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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Which one are you?

Some traders will go through system after system, teacher after teacher, wasting thousands of dollars not only in useless systems but in lost trades before they realize they’ve been approaching the markets from the wrong standpoint because they’ve been trying to trade the wrong type of system.

The two types of traders are the mechanical type trader and the discretionary type trader. Therefore, there are two types of trading systems, a mechanical system and a discretionary system. The difference between the two is quite large not only in the way the market and possible trades are analyzed but in the psychological make-up of the trader themselves.

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and learn to sit on your hands; for example, how do I quit chasing a stock etc?

I remember someone asking me once, how on earth do you remain detached from your emotions when it is emotions that cause you to want to become a trader anyway? In actual fact it’s more like; emotions cause you to want to find financial freedom, but it means the same thing.

I agree, emotions do play a huge role and it’s even more pointless if you set out to achieve a financial goal in trading, so that you could enjoy a lifestyle goal, such as going on a cruise, only to not enjoy the cruise! All that work for nothing.

But let’s get serious.

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What you must do before buying any trading system

Now that our markets are going through some serious volatility, there are alarm bells ringing and expert’s opinions are being sought more than ever. But what you’ll also see more of now are the marketing of trading systems that work in both bull and bear markets; or how easy it is to ‘short’ a market.

Because of this I have written a 20 page report called ‘The Black Hole of Trading: what you must do before buying any trading system’. To put it mildly, I am disturbed by the number of traders that struggle, and I know this from being in the trenches with other traders who have committed money to a particular system (support forums etc), questions I get asked, and surveys and polls I have been conducting over the last 18 months.

But what disturbs me even more is that the reason traders struggle seems to elude not only the traders themselves, but also the very people who sell the trading systems. It’s simply just not enough to give someone a set of rules for entering and exiting a market based on a few indicators; if it was we’d all be raking in the bucks!

My 20 page report will explain to you why most struggle regardless of the system they are using; and what you can do about it. This isn’t some psychological emotional mumbo jumbo where I’m saying you must trade without emotions (I think this line has been overused); heck, the reason we get into trading is because of emotions. No…this is real meat that all traders and those seeking to trade must consider and apply first before buying any trading system.

The Black Hole of Trading

After reading my report please leave your comments below; I’d be very interested to hear your thoughts.

Happy Trading

Dean Whittingham
Pentagonal Trading © 2004 - 2007

1-2-3 breakout system exits

In this post we’ll continue looking at the 1-2-3 breakout trading system by discussing an exit strategy for the long entries we covered last time, as well as looking at short entries and exits

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Did you see it coming?

I would like to ask any reader if your intuition predicted either of the following; the sharp drop in the major indexes, the sharp rise in the US Dollar, or the sharp rise in the Japanese Yen (unwinding of carry trades)?

Intuition is our most powerful sense, it enables us to read someone’s energy frequency (good mood/bad mood), before they even walk through the door. It also gives us the ability to assess and analyze a situation at a sub-conscious level before other factors become involved.

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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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