasoline has $4 at the pump in various states.
The big secret is quite simple. Futures investing was designed as an insurance tool. That's it. The spot market, the futures market, and the option market were designed as a daisy chain of protection, each with a successive higher and higher leverage, because of the markets perceived belief that the buyers and sellers actually own the product or have the cash to pay for the product in whole.
When I first decided to become a commodities broker I thought that I would be learning how to trade. I assumed that the test would discus technical analysis and market strategy. Imagine my surprise to discover that the test was all about hedging. How farmer's protect themselves from loss in crop value, how banks use treasury futures to manage interest rate fluctuations, and how to protect yourself from currency devaluation. Dry stuff.
To secure ourselves against defeat lies in our own hands, but the opportunity of defeating the enemy is provided by the enemy himself.
By looking at trading through the eyes of the people that actually buy and sell the products you are able to trade both sides of the market, with a little foresight, and manage your risk more efficiently than using stops alone. By combining spot, futures, and options products together you are able to raise your level of trading sophistication to the same level as the true professionals.
Security against defeat implies defensive tactics; ability to defeat the enemy means taking the offensive.
The great part of trading this way is that you will have reduced margins, reduced commissions, and reduced risk. Don't be afraid to combine spot, futures, and options together it will add a depth to your trading that will put you ahead of the 95% of the traders that fail.
This is my favorite edition of the Art of War and these quotes are excerpted from it:
The Art of War:The Definitive Interpretation of Sun Tzu's Classic Book of Strategy for the Martial Artist by Stephen F. Kaufman,
Hanshi 10th Dan
ISBN 0-8048-3080-0
Tuttle Publishing
Noble DraKoln is the Senior Broker and Analyst at Liverpool Trading Company a futures and forex brokerage. He is a former editor of Futures Magazine and has lectured in France, Germany, Romania, and throughout the U.S. on proper risk management techniques. He is also the developer of the 3 Steps to Trading Success and has authored four books on futures and forex investing. He has been involved with futures for almost 14 years.
If you want to learn more about trading you can subscribe to his 10 week FREE trading course, "Trading Success" by emailing him at [email protected] or visiting www.liverpoolgroup.com.