trader treatment special report

8/2/2019 Trader Treatment Special Report

1/14

Market Greenhouse, LLC P.O. Box 10065, Wilmington, NC 28404 telephone: 910-681-0477

http://marketgreenhouse.com

M A R K E T G R E E N H O USES P E C I A L R E P O R T

A Method to the Madness

Trading with Certainty and Success

Written by Jim Hyerczek

Power Price Action, LLC

Published by Market Greenhouse, LLC

Introduction
http://www.dreamstime.com/stock-image-gambling-with-stocks-image32301


2/14



Even with the influx of new technology, coupled with the introduction of high-frequency trading, the

ability to take money from the financial markets still remains more of an art than a science.

It does however have a few absolute laws. The market remains an arena wherein judgment plays an

important part in successful performance. One benefit from the plethora of information available is thattrading has gone beyond the traditional fundamental and technical methodologies to offer traders the

opportunity to apply actuarial methods.

As a result, traders continue to seek more logical methods of trading. However, there remain fundamental

traders who rely on intricate studies; technical traders who study charts and indicators, and; the gambler

who doesnt believe in the fundamental or technical side of the equation.

Other factors that continue to hold true over the years are:

Markets follow trends

Markets discount economic changes

Markets contain psychological elements

There is a speculative force in the market

There is mob psychology and bullish optimism

In addition to these key factors, the primary forces for trading remain:

1. The greed for profit2. The fear of losses

Some may view these factors as faults, but they ultimately run the markets and drive prices up and down.

The action of these forces coupled with the common human trait of going to excesses alternately causeserrors of optimism and errors of pessimism. These two aspects are registered in the price trend of a

market.

The previous statements represent what a trader should understand before investing or speculating.

However, it is possible that a trader can gain a fair amount of technical and fundamental knowledge that

should put him/her in a better position than the average person. Even if a trader develops these

characteristics, there is still a great distance between theoretical and practical knowledge.

Human elements are the difference.

Here is a list of what I consider to be the personal attributes of a good trader:


3/14



1. The ability to reasonably create an outlook;2. The ability to create a plan and to determine alternatives to the plan;3. The courage to pull the triggeract on the plan;4. Flexibilitythe ability to alter the plan if necessary;5. The courage to trade the long side and the short side of the market;6. The ability to keep a clear head, to avoid misinformation, and to stay focused;

7. To learn when to stay out of the market. When in doubt, stay out when there is confusion;8. The ability to limit losses and the ability to take a loss;9. The ability to recognize a good trade and when to let it run.

It all seems easy, but an experienced trader knows that all of these are difficult to attain.

The average person has all of these characteristics, but emotions gain the upper hand because money is at

risk. A systematic approach to trading can help them rise above the emotion. Studies show that the

average traders level of confidence increases if performance improves. Finally, a systematic study or

stats analysis will let a trader know if he has the characteristics of a successful trader.It will also let him

know if he doesnt.

This special report is filled with anecdotal articles which are designed to help the trader understand a few

of the personal attributes of a good trader. It is not designed to be a test, but should spark some interest to

both the novice and experienced trader.

The topics covered in the special report are discipline, psychology, planning, handling losses, and market

rules. Many of the articles deal specifically with the nine personal attributes of a good trader.

It is recommended that the trader read them several times in order to grasp the message contained in each

article to get the maximum benefit.

Sections:


4/14



1. Unlocking SuccessDiscipline is the Key

2. Practice Discipline 100% of the Time and the Market Will Reward You

3.

Taking a Loss Doesn't Make You a Loser

4. Don't Trade on Hope, Fear, or Greed

5. Plan and Follow Your Trading Strategy

6. Size Does Matter

7. Treat a Winning Open Position as if it is Your Money Now

8. Win Some, Lose SomeWin More Often


5/14



Section 1: Unlocking SuccessDiscipline is the Key

Discipline is the refining fire by which talent becomes ability.

~Roy L. Smith

When it comes to your trading success, discipline is the key. Discipline will help to put more money in

your wallet and allow you to keep it there. Regardless of the system you are using, the truth is, discipline

will lead to increased profits. In the end, traders are able to find success across a broad range of strategies,

methodologies, and markets. What all professional and successful traders have in common is a

commitment to discipline. For some, that means rules that determine and direct their risk; for others it is a

limit to the time they spend in the market, and still, for others it is something else. Whatever guiding

principles you claim, you must commit to the adherence to, and respect for, your rules.

How can you do this?

Know thy enemy.

To become a successful trader you must distinguish yourself from other traders. This means putting intime researching and analyzing the markets. The more you know about your products and your markets,

the better able you are to compete in them. The more you know the better able you are to create an edge

over the other traders.

You absolutely must understand that there are other retail traders out there, just like you, trying to eke out

their piece of the pie. And each day and there are professionals trading for big institutions that wake up

every day to make their living, and that of their employer, off of YOU! Institutional traders have more

knowledge, more money, and more greed. They are fearless. And you cannot beat them. What you can

do, if you know what you are doing, is survive against them and take your share of the market without

getting hurt,.

Use technology, respect the human.

For many years, traders had to chart the markets by handbut with the advent of technology, one now

has the ability to use software to crunch the data and make analysis easier, as well as automatically

generate trading signals. When it comes to analyzing the market, a traders workload has been greatly

reduced because a computer program can now produce dozens of directional and sentimental indicators as

well as trading set ups.

The advent of technology may mean greater access to technical signals, but overall trading statistics have

not necessarily improved. This is because no matter how much we computerize the market, the balance

remains that trading is 10% mechanical and 90% mental. So while you may have access to more toys,

the game still requires you to develop a mental edge.

One such technical toy is chart pattern recognitionsoftware that scans various markets and

instrument types for known chart pattern formations such as triangles, wedges, and channels. It may also

provide market statistics such as the expected price range for various intraday time periods. Finally, while

it may be programmed to find the simplest chart patterns, it may also be programmed to identify more

complex patterns such as Fibonacci retracements, extensions, ABCD, Gartley, and butterfly patterns

throughout trading sessions.


6/14



In order to effectively use the output of data generated by this type of software, one must become skilled

at identifying the best chart patterns suitable for ones trading style and investment resources. In order to

develop this skill, one must learn how to filter and analyze the information that is being produced. Like

anything that technology provides, it is only valuable if the person using it knows what they are doing.

What will separate you from the others that use any program will be your ability to identify quickly, and

frequently, the possible trading opportunities recognized. The more fluently you speak the language of the

data, the better able you are use to your advantage for both profits and protection from loss. The more

disciplined you are at analyzing and researching, the faster you are likely to acquire the skills necessary to

become a successful, capable trader.

So while programs like chart pattern recognition software can help you with the 10% mechanical side of

the trading equation, you still must practice discipline to develop the psychological side of trading which

makes up the other 90% of the equation. In the end, this means time on the field. The more you know

about the data you use the move valuable it becomes. No technology can replace thatyour human

experience has to take a lead.

Section 2: Practice Discipline 100% of the Time and the Market Will Reward You

Discipline is the bridge between goals and accomplishment.

~Jim Rohn

The markets have proven time after time that there are no short cuts to success. When you commit to

trading the marketsyou must practice discipline 100% of the time. It has been proven that there is a direct

link between trading in a disciplined manner all of the time and the amount of success one has in the

market. The markets tend to be forgiving to those who follow a plan all of the time, but very unforgiving

if you deviate from your original plan.

As mentioned in the previous section, chart pattern recognition software that scans various markets and

instrument types for known chart pattern formations such as triangles, wedges, and channels is commonly

used. Like any other tool, it must be used properly to accomplish the task at hand in an effective and

efficient manner.

At times, people have used power saws to cut a small piece of wood when a hand saw would have been

sufficient, only to find they have cut too much. This can happen with pattern recognition programs also. A

task may be accomplished without the proper toolsjust like you can pound a nail into a board with the

handle of a screwdriverbut in the long run, using the right tool will accomplish much more in a shorter

period of time. Essentially, to be a successful trader you must learn to use your analysis tools properly inorder to accomplish your task in a timely and effective manner.

The first step when incorporating chart pattern recognition software into your trading plans will be to

learn what the software is capable of accomplishing by its design. This includes learning where to look

for patterns, what type of patterns to look for, and other criteria that can further filter results.

It has been written that phone numbers and license plates have only seven digits because that is what the

human mind is capable of remembering. When using a chart pattern recognition program it is important to

develop a core set of rules, patterns, and criteria to follow. Try to keep the number of markets or criteria


7/14



that you follow at seven so that you dont get sensory overload and begin to suffer from analysis

paralysis.

Keep in mind throughout the process that there are no short cuts to becoming a successful trader. You

must commit to practicing discipline 100% of the time. Learn to use your analytical tools effectively and

efficiently to help you grasp the mechanics of tradingwhich is 10% of the game. Once this is

accomplished, create a plan that you can follow and adjust the plan as market conditions dictate until you

find something that puts you in your comfort zone. It is only in reaching this level that you can then begin

to master the psychological side of tradingwhich is 90% of the trading puzzle.

Section 3: Taking a Loss Doesnt Make You a Loser

When in doubt, take the out.

~Baseball Quote

Taking a loss doesnt make you a loserrefers to both the mechanical and psychological sides oftrading. Mechanically taking a small loss may mean that you override your original stop and simply exit

the market because the trade is not acting the way it should.

Looking at this from a psychological perspective, it doesnt mean you are a loser because you took a loss

or a series of small losses. Losses are the part of the trading game that can be mentally tough, but most

traders will tell you its easier to overcome the small losses with small wins than to conquer a huge loss

with a huge profit. Think about that bit of wisdom every time you consider taking on too much risk for an

undersized return in the name of winning.

During a trade, if the little voice in your head is saying Its not a loser until you get out or even worse,

you find yourself considering averaging downby then you have already planted the thought in yourhead that the trade is bad. At this point it is probably a good idea to pitch the trade. It is more important to

live to trade another day, than it is to fight to the death. The market will always beat you.

Cutting losses fast, just like letting profits run, is a personal preference and varies from trader to trader

based on several factors. Psychologically, cutting losses has to do with your risk tolerance, patience, and

your ability to trust your decision process. If you trust the high probability of a pattern and you have

predetermined stops, then cutting losses directly challenges your ability to take risk.

To say it another way, how much are you really willing to lose before you give your trade a chance to

work? Technical trading software can provide you with a number of chart patterns taking place in various

markets, but you have to decide which chart pattern you like based on your analysis skills and risk

tolerance. This software can also help you by ranking a particular chart pattern by Quality, Initial Trend,

Clarity, Uniformity, and Breakout strength.

Mechanically or psychologically, there are four actions that a trader can implement when a position is

not working the way he wants it to work.


8/14



1. The first action, which some consider to be no action, is to sit on a loss and wait until it turnsinto a profit. This is not a good strategy to follow since it is possible for one big loss to wipe out

your trading account. While your account is being depleted, you lose the ability to trade other

opportunities. Essentially, it mentally freezes you (psychological) and it can lead to margin calls

or suspension of new positions by your trading firm (mechanical).

2. The second action you can take is to cut your losses quickly. To do this effectively, it is good to

know your trading systems Maximum Adverse Excursion (MAE). This is a technical point that

shows you how much heat you actually take on a position while it is open. For example, a

trade may close with a loss of -3, but while it was open it was at one point down a maximum -5.

Once you know your MAE then you can take losses ahead of your stops without affecting your

psyche because it eliminates the guesswork. This technique takes into consideration both

mechanical and psychological factors.

3. Attempting to break even on every trade, rather than taking a loss, is the third action you can

take. This exit strategy is difficult during fast moving markets when day trading or scalping. Your

entry price should help you determine whether to use break even as a stop loss or not. If

scalping, you may consider exiting at break even when, after a long position is executed by

taking out an offer, a large bid moves up to your entry price. In this case, if the bid begins to

erode, then you should consider getting out before prices fall.4. Another way to exit at break even is that after the market has moved in your favor a

predetermined amount or percentage, you have a chance to move the initial stop to your entry

price. This technique is usually used in conjunction with a momentum system trade. Try to avoid

exiting at break even as soon as you enter. This is almost the same as a dollar stop and often

leads to over trading and missed moves.

By eliminating large losses, all you have to deal with are small losses or no loss. For practical purposes,

this means that small losses may cancel out small profits, but break even trades do not cancel out larger

profits. A trader should try to master this technique because it can help him improve his trading results.

Section 4: Don't Trade on Hope, Fear, or Greed

Don't waste life in doubts and fears; spend yourself on the work before you, well assured that the

right performance of this hour's duties will be the best preparation for the hours and ages that will

follow it.

~Ralph Waldo Emerson

Hope is not a trading strategy, greed is not a strength, and fear is not your friend.

Well-known trader and author W.D. Gann described in several of his books the three key emotions that

drive traders and investorshope, fear, and greed. In his writings, he explained that players that enter

markets on the hope of gains, too often get greedy in expecting profits, and finally liquidate on fear.

Fresh, undisciplined traders often put themselves in the awful position of hanging on to a losing trade too

long, forcing them to pray to the market Gods. Their prayers are often pleas which include references to

if you get me out of this, I swear I will never do this again. Not too far removed from the prayers of


9/14



college students facing their first hangover! Once they realize this type of divine intervention is never

going to materialize, the expensive lesson they learn is Dont trade on hope.

Honesty and truth are not always well received among us traders. Why? Because if we dont have enough

hope, none of us would get into trading at all. It is the hope that we can grow our money, live our lives on

our own terms, gain financial independence and security, and ultimately join the ranks of professionals.

While initial hope is good, with time in the markets, you must demand maturity from yourself. There are

some difficult realities to address. Many people who start trading dont make it past the first 18 months.

Why? Because with a few losses and hard lessons, hope is harder to come by. I am not suggesting that

you dont tradewhat I am communicating is the truth that many of the people who dont make it trading

are simply not willing to put in the time and effort to replace hope with skill and discipline. The markets

will thin the herd as the saying goes, and that means you have to decide what you are willing to give to

achieve your goals of growing your money, gaining financial independence, and so on.

Fear strikes a trader in several different ways. Sometimes it is thefear of success that prevents a trader

from becoming profitable. Other times it is thefear of failure that stops him/her from achieving his/her

trading goals. The faster you can determine which side of the fear equation you are on, the faster you willlikely achieve success.

Fear is not necessarily a bad thing. Fear can stimulate creativity. Fear can drive a trader toward success,

but fear must be tamed before it can be put to positive use. This means having the discipline to study chart

patterns and indicators over and over until you learn not to be afraid of any chart pattern that appears. If

the market is moving, it is making money and so are some traders. Fear of the unknown is healthy and

may protect you from too much risk and from your own overly optimistic views, but fear can also lead to

a huge number of issues for traders. If the bad fears are allowed to go unchecked, they worsen and grow

with time. The more that happens, the harder the habits are to break. Be honest about two things; yourself,

and the markets. The markets have no heart or soul, so you cant appeal to a better part of it. The market

is just the market.

You, on the other hand, as a trader, must try to overcome the fear of the unknown. This means becoming

familiar with different kinds of market conditionsthe bull market, the bear market, and the fast market.

All of these situations can make a trader fearful of taking a position, but if you reduce some of your fears

by being properly capitalized, by placing stop losses, and by learning how to enter and exit a position

properly, then in a short period of time, you will likely gain enough confidence to face your fears and

overcome them.

Greed is difficult to grasp because sometimes while in a winning position, you may be trying to squeeze

out a little more profit because the market is approaching a pre-defined profit target. This type of situation

is often confused with being greedy. As a trader, do not bewilder yourself with thoughts of should I stayor should I go?. This falls back to the earlier lesson called when in doubt, get the out. If you follow

your plan and trust your system, then stay with the move, but protect yourself with a trailing stop. Stops

are a great way to temper greed, and in some cases save your butt!

The greed some traders experience is the expectation of an extraordinary move in every position they

enter. The greedy trader is the one who believes the market will do something out of the norm to create

for him a windfall profit. What is the norm? The norm can be measured by looking at the expected


10/14



volatility of a stock, futures contract, or Forex pair. Swing moves can also be used to determine the size

and duration of a move. If you work with what the market gives you, then you are likely to avoid getting

caught in the greed trap.

Now, dont confuse greed with optimism. None of us would get out of bed in the morning if we did not

believe that today presented opportunity for success. A desire to work and make money is what drives us

all, but the markets are an untamed animal in many ways, which requires skill and care to deal with.

Sheep get sheared, pigs get slaughteredthe more you put at risk, the greater the losses and the more

difficult the recovery.

Section 5: Plan and Follow Your Trading Strategy

In baseball, my theory is to strive for consistency, not to worry about the numbers. If you dwell on

statistics you get shortsighted, if you aim for consistency, the numbers will be there at the end.

~Tom Seaver

Every trader needs a plan, every trade needs a plan.

If you are a trader, at some point in your career you have endeavored to understand statistics. They are

critical during the back testing stage of a trading system while assessing real time trading results. This

understanding and use of statistics should be a means of support, a way in which you gain confidence in

your method, and a confidence that allows you to stick to your plan.

If you know you have done your homework and know your Average Profit Per Trade, the Average Loss

Per Trade, and Expectancy, you should not try to trade to meet your statistical norms, but rather try to

follow your system. After all, statistics were created as a blend of actual trading results.

A baseball player doesnt go up to bat thinking Im a homerun hitter, I hit a homerun every 14 at bats,

this is my 14that bat, and therefore I should hit a home run. He goes up looking for a good pitch to hit.

His stance is the same, his swing is the same, and his entire approach to the game is the same. That is the

discipline. His average homerun rate is based on a consistent use and discipline for his batting mechanics.

This is the same mentality that traders need to embrace, yet seldom do.

A trader must have this same attitude. You must have a sound methodology and you must follow it every

day. This is not to say you dont make minor adjustments due to market conditions. The key is that you

must maintain your core methodology.

Every day you must come in with a plan. This includes having a set of rules. The rules can be based on

technical indicators, chart patterns, or economic events. It is suggested that a technical trader work with

software that gives him an opportunity to develop a set of rules or steps he can follow in an attempt to

maximize the huge arsenal of trading patterns and technical indicators available.

A baseball player is focused on hitting pitches in his strike zone. Although there is a uniform strike zone,

each player has his own strengths and weaknesses depending on where the ball is thrown. Traders must


11/14



strive to find their strike zone. For example, this can be created by applying trading filters. Using this

tool properly, a trader will be able to search for chart patterns which fall within his strike zone.

All patterns may not suit the personality, account size, or trading style of some traders. Therefore, the

sooner a trader realizes the pitches he/shecan hit, the more success he/she may have since he/she is

only swinging at, or entering trades on chart patterns which he/she knows suit his/her particular style of

trading.

While trading statistics are an important measure of success, it is more important to remain consistent in

your trading approach and let the numbers take care of themselves.

Section 6: Size Does Matter

Endurance is one of the most difficult disciplines, but it is to the one who endures that the final

victory comes.

~Buddha

Most traders spenda lot of time on developing their entry and exit strategies, but very little time on the

size of their trading positions. So while wins and losses do matter, how big your trading position is when

you win or lose will have a direct effect on your bottom line.

Trading systems are subject to both winning and losing streaks. The assumption a trader should make

when trading is that after a winning trade, a winning streak may develop, but conversely after a losing

trade, a losing streak may be kicking off.

To take advantage of the streaky nature of a trading system, you must consider a strategy whereby you

increase your size during winning streaks, but decrease your size during losing streaks.

When building a trading strategy, and studying the back-tested results, you must be aware of your trading

statistics. Among the many statistics produced, consecutive wins and consecutive losses are among the

most important.

Too often a trader will try to catch the big winner through having with a big size. Since no one can

really predict the big winner, a trader may get caught with big size on during a losing streak.

Taking on a position that is too big during a losing streak means you will eventually have to catch huge

winning trades with similar size in order to make up the loss. Therefore, it is better to have a position

sizing equation to take advantage of the streaky nature of your system and the unpredictability of the size

of the market swings.

One method to consider is sizing positions according to a percentage of your trading account. For

example, you may consider risking 1% of your account on a position. This is the money-management

portion of a trading system. This has nothing to do with the trading system itself.

After determining what 1% of your account value is, you then divide the risk of the trade into the

percentage of risk of your account to get your position size. For example, if 1% of your account is $1000

and the risk on the trade is $4.00, then the size of the position will be 250 shares.


12/14



During a winning streak, the size of the account will increase and so will the dollar risk of the trade, but it

will still be set at 1% of the account size. If 1% of your account increases to $1500 and the risk on the

trade stays at $4.00, the position size will increase to 375 shares.

If you should experience a losing streak and your account decreases in value, then 1% of your account

size may fall to $750. If risk stays at $4.00, then the size of the position will be decreased to 187 shares.

This is only one sizing methodology. There are others, and all should be applied to your trading system to

find the proper fit. The idea behind this tactic is to take advantage of winning streaks by increasing size

and to prevent a massive drawdown in your trading account during losing streaks.

Traders should note that this style of sizing will only work if your system has a positive expectancy. In

other words, if the trading system is good, position sizing will matter to the bottom line. If the trading

system is bad, then proper sizing will not save it.

Using a sizing method based on percentage of account risk, a trader may be able to use wider stops when

choosing a chart pattern. This may mean you will be able to accept more trades since your position size

will be based on a fixed percentage of your account instead of a flat dollar amount. This tactic is likely tohelp when accepting or rejecting trades.

Section 7: Treat a Winning Open Position as if it is Your Money Now

Failure is not fatal, but failure to change might be.

~John Wooden

Have you heardthe sage wisdom that you should never turn a winning trade into a losing trade?

Accompanying this statement is usually a comment about greed. In my opinion, greed has nothing to do

with the decision to let a position ride or to cash it in at a small profit.

Often a trader in a winning position wrestles with the discipline he or she has developed which tells him

or her what to do in a specific situation. Sometimes, to a fault, a technical trader will hang on to a winning

position in an effort to squeeze every penny out of the move. In his/her head he/she is telling him/herself,

I will not override my system or I am only going to exit when my target is reached.

This type of thinking can be overcome if you begin to realize that the open position profits are yours now.

This may mean developing a defense-type mentality about the position rather than an offensive mind set.

In order to overcome this problem, you may begin to focus more attention on your trailing stop strategy.

This may include making stop adjustments based on specific chart points or changing the stop based on a

percentage of open position profits.

Being too rigid as a trader may lead to your undoing. If you hang around successful traders long enough,

you may hear the expression trading is an art. This means that although fundamental or technical

analysis may help you find the trade, the art of trade management takes over when you are trying to

enter or exit the trade.


13/14



Just like a sailor sets a course for his destination, a trader must have a well-laid out plan. In addition, like

a sailor, the trader must be aware of the dangers of not adjusting to the problems that may occur during

the course of the trade. Although focused on staying on course, the sailor may be constantly adjusting the

sails to catch the wind. These adjustments are critical to reaching the destination or goal.

The successful trader must also be flexible like the sailor and make critical adjustments during the course

of the trade. This may mean lowering a target objective, trailing a stop, or adjusting position. Ultimately

the goal isnt to reach the optimal objective on one trade, but to be successful with a series of trades over

a period of time. So pitching a profitable trade early is by no means being undisciplined. It is at this point

you begin to learn about what your system can, and cannot, be asked to do.

Over time you will learn key characteristics about your system. For instance, how much of an influence

volatility has on your methodology or how sensitive your stock is to shifts in volume. While looking at

your trading stats, you may become aware of your systems Maximum Positive Excursion - MPE This is

a measurement of how much open profit is generated in a position. This statistic will help you realize how

money your system realistically generates. Also, when compared to actual closing profits, it will let you

know how much money you leave on the table.

Section 8: Win Some, Lose SomeWin More Often.

I've missed more than 9000 shots in my career. I've lost almost 300 games. 26 times, I've

been trusted to take the game winning shot and missed. I've failed over and over and over

again in my life. And that is why I succeed.

~Michael Jordan

Your average winmust exceed your average loss is a powerful statement because it flies in the face of

those who believe that a high winning percentage is the key factor that makes a trader successful.

Every day I am bombarded with ten or more ads for trading systems touting 70, 80 or sometimes 90%

accuracy. These emails go straight to trash because in my opinion the accuracy of a trading system is not

as important as the size of the average win compared to the size of the average loss.

In fact, if you press the salesman of these systems for this particular statistic, they are often dumbfounded

that you were even asking the question. This is because people like accuracy. They like to know that they

have a high probability of being right. In the long run, trading a system with a high percentage of winners

will most likely lead to losses.

Many systems experience a quick gain after the initial entry. If you were to capture this quick profit, your

accuracy would be high; however your average win would be low. Think about a system that is 90%

accurate. It is possible to catch nine or more trades in a row that generate an Average Profit Per Trade of

$.50. But what happens if that one loss was $4.00? This means that you must have at least eight trades in

a row at $.50 per trade, or better, to make up the one loss. So when you get an email mentioning the


14/14



accuracy of the trading system, always ask about the size of the sample and the size of the average win

and the average loss.

As a good trader you should maintain these statistics because it will tell you whether you are exiting your

winners too early or holding on to your losers too long. In addition, it will help you develop the discipline

to follow your strategy. Finally, from a psychological standpoint, it may demonstrate that you are

working with scared money. You cannot become a successful trader if you are afraid to take a loss. Read

the Michael Jordan quote again and think about how it applies to your trading.

A high Average Profit Per Trade is a number that confirms that a person has learned to maximize the

profits of a successful trade whether it was nursing the trade until it reached its target price objective or

trailing a stop to prevent giving back too much of the profit.

A high Average Loss Per Trade may mean that you have been experiencing a large number of maximum

stop losses. In this case, this may mean the entry signal is flawed. It may also mean you are not using

stops or moving the initial stops away from the market because you fear taking a loss.

A good trading system must demonstrate that the Average Profit Per Trade minus the Average Loss perTrade is greater than 1. This is the expectancy of the system. The higher the number, the better. Keep

this in mind when trading because it means that you can be a 50/50 traderbut if your expectancy is

high, you can still be successful.

_____________________________________________________________________________________

trader treatment special report

Documents