The following is my personal mantra. It lives on my desktop. It is updated on my desktop as necessary. Others may modify to suit their individual needs, as this is not prescriptive.
READ AND REPEAT THIS A FEW TIMES PER WEEK.
Whilst all of the following may seem very simple and logical, they represent all of the lessons you have learnt and forgotten. You must read all of the following every day before trading or before entering a trade.
- Read the personal management strategy below.
- Do not deviate from the personal management strategy unless there are truly exceptional reasons.
- Read your trading rules.
Personal management strategy
- Ensure that you have had at least 6 hours of good sleep on the previous night before deciding to trade on the day.
- DO NOT TRADE IF YOU ARE TIRED. Never trade when tired or exhausted because your judgement will be impaired. Your list of enemies (greed, hope, fear, a wish to get back), will be stronger than your willpower when you are tired.
- Always have breakfast (or other light meal) and a cup of tea or coffee before starting.
Trading rules (personal – others can vary this as they so choose).
- Resist the desire or impulse to trade, as that is led unconsciously by the list of enemies within. You must have a sound foundation of reasoning from your analysis before you place a trade. Strip away all emotions and subtle urges.
- Unless an exceptionally good opportunity presents itself, avoid making decisions about trades within a few minutes.
- Never set a target to win a certain amount of money on any one trade if target is based even slightly on losses made on others (in aggregate or individually). So if you suffered a series of losses, ABSOLUTELY ENSURE THAT NONE OF THAT IS IN THE BACKGROUND OF YOUR MIND, WHEN MAKING A DECISION TO ENTER A TRADE or SET AN ORDER.
- Take whatever money you get when it is right to do so, even if it does not make up for any past losses.
- A decision to take the money should never depend in part on past losses.
- Decide whether you are trying to win the individual trade before you place it. Your emphasis should not be on a need to win an individual trade. Although winning single trades are important it is the aggregate size of winnings over losses that is most important. Therefore focusing on justifications for winning any one trade is not truly a focus on the bigger more important picture.
- In any trade set up where a limit has not been set (like on a trend following trade), when there has been a major favourable move in the market leading to a lot of money in positive equity, resist the temptation to wait longer to see how much more profit you can extract. Exit points should be decided according to a rational process. Waiting for more profit is about emotion or the cloaked inner enemies of greed and hope. Waiting is about trying to squeeze the most out of one trade and losing sight of the main goal which is the aggregate of significant wins over controlled small losses – those wins only need to be individually significant and not themselves extremely large. Your aggregate of significant wins on 20% of trades could well exceed controlled smaller losses on the 80% of losing trades.
- Focus hard on reducing your aggregate of losses – that’s where the real problem is!
General management strategy for tracking and analysing trading opportunities.
- Set up a list of instruments to check at certain intervals.
- Set up a routine for checking those various instruments.
- Plan your next day so that you know which instruments to check on tomorrow.
- Make a written record of the instruments you will be checking tomorrow.
- Set a reminder on your computer or somewhere else to check that list.
- For Earnings Releases construct a list of those instruments 3 weeks in advance.