The Eyes of a Pristine Trained Trader
Stuck in a Rut? Part Two
Last week, I clearly set the stage for this week's discussion. I talked about how traders who do emerge from the first stage of difficulty often are so scarred that it affects their trading habits for a long time to come. I also referred to the second stage traders go through as the "silent killer". The traders that do survive the first stage often get very scarred because their account has suffered some losses. They become afraid of losses to the extent that their sole goal in trading becomes "not to lose". While this sounds like a worthy goal on one hand, on the other hand it can be a deadly mistake. Simply not losing can often mean a trading career of mediocrity or a slow bleeding of the account as commissions and slippage (not to mention that occasional 'bad' trade) eat away at traders who are trying to maintain nothing more than breakeven status. At some point, traders have to shift the focus from "minimizing losses" to "maximizing gains". This is very difficult for a trader who is scarred and whose account has suffered serious wounds.
Perhaps the biggest issue with this stage is that traders may be feeling pretty good about their current trading status. They probably have developed a system that produces winning trades more often than not. They probably also take great pride in seeing that many of their trades go on to be potentially very big winners. The only problem is, they never seem to be in the trade for the big gain. They are always very enthusiastic because they are getting more winners than losers, and many of their trades are showing the potential to be huge winners. However, they just do not seem to be in that particular trade as it became the big winner. They got out early to take the profits to avoid being a loser.
The problem with this whole philosophy is that the constant limiting winners to very small amounts in order to avoid being a loser is the very problem with this stage. Traders have to maintain a very high batting average to make money when their average winner barely outpaces her average loser. Again, this is like a silent killer because traders often never realize that they have a problem. They feel good about their trading and the fact that they are breakeven at the end of the month is something they do not see as a problem. They achieved the goal of not losing for the month, and they feel confident the next month will be better because they are trading well.
However, it is often the case that month after month they do not show improvement. They do not know what is wrong so they can never fix the problem. They always assume that the next month will be better though they really make no effort to change anything. They simply keep doing what they have been doing, hoping that somehow the small winners will turn out the big ones.
Like any other problem in trading, the first step is to acknowledge and understand that there is a problem. If you have the technical skill and you have been finding the good trades, but you are not showing a profit, you have to admit you have a problem that needs to be dealt with. More times than not traders become incapable of properly managing their trades. If you would stop and review the trades you done over the last two weeks, and take a look at how effectively you managed those trades, you may find that many of your trades went on to reach the targets that you expected, but you took only a fraction of the gain. Once you understand you have the problem, the next step is to begin to find a solution. Some traders are able to fix this on their own, but some need additional help.
There are ways to manage trades that can help you improve your odds of success. Some of the ways simply include managing using basic technical concepts that look to get the odds in your favor to achieve bigger targets without sacrificing existing profits. Many of the methods used to help traders are more advanced in design and can help to eliminate some of the psychological issues traders have letting trades run to bigger targets; while at the same time, being able to take smaller losses on some of the stopped trades.
Closing Comments:
This Saturday I will be teaching a class called Advanced Management Strategies. It is designed specifically for those traders who have taken Trading the Pristine Method Part One and feel that they are technically competent, but are not producing the desired profits they would like to see. This is a very advanced class and will help deal with the issue of properly managing trades. It is a very technical class, but the results of these technical concepts will help you to overcome many of your psychological issues. Pure confidence and an understanding of the charts will override your need to exit trades prematurely. I hope you can join me this Saturday.
Paul Lange
Vice President of Services
Pristine Capital Holdings, Inc.
www.pristine.com
The Eyes of a Pristine Trained Trader
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