Keep Calm and Carry On Trading

Hi all,
I have decided to start a second thread on FF, succeeding ‘The Good, The Bad and the Ugly - A Real Trading Record’ thread that I have been posting on in Trading Journals for many months now. That thread is an unabridged record of my short term day trading that I undertake full time for a living. This new thread will not post actual trading, rather it will be a series of discussion posts building over time to create I hope a comprehensive coverage of every aspect of short term trading from the the very first steps up. I’ve called it ‘Keep Calm and Carry On Trading’ mostly to satisfy my unfortunate sense of humour and because I think it does encapsulate a rather important emotional requirement about trading. Much more on this in due course.

I have been investing and trading, professionally and personally, for over 30 years and for the last decade short term trading has been my full time occupation and principal source of income. If you would like to know more about me and my trading I would refer you to ‘The Good, The Bad and The Ugly’ thread where it has all already been set out. I hope this thread might become a useful source of ideas and thought for traders, whatever their experience, expertise, style, markets or timeframes. Most of what I will set out I believe is universally applicable in all trading and I will be happy to field any and all questions and queries as we go along.

Without further ado, then, time to get started, appropriately enough at the beginning by addressing the question of should we really be trading at all?

Hi all,
Following on from the previous post, let’s start by considering briefly the rather fundamental question of whether trading is really such a great idea in the first place.

Anyone who looks at the idea of trading will very soon come across claims along the lines of: ’90+% of traders lose money’ and ‘You can’t beat the market.’ These are worrying statements because, should they be true, trading sounds like a really bad proposition. But are they actually true? Trying to answer this immediately conjures up for me a famous quote (by Ronald Coase, a British economist who won a Nobel Prize in 1991) about statistics: ‘If you torture the data long enough it will eventually confess to anything.’ Cynical perhaps, but with more than a ring of truth about it.

Well, do 90+% lose money? I don’t know. I make money but I’m a rather unilluminating sample of 1. The firm through whom I trade says (the financial regulator insists they do..) that 68% of their retail trading clients lose money. I noticed they started at over 80% when first forced to disclose this and have been steadily bringing it down ever since, presumably through some sort of unpleasant data torture. Whatever the ‘true’ number is, yes, it is probable most retail traders lose money. But that is not quite the whole story. A large proportion of these losers were always going to be losers. People who wandered in with too little capital, too little experience, too little expertise, and very overambitious expectations. I’ll wager close to 100% of these are losers, never mind 68%. Of the remainder who did make an effort to observe, think, learn, practise and trade sensibly within their means, the survival rate is going to be a lot better. You need to make a proper commitment if you want to have any chance at all. I’m going to assume that anyone who reads on from this point is in the latter camp.

What about not being able to beat the market? Well, what does that actually mean? Again, I don’t know, it’s not a war to me. I don’t want to beat the market, I just want to extract some gentle consistent profits from it in an acceptable manner. If you view trading as a zero sum game (less transaction costs!) then whoever loses means someone else is winning, someone is taking the other side of all those losing trades. So, someone, somewhere, must be winning, transaction costs aren’t that high. What do you need to do to be among the winners rather than the losers? That seems a much better question to me and it is the one this thread will attempt to address in a hopefully structured and thorough way.

Next time I’ll move on to look at this basic question of making a proper commitment and considering what such a commitment is asking of you.

Words of wisdom always welcome.
I'll keep watching.

What about not being able to beat the market? Well, what does that actually mean? Again, I don’t know, it’s not a war to me. I don’t want to beat the market, I just want to extract some gentle consistent profits from it in an acceptable manner. If you view trading as a zero sum game (less transaction costs!) then whoever loses means someone else is winning, someone is taking the other side of all those losing trades. So, someone, somewhere, must be winning, transaction costs aren’t that high. What do you need to do to be among the winners rather than the losers? That seems a much better question to me and it is the one this thread will attempt to address in a hopefully structured and thorough way.


And THATS what its all about.. extract some monie run away and then come back tomorrow and get some more.. in my opinion any how

Hi Oldtraderman,
It is me again, and I'm eager to ask you a question.
Last week an EPL manager said in a press conference that "I have no clue if we can win the Champions League again, but we should be ready to go for it. What I know and what we showed last year is that we can beat the best. It doesn’t mean we will, it just means we can, and that is the only thing I have to know."
I think it is the same in trading that the important thing a lot of traders are desperate to know is whether he can do it or not.
Regarding your own journey of trading for a living, at which point did you have the belief that you can do it? I mean the point when the belief is strong enough to not being easily shrugged off in good or bad moments, reasonable enough to not make you feel overconfidence or set unrealistic target...

Hi BWilliam,
Welcome to the thread and thank you for your comments. I have yet to mention the word gambling, but it is a concept I will come to shortly. Suffice to say for now, I think trading can be gambling or intelligent speculation, it depends entirely on the approach a trader takes.

As for the matter of whether or not we should be deciding if someone else should be trading, I do not believe I have presumed on this either. This thread is simply setting out what I believe trading requires of an individual; it is entirely up to the individual to decide whether it is an endeavour suitable and worthwhile for them.

Hi diamond 1011,
An excellent question. The short answer is a long time! I spent a considerable period trading essentially on blind stubborness and a desire to make it work for me, the results to evidence this were most certainly not here. This is a very tough time because you have no evidence, just belief which may well be essentially delusional. I became steadily more comfortable as I made steadily more money in a steadily more consistent way. Recovering successfully from a poor patch without losing discipline or consistency was a big step forward in this. Evidence to refer to.

Allied to this, I eventually built up a considerable body of experience, pretty much anything the markets could do to me they already have now. So I have the benefit of experience to fall back on because I have gone through every situation a few times over now. I simply know I'll be OK because I know what to do -actually, more important to know what not to do - but I'm sure you get the point!

Hi all,
Last time (post #2) I mentioned that you need to make a proper commitment to trading if you hope to become and stay profitable. What exactly, though, is the nature and extent of this commitment and is it worth taking on?

You need to think of trading as a professional occupation. To become competent you have to study and learn the subject, develop the required skills, have the correct mental and emotional attitude for the job, and then practise carefully and slowly until you build proficiency and experience. It’s a considerable commitment if you want to do it right. You can, of course, have a lower level of commitment, say as a part time hobby, but be realistic about the likely results. And remember especially that the markets won’t adjust what they do to you because you are a more casual trader, you’ll be buried just as deep as a full time professional if a trade goes wrong and you don’t properly control your risk. There will be much more on risk control in due course.

That said, actually, if you are willing to put some work in, the technical aspects of trading aren’t that overwhelming, it’s not rocket science. You have to have a minimum understanding of how the markets function, how you place a trade, etc. but this can all be picked up easily enough. On top of this - and more difficult - you have to develop a sensible method, a system, to guide your trading in a disciplined and structured way. I will try to provide some hopefully useful ideas on this as the thread progresses.

But by far the greatest commitment on you to be able to successfully trade, however, will be the emotional and psychological requirements it demands. Trading is rather unnatural in that it deals inherently in uncertainty, risk and probability, whereas we like to operate in world of clarity, security and certainty. It’s difficult for us to adapt to such an environment, psychologically speaking.

And trading is particularly hard on the emotions, especially the ego. Markets change direction whenever they like, often for no apparent reason and often against rational explanation. You can work a trade out carefully and sensibly and price just goes the opposite way. No matter how good you are you will be wrong and made to look stupid over and over again. It’s tough to deal with this. Sometimes you need to accept being wrong five times in a row and still do the same thing a sixth time because that’s just the way probability works. And sometimes you have to know that wrong five times in a row means you need to change!

I can’t stress enough that the emotional and psychological demands of trading are hard for most of us. It takes a particular kind of mindset and next post we’ll consider exactly what that mindset might look like.

Hi all,
I introduced last time (post #8) the idea that trading tends to be tough on your psychology, ego and emotions. What sort of mindset, then, might be suited for this endeavour?

Because trading is inherently uncertain and probabilistic in nature - you can’t just figure it out and know you’ll be right every time - it requires a certain mental attitude to accommodate this. You have to accept that you can never really know with any certainty what will happen next, all you can do is it give it your best shot, see what happens, and react appropriately. No getting upset you were wrong this time and lost some money, that the market somehow seems to be doing everything it can to frustrate you, no losing control or getting angry, no desires for revenge and getting you money back asap.

You have to enter a trade with a specific idea in mind of what you expect to happen but without any real idea whether this actually will happen for you. If it goes your way, great, follow your profit taking plan and make some money this time around. If it doesn’t go as expected then you just have to cut the trade for a pre-planned acceptable loss and move on to the next opportunity. No hoping, procrastinating, waiting for it to turn around, or giving it more room than your risk control calls for.

It’s all about a mindset of acceptance that anything can happen and it’s neither personal nor an insult to your intelligence and ego that you were proved wrong and had a loser. You’ll be having plenty of them, it’s just the way trading is. You must stay emotionally balanced, in control, disciplined and consistent at all times. You want always to be focusing on controlling risk. If you don’t, sooner or later a trade will get away from you and a really bad loss is coming your way. This is both painful and destabilising, your best option is never let it happen by having and following faithfully a predetermined risk controlled plan. It’s not about being right, it’s about staying in control in an environment you cannot actually control to any great extent.

All of this is a big ask for most of us because much of it is so contrary to our natural human desires for certainty, control, and being right rather than wrong. It will get easier with experience and practise but it is really important that you put a lot of thought and effort into developing an appropriate mindset for trading.

With all this firmly in mind, next post I’ll look at how we might think conceptually about extracting a net profit from our trading. What exactly is a trading edge and where does it come from?

And please how does a trader make sure that he really has that edge, especially when it is usually so small and so subjective? Is it experience based, or evidence from testing, and how much testing? Because when talking about trading for a living we are talking about an edge that lasts for a long time, not just something making profits in the first 10 years and then starting to lose money in the next 10 years, something which is consistent in a long time...
And more about this please. What is the difference between the two series of losing trades?

Hi diamond1011,
I shall be talking a little about edges and how they derive from your observation of the markets in the next couple of posts. However, you do ask an interesting extension question here about how you know you have an edge and whether it is durable so I'll try to deal with this now:

Firstly, yes, edges tend to be small, the markets are not going to be giving you an easy free lunch. That is why trading is about a long series of controlled trades, some winning, some losing, the net result of which is a slowly accumulating profit due to the crystallising of your edge. Plonking down a huge bet and hoping doesn't count, even if you happen to win, as you'll be giving that back with interest soon enough!

Though small, I don't think of my edge as subjective, it is demonstrably evidence based through testing and small size trading. My demo and small scale trading has generated the profits as I had hoped, proof that the edge exists and is realisable in an acceptable way. If not, I keep looking for an improvement to this edge or another edge, based on this emprical experience.

As to how much testing and practise, it's a bit like asking how long is a piece of string? As long as it takes, as long as you need to feel comfortable to start trading it in your normal size. And even then I am constantly reviewing and observing to see if I can improve the edge, or whether market conditions are changing and maybe my edge isn't so valid any more. The results of my trading will be evidence of all this clearly enough.

How long an edge might last depends on the durability of your underlying concept of how markets act that you observed to create the edge. For example, if your concept was to follow big trends for huge gains, enough to pay for all the small failed starts and more (that would be the edge here) then the durability of your edge depends on the durability of a market trending. If a previously strongly trending market went quiet then your edge is gone and it's time to move to another market, find another edge, or just wait until the trending conditions return.

I like to base my concepts on what I think are routinely recurring observable principles of price action, so I like to think my edges are durable over time. But it's not essential, you can have different methods with different edges for different conditions to pick and choose from like a menu depending on present conditions, and/or you can search across a range of markets to find whichever one(s) have the current conditions for your edge.

Moving to you second question about when to keep plodding on and when to give up after a series of losses. It depends on your analysis of why the series of losses happened. For example, if you were trend trading as per above and five losses came from five small failures because the market broke but fell back as it often does, you'd keep on trying a sixth time as long as you felt the market was still bursting for a big move. But if you thought the market had gone dead and was now in a churning phase you'd probably give up trying for the big move and move on to another market or another edge. How you ascertain which is which is, admittedly, mostly an experience based thing, but it also depends on the durability characteristics of your edge as discussed above. I think my edges are durable so I rarely give up on them, other concepts not quite so.

Hope some of that helps

Hi all,
In the last post (#9) we looked at the mindset of trading, so let’s use that now to think about obtaining a trading edge. You need something that gives you the expectation of making a net profit over time or else there is not much point trading. What might this be?

The source of a trading edge can be whittled down to basically just one concept that incorporates just two moving parts: having winners sufficiently bigger than losers for the win rate of your method.

Take three example illustrations:
1) if your average win size is equal to your average loss size you need a win rate over 50% to be profitable.
2) If your winners are twice the size of your losers you’ll need to win better than 33% of the time
3) if your winners are half the size of the losers then the required win rate is above 67%; and so on.

Think carefully about this, it’s important. Most of us naturally want to win as often as possible so we tend to go for taking frequent small profits when they appear, whilst risking rather more should it all go wrong in the hope that giving it a little room may allow it to turn around for us and avoid a loser. This is trading of type 3) illustrated - high required win rate, winners on average smaller than losers. Feels comfortable because we have a high win rate but it is very tough to keep up as it puts such a strain on needing to be right most of the time in an inherently uncertain, unpredictable environment. And a run of those bigger losers puts you a long way under water in order to get back with small winners.

What about turning it the other way round then, like type 2) trading? You can lose two times in three goes and still breakeven. That sounds OK and a string of losers is much more easily recovered by a few winners. The problem is that the higher you aim in terms of winners being bigger than losers, the lower your likely win rate as the cut point for a loser is so much closer to current price than the take profit point. You’ll also have to be comfortable with accepting strings of losers and not winning the majority of the time. Emotionally tough.

The first 50% illustration represents a sort of halfway house compromise between the two and is asking you to be only marginally better than random in your trade selections to come out on top. Think of this whole concept as a spectrum with this option in the middle and the other options being on either side. You can widen the spectrum as far as you like, there is nothing to stop you trading for winners 100x the size of losers, or vice-versa, except that reality might get in the way at the extremes!

Where you place yourself depends on your psychology and how you see the markets, there is no absolute right or wrong. Those who want to latch on to and ride big trends for infrequent but massive gains will be one side of the spectrum, scalpers jumping in and out nimbly for lots of little winners but bigger losers when it goes wrong will be on the other side. You need to spend some time considering what kind of individual you are, and how you view the behaviour of markets. It’s crucially important that your psyche and the nature of your method are in harmony, otherwise you will never be able to trade comfortably or consistently.

Answering these questions will lead you to the topic of designing an appropriate structured trading method around a chosen concept, the subject of the next post.

Hi all,
Last time (post #12) we looked at how to achieve a trading edge. There are an infinite ways to trade and each incorporates a different concept of an edge, and how it is gained. Understanding properly your base trading concept is the first step in developing your guiding trading plan/system/method.

You have to start with an idea based on your observation of the markets. What do you see in the market action that you could profitably exploit? Let’s consider two simple price action examples:

1) Trend Following. Looking at any chart reveals sometimes the market runs off on long, sustained directional charges. It covers a lot of ground with comparatively not much in the way of serious retracements. This looks great to trade, put on a position in the direction of the charge, sit back as a big profit piles up and then exit gracefully as it runs out of steam. The concept seem clear enough: look for trend, get on board and sit tight to the end. To develop a method around this requires you to define explicitly:
- what constitutes a trend
- when do you take a position
- when do you close it out, both if it goes your way (take profit) or doesn’t (stop loss)
Answering these questions pretty much creates your trading plan, just need to bolt on a position sizing algorithm (more on this in a later post) and you are done.

2) Range Reversal. Your market observations will also have noted price spends a lot of time churning around within upper and lower limits without really going anywhere. If you sold around the upper limit and bought around the lower limit there are potentially good profits available, often multiple times over as the market moves up and down the range. For a trading plan here you need to define explicitly:
- what is the range
- when exactly do you enter at either end
- where do you take profits and where do you cut for a loss if the market breaks the range and trends
Again, answer these questions, add a position sizing algorithm and you have a method.

These are simple, conceptually opposite ways of trading, based on observation of how prices typically move. You could also analyse price behaviour across news events, or through a raft of indicators - moving averages, RSI, oscillators, envelopes, etc, etc, the list is endless - and devise a similar structured trading plan around these. It all depends on how you see markets, once again there is no absolute right of wrong here.

Each method contains an edge in a different way. For the two examples given, the trend following would tend to be a comparatively lower win rate method with winners probably several times larger than losers on average, the edge is those infrequent big winners paying for all the smaller losers and more. The range reversal method would create the edge typically by cutting quickly any trade that broke away out of the range but letting the winners wander back through the range for averagely somewhat bigger winners than losers and probably around a 50% win rate. I hope you can see by now also that each might appeal to traders of different mindsets. You need to pick something where you both see an edge and feel it suits you to trade it.

Once you think you have got something you like the look of, it’s time to actually start structuring a trading plan around it. The next post will look at the required elements of a basic trading plan.

Hi all,
Being the Friday of a so far adequately profitable week, no live trading for me today. Instead then, and being in a somewhat literary mood today (I read a book last night) I shall pen and post the remainder of my distilled thoughts and experiences about the the process of trading, as least how I have come to see it.

Last post (#13) we examined finding a trading concept that looks profitable and suits us, psychologically speaking. Now we need to create a formal trading plan from it.

You need a guiding plan or else you will inevitably end up shooting randomly from the hip and finding yourself chasing price, getting in when the profitable move you were looking for has already all but finished. Then you start getting angry and frustrated at the losses, your stupidity, and the feeling the market somehow has it in for you. You have feelings of revenge and want your money back. That leads to loss of discipline and risk control and you can guess what is coming down the track for you: a train wreck of a huge loss out of control because you are out of control. This is, sadly, how too many accounts end, with a fatal, catastrophic final loss.

A properly thought out trading plan that incorporates sound risk control will save you from this. You’ll have both controlled winners and controlled, acceptably sized losers. If your method has an edge your plan will let it generate net profits for you because you remain in control and allow the edge to work over time. If you don’t follow a structured, risk controlled plan you are veering towards gambling because you have no consistent way of either exploiting your perceived edge or managing your risk. Follow a sensible plan and you are closer to intelligently speculating, expecting a net profit over time, not hoping for it, and always having risk in check.

A solid trading plan isn’t complicated. At a minimum it needs the following elements:
- an underlying concept and edge to be exploited
- setup condition(s) so you trade only when appropriate for your concept
- entry trigger to actually get you into a trade
- exit conditions to cover both how you take a profit if it goes well, and a stop loss if it doesn’t.
- a position sizing algorithm to ensure your trade size is appropriate to your account size.

Next post we’ll start looking at these various elements in turn.

Hi all,
Last post (#14) we started looking at a trading plan. Hopefully you understand why you need one. If you don’t have one you are happy to follow that guides your trading in a structured way and controls your risk, I strongly suggest you don’t trade, it’s unlikely to end well for you.

The first required element is an underlying concept with an edge, something that defines a way of trading that suits you psychologically and emotionally, as previously discussed in posts #11 to #13. If you don’t yet have something to work with, keep just watching the markets, observing and thinking about what you see until a kernel of an idea comes to you that you can start playing around with and testing out in demo.

Next, you need setup and entry conditions to get you into a trade. Perhaps easiest to illustrate with a simplistic example so let’s take a concept of entering on a break of the first hour’s range of a trading session. Please note I am not suggesting you actually do this, it’s just a baseline illustration. Here then, the setup is waiting for the first hour’s range to form and noting the high and low. The entry is then to go long at a break of the high or go short at a break of the low. Simple enough. You should be able to structure logical setups and entry conditions for your concept without undue problem.

Once in a trade, the serious business really begins. Setup and entries are comparatively easy because you are 100% in control of what you do. But once you are in a trade the market is in control of what happens from here and you can only influence it in one way - with your exits. The market can go either way so you need a profit take exit and a stop loss.

Now, I know many traders do not like using stop losses because it crystallises losers that could very often have been avoided if you simply waited and let the market recover. There are many tests out there that demonstrate stop losses detract from performance because of this. 100% true but in my opinion 100% missing the point. Think of a stop loss like insurance against your house burning down. I pay a sizeable sum every year for such insurance and my house has yet to burn down, so I have been detracting from my net wealth each year because of this. 100% true. But why do I still happily pay up? Because I want to control my risk. My house in flames would represent a very big loss to me, one I’d prefer not to endure. The insurance is my stop loss and without it I am exposing myself to a potentially catastrophic risk. Your stop loss in trading provides much the same function, make sure you have one in place on all trades that gets you out at a manageable loss when (not if) things go wrong, you must not open yourself up to potential catastophe should a trade seriously crash and burn.

Stop loss planning is, happily, reasonably simple. Set a level that the market should not get to if your concept was correct and put the stop there. If it does get there the market has proven your idea wrong on this occasion so get out, accept the outcome with good grace, be thankful it’s just a run-of-the-mill small, manageable pre-planned loss, and start looking for the next opportunity. You absolutely must be able to take normal trading losses in your stride, exactly the same as normal trading winners.

Thinking more positively, what do we do if we achieve an open profit on a trade? Profit taking exits are the most subjective element in all of this. Who knows how far a market will run or when it will turn? Nobody does consistently so you just have to make a best guess that fits in sensibly with your concept. If you were trend following a sensible exit might be when you deem the market to have stopped trending. If you were range trading a sensible exit (or at a minimum here, a move to breakeven) might be as it approached the other edge of the range. The core idea is to maintain the logic of your concept throughout - have an exit that makes sense in terms of your entry.

All that now remains is your position sizing algorithm. As it involves a modest about of maths we’ll take a breather and keep it for the next post!

Hi all,
Last post (#15) we looked at the various practical elements of a trading plan - setups, entry, and exits. But your plan is not complete without the somewhat exotically named position sizing algorithm, so we’ll remedy that here.

All this means is how big a trade you put on and it is a core part of your risk control. I contend that trading is just controlling risk to a very significant extent. I cannot stress enough that everything you do in trading should have a primary focus in defining and controlling your risk. Forget about maximising your profits, focus on minimising your risk. The profits will happily take care of themselves, the risk won’t, it needs dealing with.

How big a trade you put on clearly affects your risk exposure. I suggest you should think about it in terms of you losing in the worst case outcome only a very small % of your account on any given trade. If you have a stop loss in place for every trade then you have pre-determined how many points you will lose at worst when (not if) a trade goes wrong.

To correctly position size from here you just need to convert the maximum potential points loss at the stop to a small % at risk for your account. For example, if each point move in the market represents £10 cash value per contract and your stop loss is 10pts from your entry, then your cash risk at the stop is 10pts x £10 = £100 per contract. If you want to peg the risk to be at most 1% of your £20,000 account that means your maximum cash risk is 1% x £20,000 = £200. That equates to 2 contracts so that would be your 1% position size for this trade. Note that you literally cannot do this calculation unless you have a pre-determined stop loss in place. So no stop loss = no structured risk control and that is 100% unacceptable. Have a stop. Always.

Why only such a small % of your account at risk? Yet more risk control, this time in the form of risk of ruin. You will have strings of losses in your trading, it is the nature of the game. You must ensure you can recover from such a sequence in a reasonable way. Lose 1% per trade for 10 net trades and your account is 10% down. You can get that back with an 11% gain on the depleted account, so more or less the equivalent and therefore a reasonable expectation. Make it a 5% risk and 10 net losers have halved your account. It needs to fully double from there to get back, much less reasonable now, and consider how you are feeling when half your account has disappeared. You honestly don’t want to go there so keep the % of account at risk per trade really, really small.

This post largely completes the formal construction of a solid trading plan from initial concept to full realisation. All you need to do now is trade it with discipline, consistency, emotional equilibrium and excellent risk control. The next post then will wrap up things by considering these aspects.

Hi all,
We come to the final post I intend to make in this series. We have covered everything from initial thoughts about trading, through concept selection, to developing all elements of a sensible guiding trading plan. We started by looking at mental processes and we shall largely finish with them also, the psychological and emotional aspects of trading are that important. Dare I say it after all the previous posts, only risk control is more critical!

You have a solid trading plan that suits you and now you want to actually trade with it. Now is the time to stop being creative and visionary, and start following the rules you have set out in your plan. I have noticed over the years that ex-military people seem to me to better than average at trading, my take is that this is because they are more willing than the rest of us to unquestioningly follow orders, in this case, their trading plan. Discipline and consistency are critical traits for a trader.

Start in demo or tiny size and only build up slowly as you become increasingly experienced and profitable. It is a marathon during which you gain experience and steadily improve, not a mad all-or-nothing dash from the starting blocks. Focus on following the plan, controlling the risk, accepting all outcomes equally and maintaining emotional balance. Don’t let winners get you high nor losers low. They’re all just trades. Concentrate on producing a solid run of risk controlled trades that follow your plan, do the profit & loss reckoning only at the end.

When trading, watch the markets from the sidelines until a valid setup as per your plan unfolds in front of you. When the entry trigger arrives, place the trade at the correct size for your position sizing algorithm and have the hard stop in place! Take all valid trades, no procrastinating or second guessing, you will inevitably miss the better ones if you start trying to be selective. Once in, follow your exit rules, especially respecting the stop should the trade go against you. Once out, accept the result - win, loss or scratch - with equanimity and calm. Then take a breather and start looking for the next setup to reveal itself and start the process over. And over and over and over.

In time, review your overall results. If necessary, consider if your plan needs adjusting. You are never perfect, there is always room for improvement and markets do change, there is nothing wrong in changing with them. But do test from demo any changes thoroughly as if you were starting from scratch to ensure you are fully comfortable before going live with proper money.

Good trading is not jumping up and down with adrenalin, screaming ‘BUY!!’ or ‘SELL!!’ down the phone or furiously attacking your mouse/keyboard. Your heartbeat is not supposed to hit triple digits. If you want excitement, go on a bungee jump. It is about being calm, disciplined, consistent and emotionally stable, accepting winners and losers equally. Follow your rules until it is evident to you that they need amending. If you get to that point, stop trading and work to appropriately amend them, as if starting from scratch. And above all, it is about controlling risk. Never forget that.

With that in mind, I hope there has been something in this series of posts that may help you on your trading journey. It took me a very long time to tolerably understand this trading game and distill everything down to what I have tried to set out here. It works for me, regrettably I can’t promise the same for you, we’re all different after all. But if at least the odd word sparks something helpful within you, it is a result for me.
Best of luck to you all!

Hi Oldtraderman,
Can we test a mindset of trading? Or is there a checklist that we can use to evaluate a trader's mindset, to check the probability that he can overcome difficult trading period in the future, and make sure that one bad day he will not do silly thing that might cost his account, even cost his trading career?
I am reading your other posts in this thread, if I have further questions may I keep asking you on here?

Hi diamond1011,
I doubt there is a simple answer to that question because we are all individual, unique, and all with very complex emotional and psychological makeups shaped by a wide variety of factors through life. You pretty much have to work yourself to understand yourself, what your trading strengths and weaknesses might be. We all have both, it's a matter of being brutally honest with ourselves and then working on the weak bits.

As to what this checklist might be, I think I've probably bored everyone enough now with endless repetition of words like discipline, consistency, patience, risk control, and emotional stability. These to me are the core characteristics of good trading and should permeate everything you do in trading.

However strong we make ourselves as a trader we are still prone to having a bad day. It's just human and it will happen many, many times. As you know it's coming it's best to prepare for it so you can protect yourself from yourself on one of these bad days. How? By risk control. If you strictly, 100%, always follow your risk control procedures then you can't damage yourself too badly, however bad you are going to be on your worst day. That's really why risk control is so important and #1 for me, it means you on a bad day won't cost you your account or your trading career.

Hope that helps, if you have more questions, either thread will do, whichever suits you.

Truth is that a trader might not understand the reason, but not that there is no (apparent) reason or that it is against rational. "Markets" care about volume and price, while retail traders usually stare at time-based charts, which mean nothing to "markets", and might not have access to the volume distribution along the price scale, i.e. in forex.