Lessons by Joe Ross

No doubt about it, my problem right now is me, and lack of discipline (or self control). Good article, thanks for posting it.

• First, you have to believe in the process which leads to the generation of your entry signals. Does that process make sense to you?

AGREE

Maybe you’re a visual sort of person and you are drawn to Candlestick charting. Take the time to understand why the patters mean “reversal” and not just accept the “picture”. Go deep.
Choose a guru to follow. Maybe you learn best from mentoring. Choose wisely.

DISAGREE GURUS DO NOT EXIST.

• Second, back-test and forward-test the method you decide to go with. In today’s modern world of software, there’s no excuse not to run all the back data you can through your method and see what the results would have been. Then forward-test to see how the method works out as each price bar appears on your chart. Be sure to use a statistically valid sample of trades for doing this.

DISAGREE

• Third, THINK about the process you are choosing and why it’s right for you. THINK about the results you get from your back-testing and real-time testing of your system.

AGREE WITH THE THINKING PART

• Fourth, BE A MACHINE (DON’T THINK) when you are trading your method.
This is why I am a huge proponent of mental training for traders. Unless you can control yourself, you can never control your trading. In order to control yourself and your emotions, you have to believe totally in the way you trade. Do the work. Do your thinking before you trade. Then don’t think—just follow your plan.

AGREE

This whole idea about a trading 'guru' is akin to the idea of a celeb. Today's celebs can have zero talent or brains (Paris Hilton). Many of these 'Gurus' in trading are the same. The don't trade, they teach. They are the Peter bains and the Rob Bookers. They teach everything but know nothing.

Paris Hilton is smarter than we think. She positioned herself to make money and was successful. You can laugh at her all you want but she is laughing all the way to the bank. Are you more successful than Paris Hilton? If not, then why are you laughing?

As traders, we attempt to position our trades to make money. But few of us succeed. Who do you think Paris is laughing at?

Tiger Woods has a golf coach. Who do you think is the better golfer? Tiger, of course. But Tiger listens to someone he can beat golfing. What is the reason for that?

Don't be so quick with your criticism.

Do you know anything you can teach?

I'm a fan of Joe's posts but I'm sure I will not be a fan of your's.

If you wanna go to where Joe already was, you have a long way to go.

LOL, classic.

I think you mean Daddy is the smart one...

Added:
For any Aussie's that watch Roy and HG and happened to catch the Paris Hilton interview on "The Cream" will know exactly what I am talking about...

Sweetly said.

No way! While it is good trading to spread a winning trade if you feel the need to hedge your position, never spread a losing trade. Simply exit the market. The usual net result of spreading a losing trade is that both sides may be taken off at a loss. If you cannot admit you are wrong, or know at what price your trade is wrong, you have no business trading. Spread trading is best initiated after the spread trend has been defined and both legs of the spread are entered and exited "Market on Close." Spreading a loss converts one mistake into two.

When might you want to spread a winning trade? You do so ahead of a report which might have an adverse result on your trade. You do so when you hear a rumor or piece of news that might cause the trade you are in to turn from a winner into a loser. When you do that you are hedging, the very reason for which futures markets were created. Futures exchanges were created as a place where producers and users could spread.

Why not just get out and get back in after the report? Because it is often best to “stay in the water” if you want to catch the next wave. If you are in a spread, you are already “in the water.” If you get out, you run the risk of not being able to get back in. I've seen it happen dozens of times. A trader gets out ahead of a report. The report comes out and the market gaps up or down and then it becomes difficult to get in at a decent price.

Another advantage to spreading a winning trade ahead of a report is that, if the report causes a major disruption in the direction of the trend, you can always drop the losing leg of the spread and keep the winning leg.

Have you ever wondered how to get your ego out of your trading? Have you wanted to be market-centered, but find yourself consistently being self-centered?

One thing I know for sure: your self concept has to be separate from your trading. You began as an individual long before you ever thought of trading. And you exist as an individual beyond the time you spend trading.

When personal self-worth gets tangled up with your trading, it not only damages your concept of your personal worth, it sabotages your trading.

You must not allow your trading errors to ruin your feelings of self-worth. You must not internalize the mistakes you make. You have to avoid feelings of guilt, persecution, and despair.

You must learn to divorce your ego from your trading.

In my first manuscript on trading, I said that trading is a business in which there is no competition. I meant that in the sense that the only competition in trading is yourself. The market is impersonal. It doesn’t know you or care about you.

Your job as a trader is not to will the market to go where you want it to go, but rather to discover which way the market is going and join it – get in step with it.

That means total surrender of your will to that of the market. Surrender to it and go with it. If you set your will against the market, you will invariably be smashed. Forget being right! Concentrate on the fact that the market is always right.

Uncertainty is a part of trading. But we cannot allow uncertainty to become part of the image of ourselves. Consider, are you making any of the following ego-centric mistakes?

• Trading without a predetermined loss exit point.
• Trading without a predetermined objective point.
• Not pulling the trigger on a trade, or hesitating before pulling the trigger.
• Trading too large a size, or trading too often.
• Marrying a trade, or marrying a market.
• Adding to a losing trade.
• Not taking profits when they are there on the table.

How can we separate our ego from our trading? How do we keep from taking trades personally? How do we avoid internalizing what happens in the market, good or bad?

One way to separate our egos from our trading is to build fences between ourselves and our trading.

Realize that it’s “okay” if you are not right about every trade. It is not important to be right. It is important to execute and carry out your trading plan with consistency and discipline. Give yourself permission to be wrong about a trade.

Realize that taking a loss has nothing to do with your self-esteem. Tell yourself that taking losses is a part of trading, that it has nothing to do with your self-esteem. Give yourself permission to lose from time to time. Your ego must remain intact regardless of what is happening in your trading.

Erecting appropriate fences between yourself and your trading maintains your ability to separate yourself from your trading business.

There is more to you than your business. You are more than your trading. A proper fence informs you that the results of one trade are not to be confused with the results of all of your trading. Fences guide you as to the difference between the past, the present, and the future.

Nice post. I know that I have had the problem of letting trade outcomes generate feelings of self-doubt. I think that is what kills a lot of new traders and motivates them to try multiple systems, when in fact they have not tested ONE system with a large enough sample size of trades to conclude anything off of.

Easy. Just rememeber you ain't sh*t in this market!
You are small potatoes compared to other players
in the market. So what, you made $100 ... there
are traders making $100,000 per day.

Hope that helps !!!

Try to find a trading method that will reflect your psychological bias towards trading. Not all traders have the patience to trade a computer system and watch the trades give back large amounts of open equity. Methods are quite different from systems, and it is important to understand the difference.

I first learned this fact many years ago when I was a consultant for a very large aero-space firm. They had both systems analysts and method analysts employed there, and they existed in two very different departments.

A system, according to the Thesaurus, is an arrangement, classification, combination, complex, conformity, coordination, entity, fixed order, ideology, integral, integrate, logical order, order, orderliness, organization, philosophy, red tape, regularity, rule, scheme, setup, structure, sum, theory, totality, utilidor.

A method, according to the Thesaurus, is an adjustment, approach, arrangement, channels, course, custom, design, disposal, disposition, fashion, form, formula, habit, line, manner, mechanism, method, mode, modus, modus operandi, new wrinkle, plan, practice, procedure, proceeding, process, program, receipt, recipe, red tape, ritual, rote, routine, rubric, rule, rut, schema, scheme, shortcut, style, system, tack, tactics, technic, technique, tenor, the book, usage, way, wise, wrinkle.

Notice, a system says nothing about a method, but a method can encompass a system. A method also involves tactics and technique. A method can include a plan and practice. It can work from a formula. It contains a program, and a procedure. And perhaps most important of all, a method allows for adjustment!

A method can include all aspects of a system, and a method is much broader than a system. That is why at Trading Educators we develop methods, not systems, and especially not mechanical trading systems.

Quite frankly, for those of you who were not in this business during the 1980s, the heyday of $3,000 magical black box systems seems to have run its course. Very few mechanical trading systems are around, and they are sold for the most part only to the unwary who don’t know any better. The problem is that there are still plenty of those poor victims around.

Some traders want methods with as little involvement as possible due to job-related responsibilities. Not all traders have the psychological traits suited to trading certain types of methods.

Handing your mechanical trading system or even your method over to your broker may be one of the ultimate follies. Your broker cannot perform brain surgery on your behalf, when thoughts of a trailing stop are performing brain surgery on you.

Giving your broker discretion to trade your account as he/she sees fit is like paying for someone else’s education. You will learn nothing from it other than how much money you have lost once your account is wiped out. Allowing anyone other than yourself to trade your account is the same as making an investment. If your money manager is good trader, then you are okay; you have made a good investment. But if your money manager is a wannabe-trader-broker, you are in trouble. This is also true for using a mechanical trading system – you are making an investment. The investment is made in the soundness of the logic behind the mechanical system.

Investing in a mechanical system or allowing your broker to trade your account at his/her own discretion is no different from investing in a commodity pool operator, a CTA, or a hedge fund. You are no longer in control of the trading. You have become an investor with whomever or whatever is in control of the trading. In that case, you had better be sure you know the real trading results of what it is you are investing in.

Truly sage advice spoken here.

I concur..... Joe your years of experience clearly manifest in what you say.

Probably one of the best advice I've seen so far here. I totally agree that delegating your trades over to your broker can be suicidal.

No one likes to think about the worst-case scenario, or to make a detailed plan to recover should it happen. It's just one strategy for learning how to trade in a relaxed but focused way so that, should you ever face a severe financial setback, you can recover from it. Trading requires intense concentration and focus, and it's difficult to maintain this posture when the pressure is on you to perform. Therefore, you have to do whatever you can to minimize any expected or even unexpected psychological pressure.

The most obvious way to relieve such pressure is to think in terms of probabilities and carefully manage risk. By that I mean avoid overtrading, fast markets, exceptional tick size—be careful just ahead of reports that might drastically affect price movement. Avoid illiquid markets, avoid adding new risk when it appears a trend or swing may be nearing its end.

It's useful to remember that you may not win on any single trade, but after a series of trades, you will have enough winners to make a profit in the long run. It's also important to manage your risk. Determine your risk up-front and risk only a small amount of trading capital on a single trade. Doing that will ease a lot of the pressure, allowing you to be more open to see the opportunities that the market offers. Don't break under the pressure of a potentially fatal loss. Think about the possibility, and be ready to recover from it.

These days planning for contingencies must of necessity include short-term planning. Because the markets have changed so considerably in recent years from what they were many years ago, contingency planning has to include trading simple methods and scalping-type setups. We are in an era of thousands of traders jumping in and out of markets using extremely short time frames. Such trading has introduced an incredible amount of noise into the marketplace. No longer can the industry claim that speculators are there pirmarily for the purpose of providing liquidity to the market. I have to wonder why it is not plainly stated that trading from a 1-minute chart is simply gambling? In what manner can it be said that jumping into the market one minute and out of the market 3 minutes later is in any way providing liquidity for the hedger, whose sole purpose is the long-term protection of his position?

Short-term noise is a contingency that must be planned for. Erratic, jerky moves caused by scalping must be planned for. This includes having your own plan for making scalping trades if those suit your personality and comfort level.

Plan for sudden drastic moves in the market caused by stop-running. Increasingly, and especially in the stock market, I am seeing more and more of the sudden and unexpected price melt-down, or equally sudden and unexpected price explosion. You have to learn how to protect yourself from such moves, and you might even learn how to profit from such moves.

r u the real http://cdn.forexfactory.com/nfs/cust...vatar469_5.gif Joe Ross?

Coping your behavior?
Emotion-focused-coping
problem-focused-coping

Lazarus and Folkman proposed one of the most comprehensive theories of stress and coping in the psychology literature, but many of their postulates have received little empirical attention and some of the existing research has yielded contradictory findings.

So to find a valide longitudinal study to clarify the associations among control appraisal, coping and stress within this theoretical framework isn't easy to find.

Another aspect:
Which kind of behavioral measure might be to favour when making discipline within the scope of the main-effects-hypothesis?

Regards

The foundation of the forex industry is leverage. A few years ago we saw how LTCM used $4 billion to leverage over $1 trillion dollars in assets. George Soros used forex leverage to earn $1 billion dollars against the British pound.

On the other hand, this same forex leverage drove LTCM to the brink of bankruptcy and nearly caused worldwide financial meltdown. We also saw George Soros hit with a $2 billion dollar loss in the Russian ruble. When trading forex, leverage is not to be taken lightly.

Leverage is defined as "the use of investment capital in such a way that a relatively small amount of money enables a trader to control a relatively large value". In forex trading there are many instances when you can have leverage as high as 100:1, sometimes even higher. Putting up a few hundred dollars to have a position worth hundreds of thousands can definitely be worthwhile.

An important fact to remember is that, in forex, the money used to leverage a position does not have any intrinsic value. The margin is not a deposit on the actual position. Instead, it is considered "earnest" money, or a "good-faith" deposit .

In forex, the margin is a flat rate that helps put you in the game. This type of leverage can be terrifying for speculators.

Typical Over the Counter (OTC) leverage rules might look like this: You must put up a minimum margin of $1,000 per unit for accounts less than $25,000. Traders must maintain a balance $1,000 or 1% for each open unit.

Such an FX policy permits you to trade foreign currencies on a highly leveraged basis—up to 100 times your investment. An investment of $1,000 would enable you to trade up to $100,000 of a particular currency. A 50% loss in the value of the account, also known as a "draw down" in usable margin, will generate a margin call.

Typically, a speculator new to forex trading will initiate his first trade by getting as many contracts as possible, thereby over-leveraging his account. The greed demon has set in. It is no longer acceptable to get just $7 for every one pip move, it's better to get $70 or more for every one pip move.

Unfortunately, this behavior is not discouraged by the majority of brokerages. Instead, they fuel this greedy behavior. A broker or dealer is paid either on a commission basis or a pip spread, according to the number of contracts his client margins. So it's more profitable for the broker or dealer, at least in the short run, for the client to get as many positions as he can afford to take on margin.

This over-leveraging does a disservice to both the client and the broker. It exposes the client to too much risk at one time, and it forces brokerage to continually get new clients to trade. As a matter of fact, it is not unusual for the first trade a new speculator makes to go against him.

Disciplined speculators know to expect that every trade they take may work against them. That being the case, the disciplined speculator paces himself by investing a little at a time until he hits upon a successful trade.

As is to be expected, even the best trading systems that exist rarely have better than a fifty-percent success rate. Therefore, you must let leverage work for you, and not allow the demon of greed convince you to abuse it.

-------------------------
Trade Forex conservatively and safely
Forex At The Market is an advisory for currency traders who seek consistent profits.
http://www.fx-atm.com

Buy Low; Sell High: