When the novice trader first enters the wild and woolly arena of trading futures, his initial impression is that because he’s a trader, he must be in the market twenty four hours a day five days a week. But after a few losing months, and plenty of frustration, he finally comes to realize the perils of over-trading. It doesn’t have to be this way, but unfortunately that’s usually the first phase of a trader’s learning curve.
The primary reason new traders fall into this “need to trade” syndrome is because they come from an entirely different paradigm in the conventional business world. What I mean is that when people “go to work” they are compensated to perform a series of tasks. A lawyer spends his day building and trying cases, a doctor spends many hours seeing patients, and a building contractor spends months constructing homes. In other words, people get paid to be busy doing things. So when these folks start trading, they bring the same type of attitude towards market speculation. The reality is that trading is a whole different world. Because trading is about having an edge that involves managing risk and probabilities, one has to do less, rather than more.
Another stark difference between trading and traditional business is that in trading you might do hours and hours of analysis and at the end of the day still lose money. This is a hard pill to swallow for many that have a traditional work ethic ingrained in their psyche.
If you stop and think about low risk, and high probability trading setups, these types of opportunities don’t come about every 5 minutes do they? Instead, one has to be patient, and mentally prepared for when it’s time to actually take action.
The waiting aspect of trading can be a challenge because of the natural conditioning to want to do something all the time. In order to quell those impulses I tell students to think of trading as a long marathon rather than a sprint. A good marathoner knows about pacing himself so he doesn’t fatigue prematurely. If you’ve ever seen a marathon race you always notice the guys that start out very strong at the outset, but most of time these folks are nowhere to be seen when the winner crosses the finish line. Similarly, in trading those traders that can’t pace themselves in terms of quality, instead of quantity of trades, will suffer the same fate as the quick starting marathoner.
I’ve had many traders relate their issue of making profits during the first couple of hours of trading, only to relinquish them by the end of the day. The simple solution to this issue is to set rules that prevent a trader from giving back profits, and putting a limit on how many trades are to be taken on any given day. In addition, a daily loss limit is a must.
In the final analysis, pacing and technique is key for consistent profitable trading. This gives traders a better chance of clearing all the hurdles before reaching any milestones.
Until next time I hope everyone has a great week.