In trading there is a factor known to many as the ‘R’ factor or risk factor. Traders determine their average or base risk per trade they’re willing to take and name it ‘R’, and then measure profits as a multiple of this ‘R’. For example, a 3R profitable trade means the trader has made 3 times the amount they risked. The idea is to determine the ‘R’ factor early on in the trading system building stage and keep it consistent, whether it is a fixed dollar amount or a percentage of available capital.

The benefits of using an ‘R’ factor include measurability, especially during back testing, which helps to determine a systems potential, and being able to track your trades from a systematic point of view rather than a monetary point of view. However it is the monetary point of view that I would like to address as I feel there could be another angle or point of view that could aid struggling traders, especially those that find themselves cutting winning trades short (breaking their systems rules).

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Tony began trading in 2005, after deciding he wanted to invest $20,000 into the Australian stock market. His goal was to select a handful of stocks that would hopefully appreciate enough over a 6 month period to outperform the rate he was receiving through his savings account.

Once 6 months was up, he’d re-assess his holdings and set a new goal. It was a simple goal really, but a goal that he found so hard to keeping with early on that his attempts to reach it almost cost him his pride and dignity.

Selecting the stocks was not the hard part; no, what caused Tony problems was his inability to stop watching the day to day fluctuations of his stocks. He felt compelled to check almost hourly the price of each of his 6 stocks, whilst trying to run another business.

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The Dimensions of a Successful Trading Entity

Many considerations go into creating and running a successful trading entity. We’ll look at the most popular which get the most attention, right through to the most important, which usually get the least attention.

Here is the list:

1. Entry signals
2. Risk management
3. Exit signals

4. Reliability
5. Reward to Risk
6. Opportunity
7. Capital management

8. Objectives
9. Familiarity with Markets
10. Resources
11. Mindset
12. Style
13. Management

Most, and by most I mean probably close to 80-90% look at number 1 and that is it! That is a startling reality, but a reality nonetheless. But there is a reason this happens. Most new traders are unaware that such a large number of traders ultimately fail in this business, and more importantly, this fact is well known by the very people who market trading in this way.

But enough of that, let’s look at some serious considerations you should make and the order in which you need to do it.

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The index futures trader…

I received an interesting email recently from a 11+ year experienced index futures trader who wanted to know if a particular program would enable him to take his trading to the next level.

At first I wasn’t sure which program he was referring to and also at what level he was trying to get to, let alone which level he was currently at.

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…But Why?

You may have heard the statement before; the biggest battles traders will face are within. If there was an explanation as to what these sorts of battles are it’s more than likely along the lines of overcoming bad habits, emotional issues, biases, beliefs and so on. But why are these so important to master, and why is it so hard to do so?

I’ll address why it is so important first, as a lot of traders believe that trading should not be so difficult in that if one set of rules works for trader ‘A’, they should work for trader ‘B’.

When a math teacher is attempting to teach a class the 12 times table, some students get it straight away, some take a bit of time, and some can’t grasp it at all. Now let’s just assume that it is important for children to learn the 12 times table, if some are grasping it straight away and some are not, then is it the method being used to teach it the reason some can’t grasp it? Well yes and no.

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..And Where You Fit In

We as humans have the ability to evolve intellectually and have done so at a rapid rate, but when it comes to emotions we have been unable to change in thousands of years. The saying “This time it will be different” is coming from the perspective of an intellectually evolved civilization, one that is somewhat aware of history, but emotionally has not changed at all to prevent it from repeating.

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Will controlling fear make us better traders?

In the previous posts in this series we have focussed on fear, as it is often cited as having the biggest impact on our trading psychology.

I would certainly tend to agree, but it is not the only emotion traders need to master.

In this post I’m going to talk about a couple of sins that traders also need to be aware of if they want to learn how to trade profitably.

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Know your enemy!

So far we’ve concentrated on looking at how fear and greed can affect a traders ability to follow their trading plan, and then we started deconstructing those fears piece by piece.

In this post you’ll find some more strategies for dealing with the fears that may be sabotaging your trading.

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Controlling Fear and Greed

In my last post on trading psychology we started looking at some of the indvidual fears that traders can have, and also some of the effects greed can have as well. But if you missed reading it, click Understanding Fear and Greed and read that post first before reading on.

In this post, we’re going to start looking at how you may control fear and greed, so I hope you have your list of fears handy as we might be able to cross some of them off.

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Understanding Fear and Greed

In a previous post we talked about lack of a trading plan being one of the reasons traders lose money while trading.

In this post we’re going to talk about one of the other reasons; and that is the inability to trade profitably due to emotions such as fear and greed.

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