By DailyFX - As a trader I have come to understand that there is a lot more to trading than just simple buying or selling,...

... there is a lot more to trading than analysis, whether it's technical or fundamental or trading setups.


These are only tools available to a trader, the rest is
up to the individual trader, each trader is a unique individual and no
two traders have the same trading style and as such each trader has his
or her own strengths and weaknesses. Below I have outlined a number of
guidelines that are part of my personal Golden Rules of Trading which I
have compiled over a number of years through personal trial and error.

I welcome you to the first edition that combines the entire Trader's
Corner that has been appearing on the front page of Daily Technicals
report. Please feel free to email me at sshenker@fxcm.com with your
comments.

Meditations of a Trader:

I'm a trader, that what defines me as me. In order to become a
trader, a person must identify him or herself as a trader. In order to
be a trader one must become one with the market, with the price, with
one's self. As I meditate on the price there is nothing else, no time,
no distractions, and no world outside of the purity of the price. As I
mediate on the direction of the price and ask market for guidance, I
remain humble and thankful for every lesson the market is willing to
teach me for I'm a willing student, a trader and myself. As I become
one with the price and seek the future path, I'm a trader and
understand that there is no direct route where I want to get, but I'm
not lost because I follow the price. Only the price knows where it wants
to go, it speaks and I listen, and if I listen correctly I will be
rewarded and if I make a mistake I will be punished, but I remain a
patient and willing student, a trader and myself. And I thank the market
for every lesson that I learned, continue to learn and will learn in the
future, for I'm a trader and that is my true self.

Traders Corner:

It's hard to take a loss, but as a trader that what you do, you take
losses along with profits, its how you handle them, that is the ultimate
resolve. Cut your losses and let your profit run, but over 95% of
traders tend to grab a quick profit and let the losses run, and in the
long run they run out of trading capital and move on with their lives.
It's easy to take profits and hard to let them run and it's easy to
let the losses run and hard to take them, because psychologically it's
not a loss if it's not taken, but reality dictates otherwise. In order
to become a successful trader you must go against the human nature of
hopes and dreams and learn how to face reality.

It is psychologically hard to take a loss, most traders try not to take
losses and let them run, but an unrealized loss is still a loss and by
not covering it a trader will face a dilemma of shirking capital.
Capital is trader's inventory, something to be deployed when the right
opportunity comes around, but by letting the loses run and hanging to
such notions as hopes and dreams, which do not exist in a market,
something that this trader learned the hard way, the trader will
eventually run out of trading capital and will face a dilemma of taking
a loss or adding more money to a losing position. In order to become a
successful, a trader must first learn how to take the loss, loses are
inevitable no matter if you are professional or a novice, its how the
trader deals with them that what separates novices from professionals.

What fascinates me the most about traders is how they deploy their
capital, they will nurse losses and quickly grab profits, but that just
negates the risk/reward ratio. Risk/reward ration is something a trader
must establish before he or she enters and exits the trade. Always keep
the risk/rewa`rd at least at one, because if the trader takes a loss it
will take one successful trade to recover the loss. If the risk/reward
is below one it becomes negative and unfavorable as trader need to make
a higher number successful trades to make up the loss and by doing so
once again exposes the capital to a higher loss. I as a trader I never
enter a trade unless I can have at least between 4 to 10 risk/reward,
but I do not trade often and wait for extended periods of time for a
potential trade to surface. The tradeoff is this, if the trader trades
short-term keep the risk/reward lower, anywhere between 2 and 3 to 1
when entering a large number of trades. The reason behind the lower risk
reward is lower profit targets and shorter holding period because it's
very hard to make more than you can within lower timeframe. This trader
trades long-term, I can be in a position for weeks and months at a time,
that is why I seek a higher risk reward, but once again the downside is
I trade less frequently and my stops sometimes exceed over 100 pips.

As a trader one of the hardest lessons I learned is humility and how to
be humble when trading the market. When the trader becomes successful he
or she feels invulnerable that is when the market will remind you who
you are. The best trade sometimes is the one not taken. The best thing
to do sometimes is too walk away. Always be humble, no matter if you are
running a $10,000 mini account or a multi-billion dollar hedge fund, the
market will take your money equally, it does not discriminate. As a
trader I always treat the market with respect, because if you respect
and listen to the market it will give you the answers that you seek,
always remember that in a market you are alone, its only you and the
market no matter what happens the market is always right, it's the
trader who can be on the wrong side of it. Learn humility and be humble,
respect and listen to the market and in turn you will be a successful
trader, but never let success go into your head because the market will
punish you for your arrogance and always be thankful for the lessons the
market teaches you, no matter what the price is.

Why do we trade? Money, financial freedom, recognition, success, maybe.
Those all good reasons to trade, but they ultimately lead to vanity and
greed and that leads to devastation. Greed is the worst motivation for
trading; market will always punish greed and will always reward
moderation. Never try to make all of the money in one trade; you can't
place everything on the outcome of one trade, if the trader does that,
than I see no future for that trader, because he or she is not trading,
but gambling. There is a fine line between traders and gamblers, because
when there is money there are always those taking blind chances. If you
want to succeed as a trader, do not think like a gambler, do not take
blind chances and do not rely on luck because luck comes and goes just
like a gambler, it's the trader who remains

As a trader I learned never to add to a losing position, a common
mistake made by most traders. Yes I will agree with critics that will
say that is will lower the breakeven level for the trade, but that only
works when the price reverses its direction and heads in the direction
of the trade. But what if the price continues to go against the trader,
what now, losses are beginning to mount at a greater pace because trader
increased the size, most traders just add to the position and hope for a
break and a reversal, and that is where they get their break, its called
a margin call, not the best stop a trader can use. The worst is seeing
the market reverse direction and "runaway" from the trader. So the
trader is now sitting with a big loss, being right in his or her initial
judgment and seeing the market move their way adding an insult to the
injury. DON'T BLAME THE MARKET FOR YOUR MISTAKES, BLAME YOURSELF.
Mistake number one is adding size to a losing position, (if you are
long/short and wrong don't add size until position shows you a profit)
and next mistake blaming the market for your own mistakes.

As a trader I'm the only one responsible for my own decisions and for
my own actions, because I'm the only one who has to live with the
consequences of the decisions that are made by me. It does not matter
whether you will be right or will be wrong, eventually you will be
proven to be either way, the trick is to understand and accept the
consequence of the decision. When I trade I know that there are two
outcomes, a gain or a loss and mentally ready for both, because if you
can't accept the responsibility for your own actions that you should
not be in the market to begin with. As a trader I rely on my own choices
and draw my own conclusions, I will listen for an advice but will act
according to my own judgment; I never let someone else make decision for
me. Why do most traders instantly turn to someone else for help when
their trades go bad, the answer is simple, it's a human trait, shift
the blame on someone else, let someone else make the decision for you.
What happens when there is no one around to stop you, learn to make your
own mistakes, learn how to learn from them and learn to make your own
decisions, only than you will become a real trader.

Reality or wishful thinking, it's a very delicate balance when it
comes to trading. As a trader I always learned not to let the wishful
thinking cloud my judgment. I never let such notions as hopes and dreams
distort the reality of the market. At one point when I found myself
grasping at straws in a sinking trade I realized that no matter what I
think, wish or hope, the market will do what its need to do, the only
thing I can do is accept reality of being wrong, close the trade, take a
loss and stay out until I can get myself to think rationally. Most
traders instantly feel the urge to get their money back from the market
and start trading with a vengeance and by doing so make even more
mistakes and sink their account deeper into loss. Never let emotions
cloud your judgment, never try to instantly make your money back, you
will only lose more. The best thing to do is to walk away and try again
after clearing your head no matter how long it takes, that what
separates professionals from amateurs.

As a trader, I learned not to force trades. I learned the hard way not
to push the trades just because I'm bored and there is nothing to do.
Market does not always have a trade available, so the best thing to do
in situation like this is not to do anything and be patient. Sometimes
the best action is the one not taken. But what happens when you go ahead
and push anyway, answer is simple, you lose and if you push again you
will lose again. The key to becoming a successful trader, knowing when
to stop yourself. A trader must, MUST, know how and when to stop trading
and stay out of the market. It's hard to stop, but it's important to
stop and walk away for sometime when the trades are not going your way,
because losing on a couple of trades can turn into a losing streak. If
the trader can't stop trading, he or she will stop eventually when the
account runs out of the money.

One of the most common mistakes traders seem to make is position size.
Most traders instantly size up their positions after only few successful
trades that they were lucky to be involved in, and that is a bad
mistake. Size is a double-edged sword, which can cut the trader with
either edge, because size will not only magnify profits, but will also
magnify loses. Another common mistake is increasing the size of the next
position after a losing trade in an attempt to recover the losses. That
is when the trader is most vulnerable, because he or she is not only
emotional because of the loss, but also an increased size can push the
account deeper into loss. As a trader I learned the hard way to bring my
size down when my trades are not going my way, not the other way around,
because when my trading is suffering, my account should not. Loss of
capital will hinder the trader's ability to recover the losses and
eventually will force the trader out of the market. Size does matter
when it comes to trading; initial position size must always reflect the
size of the account.

As a trader I learned that it is always important to understand the
failure of success and I mean exactly the failure of success. As trader
becomes more and more successful in his or her trading, there is a
moment when the trader believes that he or she is a great trader and
nothing will ever again go wrong, WRONG, that is when the trader is most
vulnerable to him or herself, because that is when the trader has the
biggest position size he or she ever traded. But that's is where
disaster might strike because the trader's success can cloud the
judgment by what I call a self-proclaimed invulnerability, a thought
that the trader knows everything that he or she needs to know about
trading the market. A thought such as this is ultimately will lead to
the trader's demise, because if something stops working or the market
conditions change and trader still believes in his own hype, he or she
will become a victim of own success. Never think that if you are that
good, you can always be better, there is always room for improvement.
Markets change and in order to remain successful, the trader must change
as well, remain humble, never become a victim of a self-proclaimed
invulnerability and remember to learn from the market and be thankful
for the lessons.

As a trader, one of the lessons I learned the hard way is to not
overtrade. Overtrading will lead to a substantial loss, because every
time the trader enters the market, he or she exposes the capital to the
market, because an increased number of trades will not instantly
translate into profits and may increase the amount of losses the trader
will sustain. Also with an increased amount of trading activity,
increases the amount of execution cost, which includes spread,
commissions and slippage. The most common misconception amongst the
novice traders is that the trader has to be constantly in the market,
but by being in the market all the time the trader does not give him or
herself a chance to pause and will eventually lose because of the
unfavorable market conditions. There are times when I trade, and there
are times when I stay out, because if I don't see any trades I will
not trade. Trading out of boredom is the worst reason to be in the
market. Patience, patience, patience. Patience is one of the keys to
becoming successful trader, patience will keep the trader from
overtrading and by being patient a trader has enough time to observe and
look for a potential setup for the next trade. Remember it's not the
quantity of trades, but the quality of a trade.

A lesson that I learned as a trader is never to chase trades, because
by chasing the trade and entering at another level alters the original
risk/reward and violates the trade setup. Traders who chase the trade
will most of the time find the price going against them, which instantly
increases the probability of being stopped out or even taking a larger
than anticipated loss, and its all due to the eagerness of the trader to
establish a position. Never chase trades, because by the time you catch
it, the trade is not the same that your original setup called for, and
that makes the risk/reward unfavorable. Other mistake traders make is
becoming "hang-up" on a missed trade. Key to success in trading is
not to pay attention to the trades that the trader has missed, but
rather keep the attention focused for the potential trades that will
occur in the future. A missed trade serves as a confirmation that the
trader is correct in his or her analysis and missed setup should be used
to look for potential trade in the future. Remember: "Loss of
Opportunity is Better than the Loss Of Capital".

Good Luck Trading!!!

Sincerely

Sam Shenker


By DailyFX