In the world of money

In the world of money, which is a world shaped by human behavior; nobody has the foggiest notion of what will happen in the future. Mark that word - Nobody!

We are in a spectacular bear market from January 10, 2008 to till date, before that we enjoyed a secular bull market from August 2003. Now most investors are in deep red (more than the profits made in the last 3 to 5 years, including capital - wiped out)…. Bulls and bears make money, but pigs get slaughtered.

Ones very survival as a trader depends on followings. When one ignores this, is lost and doomed:

Trade money not markets- Don't blame the market for your losses. You are the reason for your losses.

Use a trading system and don't deviate from it. Follow it with rigid DISCIPLINE.

Use money management at all times and understands risk-reward ratios

Accept small losses as part of the game if you want to win don’t liquidate a winner to keep a loser. A losing position means you were wrong. Trend Followers cut their losses and let their profits run.

Stay the course so you are around for the big moves. Sustain your patience. Big movements take time to develop. Trade markets from the short side also

Don’t be overly curious about the rationale behind a move. The key to wealth in trading is simplicity. Avoid techniques you don't understand. Don't predetermine your profits. Remind yourself there is nothing new in the markets.

Trend, what is: Trends always go further than rational people expect, or even imagine. Most investors don't have the stomach for extended rallies or declines. The philosophy of not having a predetermined profit objective allows trade to continue with a trend for its full duration and then some. Trends endure for a specified time, longer than most imagine. In a very uncertain world, perhaps nothing makes more sense than simply following trends.

A Perfect Trader: a trend following person with disciplined & systematic approach in trading, psychologically more powerful than others to keep control over emotions; patience waiting for opportunity to enter the trade as well as exit much before the trend reverse. They have the quality to accept failures – to cut losing potions, when stop triggered and prepared to stick with their trade-culture through good times and bad.

 

Why trading system: The emotional reactions to trading, hope, fear, guilt, over-confidence, panic, etc., are avoided with trading systems based on price. The personal burden is lifted and trading can become objective when price is the only variable. The price already reflects all other variables filtering out subjective nuances of whoever is offering the information. Focusing on price, to the exclusion of fundamental data such as earnings, crop reports, consumer confidence and market news, allows for a scientific approach to trading. A systematic approach over time -only one way to profit in the market, compounding as time goes. Trust that time and the power of compounding- will take over if you stick with your system. Don't be so naive to expect you will get rich overnight. Remind yourself that patience is a virtue when it comes to trend following.

Dangers in Trading caused by Human Nature: psychology:

 Fearful of profits and acts too soon And Hope for a change in the forces against one

People believe what it pleases them to believe.

An Ideal Trading System: A trading system that works best for you - To choose a method that is consistent with your own personality & comfort level . . . The approach you use must be right for you; it must feel comfortable. Successful trading systems adapt to change. Trading system is designed to remain valid for years. Trading systems should ideally trade successfully at all times, in all markets, in all conditions, difficult to kill even in bad markets. Ride winners: One of the biggest mistakes a trader can make is not letting a good trade run. Trading systems will keep you in that winning trade and stops look at the price action & will lock in profits at most opportune time. Eliminate losers: A trading strategy must eliminate large losers with consistent risk management to be successful. No more guesswork: Completely automated trading removes any luck- Enter & exist with rules. One can't expect to enter a market at the precise moment a bottom is hit, nor will exit a market at the exact top, Capture the middle of the trend. Exits: is the hardest part of trading. One often exits too soon or too late. To use stop loss orders to protect profits, and to take out of losing positions. As the profit grows, move the stop to lock in more profit. Don't try to catch every move. There are often times, just sit and wait for safe to re-enter the market.