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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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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I have spent an awful lot of my personal time putting together a 69 minute video for traders that I believe will open the door to understanding how to trade successfully.

This video is a trading system I call the 4 T’s trading system, and in this video you’ll learn the trading system itself, the rules and how to trade it. It will also show you I apply leverage to it, but more importantly how to use leverage with the trading system to achieve a goal or objective.

However it doesn’t end there. By the time you have watched this movie, I believe you will be able to take any trading system, not just the 4 T’s system and use it to achieve your goals. If you already have what you believe is a work-able system but are unable to make it work, this may answer your problems.

If you do have any questions after watching the video I urge you to send them to me, via the question form link which you’ll also find on my blog. I plan on answering any questions regularly so do send them along.

It is quite long, so make yourself a cuppa and enjoy
http://financialmarketfisherman.com

To your success
Dean Whittingham

Your Exit Strategy Should Be A Function Of You and Your Trading Needs

In my last post I spoke about getting back to the basics of trading when you find yourself struggling. I also mentioned that it was not the complete picture and that an exit strategy is more a function of the trader themselves. In this post I explain why.

There are many ways to formulate an exit strategy. Other than an initial stop loss, which is there to get you out of a bad trade, exit strategies are used to achieve a goal. A lot of traders don’t understand this concept and therefore pay little attention to it, spending more of their time worrying about entries.

Those that do consider the exit strategy important may still place more importance on finding the exit strategy that proves to be the most rewarding when back-testing. Although this is important it is only half the picture. An exit strategy also needs to support you the trader and help you achieve your goals.

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For the beginner or struggling trader

All professions whether it be sport, business, or trading have what are called the basics and if you’re starting out in a new profession, the basics form the foundation or the core. However if you’ve been practicing your profession for quite some time and feel you’ve gone off track or are not hitting your goals, usually the best thing to do is just get back to the basics: and trading is no different.

This is not an article based on emotional discipline or psychology, it is based on the basics of a trading plan, and it really doesn’t matter if you’re long term or short term, the basics apply to most market participants. Some may have trading plans that are quite different to the basics however for the majority who are relatively new to trading or are struggling, the basics are by far the best approach to adopt.

The basics are split into three and are:

1. Determine the trend
2. Wait for a pullback
3. Enter on an event or pattern

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Do you know?

Visit forums, join memberships, purchase tuition with member areas for support, read books, talk to fellow traders etc and you can be guaranteed you will come across many who will be struggling with a whole host of reasons why. Some will even appear as experts but beneath the surface are struggling with some aspect of their own trading system or style. But do you know what the hardest thing any trader will have to do is?

1. Learn the jargon – no way, this is easy and it just takes time.

2. Find a profitable trading system – there are hundreds of thousands of them, in fact many are just given away for free nowadays.

3. Back test and paper trade – c’mon, I know many people don’t like hard work but you’re way off here.

4. Learning to read charts – kids like reading charts as they look at the green thing and they say, “Hey that’s going up”, or if they see a red thing they say “that’s going down”.

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Why Markets Correct

Markets move up because market participants believe in the fundamentals behind the market. At a certain point it is seen that the fundamentals change and the market corrects, however the reason fundamentals change is not because of some external event, but because of the participants themselves. In other words, an excess of bullishness creates bearishness; it is the participation itself in the market that creates the shift and thus the correction or bear market.

To understand this phenomenon, we must first look at how commodity cycles occur.

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