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I was watching the movie “Coach Carter,” starring Samuel L. Jackson. I couldn’t help thinking about the many similarities between what a coach must do to prepare his players and what a trader must do to prepare to trade.

Since trading is largely a self-directed business venture, embarking on a trading career requires that you are able to set clearly defined objectives and develop a specific plan for achieving them.

Clearly defined objectives and well-developed plans carry the stamp of success in any professional undertaking.

Imagine an ocean liner departing without a navigational plan, a repairman doing repairs on your refrigerator without full knowledge of the workings of the compressor, or a professional basketball team running onto the court without a game plan.

In each case, the lack of a clearly defined plan in which specific objectives are set and specific steps are outlined can produce disastrous results. Clearly defined plans are essential. The captain sails his ship with plans for the safe and on-time arrival to a destination city. The repairman examines the inner workings of your refrigerator and uses the correct parts and tools to fix the problem. The coach tells the basketball team to run specific plays to defeat the opponent.

Successful trading careers start with plans that specify objectives, which in turn lead to success. There are psychological benefits to establishing objectives and developing plans to reach them. First, you may find your stress levels are reduced. Making a specific plan allows you to detail any vague and seemingly unattainable objectives into clearly defined steps, which in turn make the larger goal seem more reachable. When you have a specific plan, you can more easily identify which steps to do first, and then figure out how you will achieve each one. In addition, you will find that following a plan ensures you stay positive, so you control each aspect of your trading day (instead of it’s controlling you). This leads to increased confidence and consistency, which leads to increased effectiveness, which in turn leads to advancement towards your ultimate goal.

You must then write down the way you envision your goal. Create a definitive statement detailing as much of it as you can. Be very specific. Then read your objectives aloud every day. They must become believable.

Accordingly, you adjust trade size and protective stops so that you never lose more than your planned amount on any trade.

Now, map out your plan. What is your budget for hardware, software, and education? How much time can you devote? How much money will you use? What trading time frame, or style, matches your personality? For example, if you have trouble making split-second decisions, then scalping is not for you. Perhaps position trading, with a 2-5 day hold, better suits your personality.

Maybe you want to target certain markets and become a “specialist” in those markets. Or maybe you prefer to trade spreads or options. What set-ups do you prefer? Become an expert at trading a particular set-up and have it deliver the main part of your gains. Detail your trade, risk and money management strategies. Finally, establish a list of trading rules that you keep close-by.

Once you establish convincing and realistic objectives, and map out a plan that leads to those goals, you will find your trading efforts to be easier, more exciting, and certainly more successful!

Many times in the past I’ve written about the need to adapt, the need to be able to change your behavior relative to the market because the markets are ever-changing.

I’ve stated that mechanical systems may be workable, but for only a short time relative to the life of markets. You must learn to trade what you see, and to understand what you see on a chart.

When I first began trading there was no such thing as futures contracts for foreign currencies. Why didn’t they exist? Because there was no need for them! In the 1970s all that changed when the US dollar went off the gold standard and began to float against other currencies. Following that, the Chicago Mercantile Exchange began to create currency futures to provide a place where currency traders could hedge the risks associated with dealing in foreign currencies. Some of these risks are direct and some are indirect. Direct risk is involved for those who deal directly in foreign exchange. Indirect risk involves companies who export or import, and receive payments or make payments in the currency of another country.

Ever since currency futures were created, they have been in a state of flux. In the mid-1990s for purposes of futures trading, currency trading made a massive move away from currency futures to more direct trading in the forex markets. Currency futures, while maintaining their volume and open interest figures, became less liquid than they had been previously. Volume and open interest do not reveal the picture of what was happening in the currency futures pits. Volume and open interest levels were being maintained by fewer and fewer futures traders.

In the period from 1992 to the present, we’ve witnessed currency futures moving from “red-hot” to “cool” and now “red-hot again” insofar as speculators are concerned. Foreign exchange, which in 1992 was one of the hottest plays, first turned dull and then back again to exciting. However, retail forex as traded through a forex broker in the big four currencies is no match in volume to the volume in the futures. Yes, I know you have heard that $3 trillion/day change hands in forex, but most of that volume is done directly between banks.

That this has happened can be seen in areas of which most futures traders are ignorant. Eight years ago, foreign currency traders were being paid huge salaries and anyone with a track record could virtually name his price. Following that, currency traders were no longer in great demand. Now, again, there is a huge demand for successful currency traders.

Currency futures are but a small representation of the $3 trillion dollar foreign exchange market. Professional currency traders use forex, forwarding contracts, derivatives of all kinds, and the futures markets, to deploy their various trading and hedging strategies. Looking at only the futures, or for that matter retail forex, is like the blind man trying to tell what an elephant is like by feeling only the tusks.

In the 1990s, Midland Bank closed its foreign New York office, laying off dozens of people. Frankfurt Bank had pulled out of New York, and Tokyo closed down its foreign exchange desk. At that time, the world’s largest foreign exchange trader was Citicorp. In the D-Mark alone, they shrank from 39 traders working at 17 different locations around the world to 4 D-Mark traders all working in one room. Keep in mind that these were traders who had been to a greater or lesser extent using the currency futures. The result at that time was that there were fewer big fluctuations in the currency futures than there once were, and therefore much less profit.

However, today, just the opposite is happening. Central banks are presently making much greater interventions in the currency markets. They have stopped publishing targeted exchange rates. Such action by the central banks leaves currency speculators at a loss for what to do, and the result has been a huge surge in foreign exchange trading, with much of the volume going to the futures markets.

Today, forex brokers abound and are actively marketing the idea of currency speculation. This is having a profound effect on the foreign exchange planning of individuals, companies, and nations, especially because of the risk in using a forex broker. There are no guarantees that you will not lose all your money if the broker goes broke, or runs away with your money.

If some day the world’s currencies would be the US dollar, the J-Yen, and the euro, who would need thousands of traders to trade them? There would be far fewer currency misalignments to provide a basis for trading. But that is not the way the world is moving. The picture I just presented ignores the rise of China (and the rest of Asia) as a major economic force on the world scene. Almost certainly, the Chinese currency will become a major trading vehicle. The same is true for other emerging countries. Some of them will no doubt have important currencies from the point of view of world trade. But will these currencies be traded in the futures markets or in forex?

The changes in just this one area – currency trading – are an example of how things change rapidly, and point out the need for traders to adapt. There have, of course, been many other changes in recent years. The advent of all-electronic markets has produced markets of a completely different kind. Computers have brought about the ability to trade in various time frames. New exchanges have created new markets and new contracts – so many, in fact, that it is difficult to know exactly where to direct one’s trading efforts. It is now possible to trade virtually around the clock. It increasingly seems that somewhere, some market is trading.

I often write about mindset, attitudes, psychological hangups and emotional problems that plague traders. The following is from a friend on mine, Noman Hallett, who has delved deeply into such matters.

“It occupies a chapter in just about every trading book ever written. It’s been preached by every lecturing market guru since the Aden Sisters danced to the music of the gold market.

“Go ahead and hire a personal trading coach and likely the second thing he or she will utter will be these chosen words (right after “Futures trading is speculative and only risk capital should be used.”)… and those words are, “Limit your losses and let your winners run”.

“OK. We’ve been told.

“But you didn’t have to tell us. It makes perfect sense. ‘On a roll’… ‘Go with the flow’… ‘Ride the wave’… ‘Get out while the getting’s good’… we’ve heard both sides of those golden words massaged in numerous different phrases. We get it.

“During my trading and coaching days, I would re-visit students that I trained weeks or months previously and low and behold I would discover that many of them were actually doing the opposite… letting their losses run and limiting their gains.

“After a while I wasn’t surprised… I would go into a refresher visit EXPECTING to see ‘limit/run rule’ repeatedly ignored.

“I would ask the students ‘Why?’… There were many different stories but one main theme… all the traders, in some way, had gotten out of emotional control.

“During their trainings, I had made sure that they had done extensive back-testing on their systems and I did that because I knew that the more they tested and saw that their system would have been successful, the more they would TRUST in the system and have the strength the follow its signals, especially through rough periods.

“Apparently, simply back-testing, and seeing ‘would-have-been’ results wasn’t enough to keep these traders in emotional control. What I had been missing was that these traders were taking the losing PERSONALLY!

“These new traders had been seeing losing trades as reasons to let negative thoughts into their heads. A loss would mean that all the articles they read about ‘gambling’ traders may be true. All the family accusations that they were crazy traders … well, that could have some merit!

“This kind of negative thinking (as well as other forms of related negative thinking) makes it so you don’t want to take a loss. If you take a loss, maybe you’re that much closer to that idiot trader that you’ve been accused of.

“So you enter a trade (after, say, coming off a losing trade) and it starts to go south. As the market heads for your stop, you start looking around at the news, or a chart of a ‘sister’ market that’s showing strength, searching for an excuse to make it OK to lift your stop.

Found it.

“… Cancel the trade.”

Stop Canceled.

If the market comes back, you’ll be the smart guy or gal that made the right move and turned a loser into a winner. What you really just did, however, is turn a potential winner into a potential loser.. YOU. You may have had a winning trade, but you will lose in the end. You learned the wrong lesson.

It’s not about YOU. It’s about THE MARKET. If you don’t take your emotions out of it, you don’t have a shot. You must see yourself as a trader not someone who is becoming a trader.

There’s very little room for mistakes in your trading. Leverage makes sure of that.
If you are going to play in the Big League, you have to do act and do what the Big Leaguers do… right from the beginning.

Do all you practicing on the paper-trading playing field. Once you put your money up, you either do what your tested system tell you to do or pick a different profession.

If you’re not training mentally, you’re not giving yourself the best chance laughing in the face of your relatives!

Cultivating discipline and self-control is vital for consistent and profitable trading. You implement proven trading strategies, over and over, so that across a series of trades, the strategies work enough to produce an overall profit. It’s like making shot after shot on the basketball court so as to accumulate a winning number of points. The more shots you take, the more likely you will amass points. But the winning player is the person who first develops the skill to make the shot consistently, so that at every possible opportunity, the ball is likely to go through the basket. To a great extent, consistency is the key. If the player uses one approach one time and a different approach at another time, performance is haphazard.

It’s the same for trading. One must trade consistently, following a specific trading plan on each and every single trade. This allows the law of averages to work in your favor, so that across the series of trades, you will make an overall profit. If you follow the plan sometimes and abandon it at other times, you throw off the probabilities. Suppose you used a strategy that had a track record of 80%. Under the best-case scenario, you could only expect to win 80% of the time. But since history doesn’t always repeat itself, it’s likely that you will win less than 80% of the time. If you don’t execute the trading strategy the same way each time, you will decrease your winning odds. And fewer winning trades may mean an overall loss. That’s why discipline and self-control are so important.

With discipline and self-control comes profitability. Don’t let unjustified wins interfere with your ability to maintain discipline and self-control. Follow your trading plan, and reinforce the idea that if you follow your plan, you will end up with profits in the long run. If you abandon your trading plan, and get an unjustified win, you may feel good in the short term, but you’ll pay a long term price when it comes to your ability to maintain self-control. So clearly define your trades and your trading plan (discipline), and stick with your trading plan (self-control). The justified wins you receive from following your plan with help you develop an unwavering pattern of disciplined and controlled trading.

What are trading seminars and what value do they have?

We can look at the advantages and disadvantages.

Seminars are a form of information exchange. A group of people interested in trading come together for discussion of specific trading techniques and learning of topics related to the business of trading.

There can be one or more speakers in a trading seminar, and these speaker or speakers are usually experts in the trading business.

Lots of traders attend seminars each year, some attending more than once. There are many who learn best in this manner of education.

What are the advantages and disadvantages of a trading seminar if you choose to attend or if you’re thinking of attending?

Advantages:
• Learn about cutting-edge ideas, innovations, and technologies

• A wealth of knowledge presented at one time in one place; a lot of learning, with most material compressed into two or three days.

• A sense of fellowship, where traders of a like-mind can meet others with the same interests, problems, and concerns that they may have in learning to trade or to improve existing trading techniques. You are able to network with and share information.

• There is a sense of renewed hope and inspiration, as traders discover they are not alone in their trading concerns. Stress is lessened by sharing experiences with others. Being with others who understand an individual’s trading problems or concerns, is an effective morale booster!

• For those who don’t like to read, or attend classes, a seminar offers a practical way to improve knowledge of a specific subject.

• A seminar offers the opportunity to “get away” from the usual routine. A nice vacation, in a good hotel in a situation of camaraderie can produce fresh ideas and new insights.

• Knowledge and comprehension gained at a trading seminar can “turn on the light.” Odd pieces of previous learned information suddenly come together and a new level of understanding is achieved.

• Trading can be a lonely business. A Trading seminar offers the opportunity to meet other traders and to make friendships that can last a lifetime.

Disadvantages:
• Cost! Attendees must absorb their own costs. Seminars usually have an entry fee. All travel costs, some or all food costs, hotel costs, and miscellaneous costs must be absorbed by the attendees.

• There’s a chance that the speaker(s) may not be sharing correct knowledge, or not at all knowledgeable themselves. Tips, tricks, and strategies need to be weighed as to “value” and “accuracy” before using them.

• The time spent away from your home, business, or family. Time is always a concern when scheduling activities and some traders simply can’t spare the time away from their lives to attend a seminar.

• There’s always the chance that what is covered may not actively help your trading or your trading concerns, and that the seminar will be a waste of time, where nothing you learn is of any use to you.

• There’s a chance you will expect too much from a seminar and therefore be disappointed. A seminar can present material too complicated for some and too simple for others.

Overall, seminars, if chosen carefully, are an excellent way to learn, and can be a wonderful experience. There should be a handout or materials that you take with you to help cement what you have learned at the seminar. For some seminars offer specific cures for trading or other problems. Keep in mind, a trading seminar is an elective event, and success or failure in trading may or may not hinge on attending one!

A key item to look for is follow-up. Whether it is via Internet, email, forums, chat rooms, or the ability to repeat the seminar at a reduced cost, you don’t want your seminar experience to “die at the door,” as you leave.

Whenever we miss a big move and then try to find some pattern, indicator, rationale, or modification to make to what we are doing so that the next time we will not miss such a move, it is a part of the hunt for something magic; a continuation of our quest for the holy grail of trading.

What a terrible mistake to allow yourself to make. Winning in the markets consists of making some small profits and some larger profits on a regular basis. Obviously there will be some losses. We regularly want to keep losses small, but there are times when a loss will get away from us and turn out to be bigger than desired.

If adversity causes you to become upset, then you really need to examine your thinking and your approach to trading. Your trading plan must allow for disappointment and loss.

You’ve got to believe in what you are doing and be able to trade from the knowledge that when you follow your rules and your plan, you will make money from your trading.

When you become disillusioned and start to change your plan, your rules, or both, you are setting yourself up for a sucker play. The worst thing that can happen to you is that you will lose the courage of your convictions. Without that courage you cannot trade with any level of confidence.

This is why I encourage you to write out the reasons and rationale for every trade that you make until you have developed a keen recognition of the trades that are your trades. Write out your trading plan every day for every trade. Then you can go back over your trading and be able to see why and when you are successful.

Trading Educators

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Question from a subscriber:
“Once I’ve achieved success as a trader, then what? I’ve heard that after awhile trading can become boring.”

I know you would all like to have that problem, but I can vouch for its being true. I am always having to find new ways to trade or I do become bored. However, I have never run out of ways to trade that remain exciting, at least for a fairly long time.

After the objective techniques of trading (discipline, controlling losses, self-control, self-confidence, etc.) are mastered, the great traders have prescient insight and the ability to envision themselves and their methods as part of a higher realm where art, science, and markets become one with all life.

My friend Kent Calhoun says it this way: “The great traders I’ve known have an enthusiasm for life. The word ‘enthusiasm’ comes from the Greek word ‘Enthios’ and means, ‘God within.’ Enthusiasm is contagious and causes men to rise above their abilities. Napoleon was known as the ’100,000 man,’ because on the battlefield his enthusiasm was worth another 100,000 men. Henry V was a brilliant ’100,000 man’ who lead his troops, outnumbered more than five to one, to startling victory at Agincourt, where over fifty Frenchmen died for every one Englishman. Great traders, scientists and artists recognize there is great art in all scientific endeavors, and there is great science in all artistic endeavors. Living one’s life is the ultimate artistic statement.”

Of course, you can always turn to helping others. There is a lot to be said for giving back some of what you have received in the way of good fortune. There is great reward and satisfaction in seeing another person make it as a successful trader.

“Sometimes I absolutely dread sitting down to trade. I have had so many bad experiences that I’m not sure I can pull the trigger. Is there anything I can do about it?”

What happens to us as we trade colors the way we see things in the market and influences the way we approach them. We take a big hit in a particular market, and we decide never to trade there again. Or, when we have a great trade in a market, it produces pleasure, so we try to trade there again as soon as we can.

How do you envision the markets overall? More importantly, how do you conceive of your role in the market? Do you see the markets as potentially hazardous arenas in which you must be very, very careful? Do you see them as though everyone in them is out to take your money? Or do you view them as a place in which there is dynamic profit opportunity?

Each time you sit down to your trader workspace, do you feel uncomfortable and wish you were somewhere else? Or are you really eager to jump into your work, look over your charts, and get down to trading? Does plowing through new material feel like a lot of hard work, or does it excite you to learn new information that will add to your ability as a trader?

The way you envision the markets will have a powerful influence on your actions! So it’s absolutely necessary for you to be very much aware of just what your perception is and what past experiences colored your perception. You need to honestly assess your vision of – and feelings towards – the markets and your role in them. It will surely be time well spent.

Here’s something to think about: the longer you sit in front of your screen, the more bad experiences you are going to have. The thing that defeats most day traders is that of overtrading. As you continue to sit in front of your trading screen, your focus and your sensibilities become increasingly numb. The longer you sit there, the more the probabilities increase in favor of your making bad decisions and wrong trades.

Let me ask you a question that may put the entire situation into perspective for you. Have you ever seen old people in a nursing home sitting hour upon hour staring at the TV screen? If you haven’t, can you picture what it would be like? Almost everyone has seen people who either by choice or circumstance, sit all day watching TV. They sit and watch the “boob tube” hour after hour. What do you suppose this is doing for their minds? Do you think they are becoming increasingly sharp? Is sitting there all day helping them to grow? What would you say is happening to their minds? Are they not going to suffer from an increasing amount of atrophy as they fail to think – as they fail to use their minds?

When I see a trader sitting in front of his trading screen all day long, it generates the same kind of picture for me as when I see someone watching TV all day. They are destroying their minds. At least with TV you might learn something. But what are you learning watching a cursor tick up and down hour after hour?

Trading is a terrible occupation if all you do is trade. Taking signals from a mechanical trading system is one of the most mind numbing, emotionally crippling things anyone can do. The shorter the time frame being watched, the worse it is. Is it any wonder that 90% or more of day traders last only 3-6 months in the market?

A successful trader has two major things going for him/her: 1. Plenty of money to have an excellent life-style. 2. Plenty of time to do some good in this world. But if you sit and trade all day, what do you have to show for it in the end? What have you produced that is of benefit to anyone but yourself?

I’ll let you answer that. But my suggestion to you is that you strive to trade less, not more. Learn what the good trades look like, and then trade them only when they occur. And when they do occur, focus your money – trade as many contracts on the good trades as you can. Don’t trade more of the time on lots of trades, trade lots of contracts less of the time on the good trades.

Use your time and money to help those less fortunate than you. After all is said and done, it is more blessed to give than to receive. Do you know what the word “bless” means? It is a verb meaning to “make happy.” Paraphrased, that old saying translates to “you will be a happier person if you ‘give,’ than if all you do is strive to ‘get.’” But if you are busy spending all your time on a 1-minute chart trying all day long to get, you’re not going to be able to get much of the happiness that is available from giving.