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This is the FIRST installment of a 4-part 'Jump Start
Guide to Tuning up your Trading Mind' mini-course.
__________________________________________________________
How did this mini-course come about?
__________________________________________________________
In years of working with hundreds of traders, from
beginner to advanced, we have observed several common
mistakes, misconceptions and damaging beliefs that
have limited our students' progress and held them back.
Their ability to overcome these hurdles determined to
a large extent the level of success they subsequently
achieved in trading.
While some of these hurdles are common knowledge and
have been dealt with extensively in existing trading
literature others have received less attention.
Their nature is such that we constantly have to guard
against them and it is easy to "veer" off track and
fall back into bad habits - even for advanced traders.
Our intent is for this mini-course to serve as a
check-list for you to compare your mindset as you
build your Trading Mind and provide a line of first
defense when 'the wheels come off' and your trading
results take an unexplained turn for the worse.
Then you can pull out this mini-course and ask
yourself:
"Am I committing any of these errors in my trading?
- Could they be contributing to the recent dive
in profits I've experienced?"
__________________________________________________________
Misconception #1: Under-Capitalization and Unrealistic Expectations
__________________________________________________________
Some of the most damaging misconceptions and limiting
beliefs are planted in would-be-traders heads to entice
them to enter the industry, before they ever execute their
first trade.
The biggest one, by far, is that trading is easy and that
people can make obscene amounts of money within days of
starting out on the tiniest amount of trading capital.
While it is certainly true that the markets offer
unlimited potential and everyone has heard stories of
traders borrowing a couple of grand on a credit card to
get started, who subsequently went on to parlay that
into a small fortune.
The reality is that trading requires time, preparation
and sufficient start-up capital.
Starting out with too little capital and unrealistic
expectations sets would-be-traders up for failure
and is damaging in a number of ways, for example:
a) People who start on a shoestring are forced to take
on too much risk, and have a significantly greater
risk of ruin than better capitalized traders.
Someone starting out with $3,000 in the E-mini S&P's
will have to risk $150 to $600 pr. trade, or 5-20% of
their equity on each individual trade. As a result
they will be 'wiped out' if they have a handful of
losing trades in a row.
Contrast this with someone trading the same approach
on a $10,000 account. Each loss will represent a
significantly smaller percentage of equity and they
will be able to weather the inevitable drawdowns that
occur from time to time.
Regardless of the approach employed, one should have
sufficient capital to be able to withstand at least
10 losing trades in a row and still continue trading.
The smaller the percentage of equity risked pr. trade,
the smaller the risk of ruin will be.
Research has shown that ideally one should not risk
more than 1%-4% of equity pr. trade.
b) Unrealistic expectations cause traders to discount
the progress they are making and lead them to 'force'
things to bring about the desired result.
As an example:
If you believe you 'should' be making $1,000 pr. day
pr. contract in the S&P's when daytrading and find
that you are 'only' up $300-$500 by Wednesday after
trading for 3 days you will be unhappy with your
results.
Instead of continuing to do what got you to that point
in the first place and winding up with perhaps
$800-$1,000 for the week you will start pressing,
pushing for trades, trying to make things happen,
taking questionable trades and giving back in the
process what you'd made to that point and wind up
maybe -$1,000 or more in the hole for the week!
In trading, as in any profession, it takes time to gain
sufficient proficiency and one must learn to crawl before
they can walk.
By being adequately capitalized and budgeting several
months to a year at a minimum to learn the basics of
this profession beginning traders give themselves the
best chance of succeeding.
_______________________________________________________________
Misconception #2: Confusing Margin Requirements with Capital Requirements
_______________________________________________________________
One frequently hears starting traders talk about the
minimum margin requirements set by the futures exchanges
as sufficient capital needed to trade a particular
contract.
Beginning traders will also look to the margin
requirements as a way to determine which market to
trade, saying things such as "My account is so small I
can only 'afford' to trade Soybeans and Wheat, because
they are the only contracts with a small enough margin
requirement".
The fact is you can't 'afford' to trade ANY market
unless you have a winning approach!
If you don't, you might as well hand over your money to
the nearest charity and save yourself the aggravation,
because you will lose it anyway!
Margin requirements are set to protect the integrity of
the marketplace, they are intended to make sure that
traders have sufficient capital on hand to meet their
obligations should the market move against their position.
They are calculated based on a specific formula that
takes into account the volatility of the market in
question.
Generally speaking, as a rule of thumb, they are
approximately equivalent to the average 3-day true
range of that market.
Margin requirements should NEVER be used to determine
the market, or number of contracts, to trade. Doing so
leads one to risk too great a percentage of equity on
any given position.
_______________________________________________
Conclusion
_______________________________________________
This first installment demonstrates how under-
capitalization significantly reduces your odds
of success in trading, and highlights the
devastating effects un-realistic expectations
can have on your trading results.
If you think the above misconceptions only
affect beginning traders, think again.
A close cousin of un-realistic expectations is
unwarranted over-confidence, inspired by a series
of successes in trading.
This is something that frequently affects
experienced traders after they have had a
good run in the markets.
They start feeling 'invincible', think
they've got the 'market figured out' and
have a tendency to take greater risks than they
should as a result (given their account size).
The market will invariably humble the over-
confident trader and hand him devastating
losses, as he gets called on the excessive
risk he has assumed through greater trading
size or the use of bigger stops (or even
worse - the use of no stops).
_______________________________________________
The SECOND installment of the 4-part Mini-Course
_______________________________________________
In FOUR to SIX days you will learn how certain limiting
beliefs (you might not have realized you held)
can hinder your progress in trading and stop you
from reaching your full potential as a trader.
In the meantime, Remember to place those stops!
~~ TRADING LESSONS ~~
This is the FIRST installment of a 4-part 'Jump Start
Guide to Tuning up your Trading Mind' mini-course.
__________________________________________________________
How did this mini-course come about?
__________________________________________________________
In years of working with hundreds of traders, from
beginner to advanced, we have observed several common
mistakes, misconceptions and damaging beliefs that
have limited our students' progress and held them back.
Their ability to overcome these hurdles determined to
a large extent the level of success they subsequently
achieved in trading.
While some of these hurdles are common knowledge and
have been dealt with extensively in existing trading
literature others have received less attention.
Their nature is such that we constantly have to guard
against them and it is easy to "veer" off track and
fall back into bad habits - even for advanced traders.
Our intent is for this mini-course to serve as a
check-list for you to compare your mindset as you
build your Trading Mind and provide a line of first
defense when 'the wheels come off' and your trading
results take an unexplained turn for the worse.
Then you can pull out this mini-course and ask
yourself:
"Am I committing any of these errors in my trading?
- Could they be contributing to the recent dive
in profits I've experienced?"
__________________________________________________________
Misconception #1: Under-Capitalization and Unrealistic Expectations
__________________________________________________________
Some of the most damaging misconceptions and limiting
beliefs are planted in would-be-traders heads to entice
them to enter the industry, before they ever execute their
first trade.
The biggest one, by far, is that trading is easy and that
people can make obscene amounts of money within days of
starting out on the tiniest amount of trading capital.
While it is certainly true that the markets offer
unlimited potential and everyone has heard stories of
traders borrowing a couple of grand on a credit card to
get started, who subsequently went on to parlay that
into a small fortune.
The reality is that trading requires time, preparation
and sufficient start-up capital.
Starting out with too little capital and unrealistic
expectations sets would-be-traders up for failure
and is damaging in a number of ways, for example:
a) People who start on a shoestring are forced to take
on too much risk, and have a significantly greater
risk of ruin than better capitalized traders.
Someone starting out with $3,000 in the E-mini S&P's
will have to risk $150 to $600 pr. trade, or 5-20% of
their equity on each individual trade. As a result
they will be 'wiped out' if they have a handful of
losing trades in a row.
Contrast this with someone trading the same approach
on a $10,000 account. Each loss will represent a
significantly smaller percentage of equity and they
will be able to weather the inevitable drawdowns that
occur from time to time.
Regardless of the approach employed, one should have
sufficient capital to be able to withstand at least
10 losing trades in a row and still continue trading.
The smaller the percentage of equity risked pr. trade,
the smaller the risk of ruin will be.
Research has shown that ideally one should not risk
more than 1%-4% of equity pr. trade.
b) Unrealistic expectations cause traders to discount
the progress they are making and lead them to 'force'
things to bring about the desired result.
As an example:
If you believe you 'should' be making $1,000 pr. day
pr. contract in the S&P's when daytrading and find
that you are 'only' up $300-$500 by Wednesday after
trading for 3 days you will be unhappy with your
results.
Instead of continuing to do what got you to that point
in the first place and winding up with perhaps
$800-$1,000 for the week you will start pressing,
pushing for trades, trying to make things happen,
taking questionable trades and giving back in the
process what you'd made to that point and wind up
maybe -$1,000 or more in the hole for the week!
In trading, as in any profession, it takes time to gain
sufficient proficiency and one must learn to crawl before
they can walk.
By being adequately capitalized and budgeting several
months to a year at a minimum to learn the basics of
this profession beginning traders give themselves the
best chance of succeeding.
_______________________________________________________________
Misconception #2: Confusing Margin Requirements with Capital Requirements
_______________________________________________________________
One frequently hears starting traders talk about the
minimum margin requirements set by the futures exchanges
as sufficient capital needed to trade a particular
contract.
Beginning traders will also look to the margin
requirements as a way to determine which market to
trade, saying things such as "My account is so small I
can only 'afford' to trade Soybeans and Wheat, because
they are the only contracts with a small enough margin
requirement".
The fact is you can't 'afford' to trade ANY market
unless you have a winning approach!
If you don't, you might as well hand over your money to
the nearest charity and save yourself the aggravation,
because you will lose it anyway!
Margin requirements are set to protect the integrity of
the marketplace, they are intended to make sure that
traders have sufficient capital on hand to meet their
obligations should the market move against their position.
They are calculated based on a specific formula that
takes into account the volatility of the market in
question.
Generally speaking, as a rule of thumb, they are
approximately equivalent to the average 3-day true
range of that market.
Margin requirements should NEVER be used to determine
the market, or number of contracts, to trade. Doing so
leads one to risk too great a percentage of equity on
any given position.
_______________________________________________
Conclusion
_______________________________________________
This first installment demonstrates how under-
capitalization significantly reduces your odds
of success in trading, and highlights the
devastating effects un-realistic expectations
can have on your trading results.
If you think the above misconceptions only
affect beginning traders, think again.
A close cousin of un-realistic expectations is
unwarranted over-confidence, inspired by a series
of successes in trading.
This is something that frequently affects
experienced traders after they have had a
good run in the markets.
They start feeling 'invincible', think
they've got the 'market figured out' and
have a tendency to take greater risks than they
should as a result (given their account size).
The market will invariably humble the over-
confident trader and hand him devastating
losses, as he gets called on the excessive
risk he has assumed through greater trading
size or the use of bigger stops (or even
worse - the use of no stops).
_______________________________________________
The SECOND installment of the 4-part Mini-Course
_______________________________________________
In FOUR to SIX days you will learn how certain limiting
beliefs (you might not have realized you held)
can hinder your progress in trading and stop you
from reaching your full potential as a trader.
In the meantime, Remember to place those stops!
