ZLBT Chats

Thursday, February 25, 2010

Free Your Trading Mind From Frustrations And Experiments

The nature of this blog is that almost everyone who writes to me for guidance is either a beginner or someone who has not had success with trading. This is fine, as a big part of what I do both in this blog and in life is to share & educate - in that order. The problem is that I only have a small space to deal with such a huge and complex topic – TRADING.

Little in the world of trading is black or white; it is a world full of nuance colored with various shades of grey. Thus, my answers to big questions often lack depth and more often than not, ZL had failed to answer satisfactory to your expectations. But try & try again you bet I will .....

By necessity, much of the work of solving your issues is left to you. The best I can do is frame an issue, point you in a direction, and ask you to finish the job of answering your own question. This is as it should be, as the best learning does not come from what others tell you; it derives from self indulged research, experimentation, and a mind that is free from the hindrance of frustration.

Often, ZL had wrote about striving to free your mind from emotion when trading. The same is true for learning. Do not be frustrated with what you think you don’t know. Work with satisfaction in the realm of what you do know, continually expanding that knowledge …

A normal question:

... you say "take profit when you have it, do not be greedy" I agree. But you and a lot of other experts say also "let the profits run" I agree again but ... how do I understand the difference?

Can you “feel” the frustration in the question above? I can, so here is my answer …
Since you understand both concepts, finding the point of separation is matter of experimentation and knowledge of the broad market and your specific market.

Knowing the markets is key to understanding the difference. Is the broad-market trend momentum in your favor? What is the volume? Is your market tightly range bound, or is it highly volatile? Is your market overbought or oversold? These are just some of the questions, but once you can answer them without hesitation, you will begin to understand …

As I have said before, in the beginning of your learning process, take profit as soon as you have it. Do this over and over again. This will build both your capital account (slowly but steadily) and your confidence, which is the key – when you are confident, experiment.

When you are in profit, experiment with stop types and stop placement. For example, if you think your market will keep moving, try setting a 2% trailing stop when you have a 2% profit. Yes, you are risking losing your profit, but you are also now “letting your profit run,” and the worst that can happen is that you end up losing your trading costs and nothing more.

As you experiment, you will begin to understand market movement and stop placement. Yes, you will make mistakes, but you will also gain valuable experience. In time, you will learn the answer to your own question; you will learn the difference between taking profit when you know there is no more room to run and letting your profit run.

And here is a bonus. Experimenting with stop placement will teach you both the mechanics of stop placement and the art of knowing which, when, and how much.



No comments:

Post a Comment