New Trader,Rich Trader 2: Good Trades, Bad Trades by Steve Burns & Janna Burns

Author:Steve Burns & Janna Burns [Burns, Steve]
Language: eng
Format: epub
Publisher: www.bnpublishing.com
Published: 2014-05-13T23:00:00+00:00

CHAPTER 9

A good trade is made using your own timeframe; a bad trade changes timeframe due to a loss.

“The key is consistency and discipline. Almost anybody can make up a list of rules that are 80 percent as good as what we taught our people. What they couldn’t do is give them the confidence to stick to those rules even when things are going bad.”

– Richard Dennis

“A good trade is based on predetermined parameters,” Rich Trader began as they drank their favorite coffee in the quaint coffee shop New Trader had discovered not too long ago. It was nice and quiet, decorated in subtle blues with comfy chairs and quality beverages – a perfect place to meet and talk.

“That means the trader knew the position size they would trade before they entered. The trader had a quantified entry signal based on price action at the right level, and would the position be held until the stop loss was hit and taken, acknowledging that the trade was wrong. The stop loss would be triggered at a price level that showed the trader they were wrong and it was time to exit. The amount of money lost would be within the guidelines of total trading capital that could be risked and lost on one trade without putting the trader in the risk of ruin zone over the course of many trades. The trading vehicle that was traded was on a previous watch list and the trader had researched price action history to understand what did and did not work. That is the formula for a good trade. A bad trade is when the trader strays from quantifying a trade to following opinions, emotions, and ego.”

“So basically, a trade is a serious business transaction, based on the risk/reward ratio, probabilities, possibilities, and managed risk? You should know exactly what you’re doing in every single move in every single trade?”

Rich Trader nodded.

“Creating the trading plan isn’t usually the problem. The problems generally begin when the trader tries to stay disciplined while the market is open. Greed, fear, ego, and stress weren’t there when the plans were created, but all show up and want to be heard when the market is open. A good trader is disciplined and able to follow a plan rather than emotions and opinions. That’s hard enough, but when the market environment changes and a string of losses occur, that amplifies everything. The trader has to pre-plan how to handle draw downs in capital by trading smaller, by having fewer positions at one time, or by just not trading until there is a signal indicating that the market environment may be favorable again. Traders find out very quickly that they are the weakest link in any trading system the moment they go live and it’s time to follow the predetermined plan.”

“So most traders lose because they just can’t stick to the original plan?”

Rich Trader took a sip of his hot coffee before replying with a sigh. “They may have a great trading system and just be in a bad market.

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