Articles

For many years I was a futures market reporter with the FWN wire service (now called OsterDowJones). I spent time working right on the futures trading floors in Chicago and New York. Most of the time my daily reporting "beat" involved interviewing traders and analysts and then writing three daily market reports. For months at a time I would cover the same markets, day in and day out. It was a fantastic learning experience and an opportunity that very few get. One thing I eventually discovered from covering the same markets day after day, month after month, was that the vast majority of the time the vast majority of the markets' overall fundamental and technical situations did not change on a day-to-day basis. Yet, as a market reporter...

Perhaps the greatest luxury I have in this business is the ability to observe the experiences of many traders with different personalities, life schedules and risk capital, each trading in a variety of markets. What most astute brokers realize is that, over time, as some individuals prematurely exit winners while others desperately cling to losers, it becomes quite possible to match different "blood types" of those traders with their correct "trading diets." Clearly, we're not talking the medical blood type here, but in the figurative sense it makes the right point. With practice, it's not too hard to determine blood types (type of trading best suited to the individual) based on the personality of the trader, and then prescribe a diet...

In 1969, when I made my first futures trade, thinking was fashionable. The 1960s and 1970s were good times for thinkers, free thinkers, thought-provoking issues, civil disobedience, and analytical traders. Thinkers thought great thoughts about the future of our nation, about our presence and purpose (if any) in Viet Nam, about domestic and international racial issues, about freedom and equality, about the poor and the homeless. Thinking prompted radical action by various political interest groups. There violent numerous anti-war protests, a variety civil disobedience events, draft card burnings, sit-ins and student protests. The stock and futures markets were studied closely. They were analyzed, scrutinized and theorized...

What do we do now? The "Bubble" burst, Single Stock Futures, Pairs Trading, Automation, New Platforms and Access. Professional traders are adapting to the new climate. I'm often asked what traits are common in a successful stock trader, and although there are many, the single thing that I find binds us all together is "adaptability"...plain and simple. We all thrived through the euphoria of the DOTCOM phase, and the NASDAQ meteoric rise through common sense into obscenity. Many a genius was behind a computer when the "buy and hold" mentality permeated the shell of proprietary trading. Swing trading was born from the attitude that "it's gonna go back up, wait and see!" TV and Online Brokers found gigantic audiences in the new...

In my last article, I covered some of the pitfalls of trading journals. In this piece I'd like to cover some of the features of trading journals that I have found helpful in my work with new and experienced professional traders. My goal as a trading psychologist is to do all that I can to accelerate traders' learning curves. Sometimes this means helping traders with emotional problems, but just as often such problems are the result of trading difficulties and not their cause. A journal, properly constructed, is a powerful tool for learning - and relearning - markets and cultivating exemplary trading behaviors. Here are some of the principals that have guided my journal-based work with traders: Make journals a part of the daily...

Numerous discussions of paper trading, and its value as a learning tool, usually see participants divided into two camps. One claims total uselessness of paper trading, another vows never to start without it. The scoffing camp points out the obvious limitations of paper trading: It doesn't allow you to estimate slippage during your execution. It leaves unanswered the question of whether your order has a chance to be executed at all. It keeps you in a relatively relaxed state of mind as there is no pressure of endangering real money. It also doesn't allow you to master your order routing tools in full. Finally, it's very easy to cheat oneself, changing one's decision after the fact and booking corrected results. Is this all true...

The markets offer an endless stream of opportunities to trade. Each trade or series of trades provides the chance to wipe the financial slate of the past clean, find trading redemption, and claim the lucrative future. Each trade has the potential to announce that your dues are paid, that you are maturing as a trader, and that finally you are poised to enter the elusive circle of consistent winners. The lure and promise of financial freedom through the clicks of a mouse offers a sense of adventure, challenge, and stimulation rarely matched in other activities or professions. Only a very select few are able to ascend and remain atop this Darwinist ladder and garner consistent profits. The majority of traders find themselves nursing a...

One of the most common pieces of advice trading mentors give to their students is the keeping of a trading journal. By documenting your trading, the common wisdom holds, you can learn what you're doing right and wrong and speed your learning curve. I happen to be quite a fan of trading journals; indeed, I made journals a mandatory part of the training program at a Chicago-based proprietary trading firm. All too many times, however, I found that the journals did not accomplish their purpose. They became rote exercises that did not get to the heart of either trading problems or solutions. So I thought in this article I'd outline the five most frequent shortcomings with journals and how these can be addressed. The journal lacks...

Have you ever thought about pulling the plug on your trading operation? I think a lot of folks have, including me. It's easy to quit but it takes perseverance to ride the storm out and stick with the game. Trading is no different than other endeavors you need a plan, some luck but most of all dedication to hard work and research. This all sounds good on paper. Imagine some guy telling you how to handle your trading business. It's easy to read and then dismiss the ideas or you can really take them to heart but the reality is that until you come up with a rock solid approach you may be spinning your wheels Drawdowns I've seen a lot of friends and clients call it quits and 9 times out of 10 it's all related to drawdowns. People tend to...

There are some common mistakes I've seen traders make in the area of money management. First, let's understand what money management is all about. Money management overlaps with risk, trade, business, and personal management, yet it has many aspects that make it unique, distinctly different from all of the other areas of management. In this article we want to examine some areas of money management that seem to involve mental quirks leading to costly mistakes. Listening to Opinion Kim has entered a short position in crude oil after carefully studying as many factors as she could reasonably include while making her decision to trade. She has entered the trade because her study of the underlying fundamentals has her convinced that...

"The most merciful thing in the world..." H.P. Lovecraft writes in his horror story The Call of Cthulhu, "is the inability of the human mind to correlate all its contents." To be sure, if all our memories and perceptions registered in the mind equally, we should be like the unfortunate Funes of the Borges tale - completely overwhelmed by the sum of our experiences, unable to act. Yet, as Freud realized, we pay a price for this compartmentalization. The conflicts, urges, and passions that we sacrifice in the interest of present concern do not merely vanish. Like Cthulhu, they lie beneath the depths; in the apt phrase of The Fields of the Nephilim, "dead but dreaming". They call to us when our emotional stars are aligned, waiting for...

There are literally thousands of traders out there who have brains, motivation, money (but not for long), big computers, trading software, newsletters, trading magazines, courses and more, but who can't make money. I call them "Johnny and Jane", because they're typical and engage in losing behaviors common to so many traders. The sad but true fact is that in spite of all the advances we have made, too many traders still fail. But why? Why is it that "Johnny and Jane Can't Make Money in the Markets" consistently or successfully? Here are some of my thoughts. I hope they help you in your trading plan. Hopefully you won't end up like Johnny and Jane or if you're already a Johnny or a Jane (or both) my thoughts will help you improve your...

Throughout the years I've been trading and writing I've often written about mind set - having the right frame of mind for your trading so you become a winner. I've stated that it is our job to trade "futures," not "histories." The future is the next bar on your chart. You can't possibly know how it will develop, how fast prices will move, or where it will end up. Since none of us know where the very next tick will be, it's impossible to know where the tick after that will be, or the tick after that, etc. All we know at any one time is what we're seeing. Interestingly, what we're seeing may not be true. Trouble With Data If we are day trading, we are not sure that what we're seeing is a bad tick, especially if it is not too far...

This article is essentially for anyone starting out in the markets, but the question of why one is trading is relevant at all times. The question as to what motivates the individual to start trading or continue trading is very important because many reasons are poor reasons and the so-called "motivators" can contain hidden traps. Often people trade for a number of reasons, not just the obvious one of wanting to make money, and frequently these other reasons are at a sub-conscious level, and would not normally be disclosed if someone asked the question "Why do you trade?" Below is a list of motivators. This is designed to be fairly comprehensive and typically three or four from the list will apply to each individual. Clearly not...

Are you a beginner? Before you start, have you got what it takes? It is apparent that when starting out in the adventurous worlds of financial trading, that the complete novice and beginner can, within minutes of his first post on T2W, trot down the wrong road, due in no small part to the advice so readily given by enthusiastic members imparting their own beliefs and experiences. Just today a newcomer posed the question: I'm new, what trading platform should I have? Within minutes a reply was posted by a prolific poster, buy XYZ platform it's only ££s and you can get data feed at only ££ per month! The thread continued, try this, and try that, and I imagined this person already starting to think that if they can get a great trading...

As a new trader, or as one who has gained a new vigor, to be successful we must understand that the road ahead of us will not be easy, nor will it be a quick journey. The path is filled with daily challenges that will test our skills, both technical and mental. In fact, most traders do not even progress past the start up phase. They fail to: Learn to take a loss Learn to be wrong Learn that in fact, to succeed, this business is VERY Difficult!! The one constant fact that all successful traders say is true, including Borselinno, Fisher, Jones and more, is that it will take time to become a successful trader. Borselinno says at least a year, Fisher says maybe 2 years, but they all say this business has nothing to do with instant...

In order to succeed as a professional trader, it is often said that the aspirant must treat trading "like a business". As with many of the clichéd phrases that litter the metaphorical trading floor, the importance of this statement is often overlooked, or the meaning misunderstood. The following article by Tim Wilcox aims to address these problems by examining some of the ways in which a trader might go about achieving this vital goal. It is divided into two sections: a general overview of what constitutes a trading plan and why it is prudent to have one, followed by a detailed analysis of the various aspects that should be considered during its creation, for example, the importance of self-awareness, discipline and risk management...

Most "superstar" traders do not trade with mechanical systems; they trade with the most powerful force known to man: Vision. Their experience has led them to an understanding, or "unlocking" of the Mystery of Market Behavior. They act proactively and intuitively. They use the most powerful computer with a unique operating system: Their brain and solid paradigms. As a business consultant, it was often my responsibility to instill corporate paradigm shifts through Change Proficiency Maturity profiles and other means. A paradigm is like your "Mental operating system" much like Windows XP is to your Pentium 4. A paradigm can be defined as: One that serves as a pattern or model A set of assumptions, concepts, values, and practices that...

Emotional Intelligence and the Trader Why is it that 90 percent of traders who trade the markets fulltime fail to earn an adequate return even when using systems claiming 70 percent accuracy? Perhaps it is because traders do not recognize the importance of the Paramouncy Principle. The Paramouncy Principle suggests that you are the most important variable in the trading equation. Not you, the dispassionate arbiter of technical and fundamental analysis, but also you, the thinking, feeling, sentient being with all your human foibles, hopes and aspirations. Most traders lose money because they do not have an understanding of the markets or of themselves. They trade without method, strategy or discipline. They fall prey to powerful...

In life, we are each ultimately responsible for our own actions. The markets are no different. We are responsible for our own success and / or failure and the degree to which we are successful. Winning at a career in trading is no different. To ensure a profitable future, one must be proactive. Preventing failure is an important part of that process. If you find yourself saying: ...or any number of negative mental messages, you are heading down the path that leads to failure. Having been a successful business consultant and having traded for many many years, I have found several recurring characteristics and traits of people who thought they would hit a home run but who struck out in their attempt. Many of them stood with their bats...

At some point, if they last long enough, all traders discover that successful trading is not the inevitable result of a good trading strategy or system. If all we needed was a good system or indicator we would all be successful traders. Yet clearly we are not, far from it, there are very few traders making their living consistently from the markets. Technical analysis is a vast and well researched subject. Many minds have poured their heart and soul into searching for the holy grail of trading: the system, strategy or indicator that will yield to them unlimited wealth and glory. Yet with all this depth of knowledge readily available, trading profits remain as elusive as ever. System Vendors and the Holy Grail If we were to take a...

In part 1 of this article, I looked at some of the basic elements of trading, including chart reading and money management. In this second part, I will consider some other essential issues, such as the need for discipline in trading and the importance of practice and planning. The Importance of Discipline I have previously mentioned why it is important that you DON'T move a stop-loss to increase risk, and I wanted to go through the "what if" scenario of letting a stop run. We'll take this example from Barclays from January 2003. Here we have a nice double (or even triple) bottom on support, and a clean bounce up. You take this long entry with a tight manual stop at 360. This is what happens over the days to come... Brilliant...