Back January 11, 2009

I'm taking a holiday from this blog until January 11, 2009.

Clarify Maximum Risk Per Trade

Cont'd discussion about website article entitled Replce Discipline

Another frequently occurring issue for trades is risking too much money on a single trade.

Who: You.

What: Risk only a specific sum of money in each trade and not more than that sum. For example, decide to make it clear that you will risk losing only $1,000 on each trade where the $1,000 is 1% of the money you have available for trading.

When: Every time you enter a trade.

Where: In any single trade.

How: First, calculate the cash value of the difference between your Initial Stop Price and your Entry Price. Then divide that number into the specific sum you want to risk in every trade, e,g, $1,000. That will give you the answer to how much volume to trade for any specific single trade.

Why: To avoid losing more of your money than you can survive losing. For example, decide that you can survive the loss in any single trade of 1% of all the money you have for trading.


...cont'd tomorrow...

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Copyright 2008 Raymond T. Lee. All rights reserved.
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Clarify Impulsive Trading

Cont'd discussion about website article entitled Replce Discipline

Another frequently occurring issue for traders is impulsive trading.

Who: You.

What: Avoid impulsive trading and enter only those trades that perfectly match your Trading Plan’s conditions for entry.

When: Every time you begin to make a decision about whether or not to enter a trade, you match the proposed trade to your Trading Plan’s criteria for entry.

Where: E.g. at your computer.

How: First, you look at your Trading Plan’s conditions for entry. Second, you look at the price chart or whatever data you rely upon in your Trading Plan as the conditions for entry. Third, if there is no match, stay out and get away from your computer so that you don’t talk yourself into a trade that does not match your Trading Plan’s entry criteria; but if there is a match, enter into the position immediately without talking yourself out of it.

Why: To avoid impulsive trades that wreak your account.


...cont'd tomorrow...

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Copyright 2008 Raymond T. Lee. All rights reserved.
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Clarify Letting Profits Run

Cont'd discussion about website article entitled Replce Discipline

Here’s another example of applying the step called “Clarity”.

Another frequent occurring issue for traders is failing to let profits run. What you would like to happen is to let profits run.

Who: You.

What: Let a winning trade continue moving in a favorable direction, subject to your criteria for exiting the trade. Clarify your criteria for exiting the trade. For example, use a trailing stop based on a fixed amount of accrued profits that you will tolerate “losing” before you exit a winning trade. “See” yourself doing this.

When: Every time you have a winning trade, you will let it continue to move in a favorable direction until it moves by a fixed amount in the opposite direction.

Where: Place a trailing stop with your broker.

How: First, you recall the procedure for making the decision as to amount of the trailing stop. Second, you apply that procedure to your winning position. Third, you tap your computer keyboard to enter that number as an order to close out your open position if the market, while moving favorably, reverses direction by that amount.

Why: To let profits run.


...cont'd tomorrow...

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Copyright 2008 Raymond T. Lee. All rights reserved.
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Clarify Cutting Losses

Cont'd discussion about website article entitled Replce Discipline

Last week’s series of blogs was about the first step in Replacing Discipline, namely Clarifying your objective. The blog dealt with how to do it. This week, I’d like to clarify the step of Clarifying by writing about some examples of Clarifying.

A frequent occurring issue for traders is failing to stop losses. Let’s clarify that. Here’s how I would apply the information I provided in last week’s blogs about Clarifying to that issue.

Who: You.

What: Stop losses by deciding on a price to which the market can move against your open position at which price you will immediately exit your open position. After deciding on the price, entering that price with your broker as an order to exit your open position if the market goes to that price.

When: Every time within 2 seconds of discovering that you have an open position by virtue of having your order to open the position filled.

Where: Place the stop loss order with your broker.

How: First, you recall the procedure for making the decision as to the number for the stop loss. Second, you apply that procedure to your open position. Third, you tap your computer keyboard to enter that number as an order to close out your open position if the market goes to that number.

Why: If the market moves adversely against your open position by going to that number, you don’t want that open position to cause you to lose even more money that it already has.

...cont'd tomorrow...

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Copyright 2008 Raymond T. Lee. All rights reserved.
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Clarify, 5

Cont'd discussion about website article entitled Replce Discipline

6. Why? In trading based on fundamental analysis, this is relevant although in technical analysis usually is not relevant.

...back on Monday next week...

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Copyright 2008 Raymond T. Lee. All rights reserved.
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Clarify, 4

Cont'd discussion about website article entitled Replce Discipline

4. Where? In trading, this usually refers to a number. That number could be a price, a volume figure, an indicator figure, or something of that nature.

5. How? Describe what is to happen sequentially over time.

...cont'd tomorrow

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Copyright 2008 Raymond T. Lee. All rights reserved.
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Clarify, 3

Cont'd discussion about website article entitled Replce Discipline

2. What? Describe this in terms of your senses, namely what will you see, hear, feel, smell or taste. Always quantify, specifying “how many” of the “what”.

3. When? Specify the exact time of day.

...cont'd tomorrow

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Copyright 2008 Raymond T. Lee. All rights reserved.
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Clarify, 2

Cont'd discussion about website article entitled Replce Discipline

To do that, focus your attention on the following questions.

1. Who? Usually, in trading, it’s just you alone.

...cont'd tomorrow

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Copyright 2008 Raymond T. Lee. All rights reserved.
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Clarify, 1

My website's article entitled Replace Discipline is the subject of this week’s series of blog articles.

The first step in replacing discipline is getting clear about what results you desire.

Clarity involves specifying and making explicit that which you want to add or eliminate in an effort to succeed at trading. Work with just one item at a time and applying the following suggestions to that one item.

Working with just one item at a time will enable you to observe whether your efforts at clarifying are working or not. That will also enable you to avoid confusion and the feeling of overwhelm in having to deal with a multitude of items relevant to your trading success.

...cont'd tomorrow

Website Home has MOVED to:
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Copyright 2008 Raymond T. Lee. All rights reserved.
LeisurelyCashFlow
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