I am a trader. Trading is my passion and it is something that has been etched into my soul. Trading to me (at its most basic level) is a challenging and intellectual game of choice and chance. To be more specific it is a game of choosing the probable direction of price for a given market. I am a trader, and my desire is to be extraordinary. In order for me to be a great trader I have to 1) create the proper thought processes that will produce the perfect psyche for trading, 2) have the ability to maintain discipline while managing risk and reward properly, 3) have a strong understanding of price action and market structure. I am a trader, and to be extraordinary I must master these core competencies.
1) The Psychology
To be a great trader I must think like a trader. To be able to think like a trader I must know the difference between losing money in a trade and risking money on a trade. The idea is to always have a willingness to risk some capital for the chance to make money. I have to come to grips with the reality that taking losses comes with the trading territory. The minute I start to realize this truth, losing will NOT be an issue. Therefore, I will begin to look for the opportunities that will give me the probable chance of making a return on the capital I have risked. Always remember to never worry about losing money on trades, because the reality is, taking a risk on a trade gives you the ONLY probable chance of making money on that trade. Thinking like a trader also requires that I don't fuss about opportunities lost. The markets are a sea of endless opportunities and all I have to do is go fish. Remember to always think like a trader.
2) Risk Management
Trading is my profession and to make it a living I must actively engage in the proper risk and reward management of the business 100% of the time. I will ALWAYS have a stop loss and a profit target in place on every one of my trades. If I do not know the amount I am risking and the amount I can potentially make on a trade, I will NEVER put on a position or I will immediately exit a position if I do not have this information. The ONLY exception to the rule is when I have a definite exit point but not exactly sure where my take profit should be. As long as I can minimize and know what I’m risking, I can have a conclusive profit target after the trade has been made.
I will use a fixed risk % for every trade which is currently set at 4%. My position size will be determined by the distance from my stop-loss to my point of entry. For example, if I have $10,000 and my risk percentage is 4%, then the maximum amount of risk I am willing to take on a trade is $400. If I were to trade a standard currency lot this would allow me to enter a trade with a stop loss that is 40 ticks away. If the stop loss were to be 20 ticks away from the entry price, this would allow me to trade 2 standard lots. A 10 tick difference between the stop and entry would let me trade a size of 4 lots. Simply, I take the total risk value, which is the entry point to my stop-loss, and divide that into the fixed risk % amount – this will determine the amount of units I can trade. Personally I will use a MAX stop loss of 20 ticks on all trades regardless of account equity. Based off the daily true range of the currency markets, this 20 tick rule lets me obtain the risk reward ratios that I desire.
3) The Method
I believe in order to be the most proficient trader, I must obtain a method of trading that I can call my own. There are many types of personalities and not all trading tactics suit every trader. My method entails the understanding of:
- Dow Theory, Chart Patterns, Trend Lines, Support and Resistance
- Fibonacci Analysis
- Candlesticks
- Moving Averages
The road to becoming an extraordinary trader is all about mastering the 3 M's - The Mind, The Money, and The Method. As a trader the proverbial "Holy Grail" only exists within the confines of oneself. Every trader has his/her own personal path towards excellence. I am a trader and this credo is my personal guide towards excellence.
Omni-X
