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What Do You Need to Trade Successfully Pt. 2

Now that we have discussed the Two Necessities To Trade Successfully of what you need to trade successfully in part 1 of this series, it is time to get into part 2 of the series which is Developing the Two Traits.  These are traits which you may not have at the moment, but you can totally develop with relative ease, a passion to be a successful trader, and with a little work.

A Question and Common Characteristic

Before I describe what the two traits are, why you need them and how having them will help your trading, I am going to ask a critical question:

Do you really think you can become a successful trader without developing certain skills which you may not be good at already?  Do you really think all successful traders were just good at everything needed to be a highly profitable trader?  Do you really think you can just learn a system and become a professional trader without having to work at something challenging?

chris capre 2ndskiesforex https://dev2ndskies.wpengine.com

All professional traders had to go through training, break through various obstacles, and jump over whatever hurdles they had to become a successful trader.  The same goes for you.

One thing you will find as a common characteristic of successful people (in all fields, especially in trading), is when they are faced with something they are not good at, they become good at it.  They do not stop and say, ‘oh, I don’t have that so i’m just not going to do that,‘ or ‘oh, i’m not good at that and will never be so I cannot be good at trading, or martial arts, or business,‘ or whatever field they are working to become skillful at.

When faced with something they are challenged with, they start the learning process to become good with that skill set.

Michael Jordan, considered to be one of the best basketball players of all time, was not great (not even good at defense) when he entered the NBA.  In fact, he was below average. When his coaches told him this, what did he do?  He trained for years to become a better defensive player.

What happened?  

-He became the 1988 Defensive Player of the Year, 4 years after turning pro (meaning he already was considered a professional in his field while still below average in a key skill set)
-He was elected to the All-Defensive Team 9x
-Awarded the ‘Steals Champion’ 3x (player with most steals in the entire league)

So even Michael Jordan had to work at things, well after becoming a pro.  And what made him great was not just his ability to score and to win, but to become good (if not great) at things he was once weak in. That is the mark of a professional.

michael jordan practicing 2nd skies forex chris capre

My guess is you do not enjoy the areas you are most weak in when it comes to trading for two reasons;

1) they are a reflection upon where you are at (thus exposing you to self-judgment and criticism)

2) you simply are not good at them…yet.

Think about the first time you played pool/billiards or some other sport.  Then think about how much more fun it was when you got good at it.  Remember, you had to go through training to get good at something, and the same goes for trading, especially your weak aspects so keep this in mind.  Perhaps your weak aspects are not memory or pattern recognition, but at being disciplined in trading.  Or perhaps you are disciplined, but are bumping up against your Equity Threshold.  Whatever it is, develop it so it becomes your strength.  Remember, the height of your trading success is determined by your weakest skill set, so think about this deeply.

Another important thing is to ask yourself if you are critical towards yourself and your weaknesses.  Do you really think you’ll develop those skills if you are constantly being highly critical of them?  Being self-critical and judgmental might inspire you to become better, but if used improperly, will be a hindrance to your growth as a trader.

It will likely manifest in you beating yourself up for mistakes you’ve made over and over again, instead of taking real concrete steps to develop those skills.  It will manifest in you being less open to your ability to change and grow, instead of being humble about the process.  Food for thought when thinking about what we will discuss next.

What Are the Two Traits?

All highly successful and profitable traders who make their living from trading have these two traits.  They are;

1) Great Pattern Recognition

2) Developed Memory

Pattern Recognition
Think about this – what are all trading systems built of?  Patterns.  All profitable systems are based on patterns that people have noticed in the market.  They can be;

–Price Action Patterns
–Ichimoku Kinko Hyo Patterns
-Patterns of volatility
–Understanding Price Action
or anything regarding the market.

But one thing is for sure, they are the result of some pattern which became the basis for a rule-based system to trade the forex market.  Whether it is a discretionary or algorithmic system, it is based on a pattern.  Thus, your ability to discover and discern patterns is a critical trait you need to develop.

Developed Memory

Another trait of successful and profitable traders is a developed memory, meaning they remember what they see in the markets, they remember the price action, what the market looked like when it reversed, what characteristics were present and were not when it did, when it trended.  They remembered these key things which either;

a) helped them build a system around it
or
b) helped them to identify key opportunities

Not all trading opportunities will be purely from your system, and some will be something you spot, or have an intuition about, and are sub-consciously picking up on it.

Ask yourself, have you ever seen something in the market, something that was not a signal from your trading system, but something peculiar you recognized, and either got out of a trade which saved you a lot of money, or got in the market which did what you thought it was going to do?

That is from something you remembered but could not fully intellectualize, yet had enough awareness to make your move.  It was something you picked out in your memory which you had seen before, and alerted you to the opportunity.  This is why it is critical to develop your memory so you can;

a) build your own trading systems (or improve on what you are already trading)
or
b) find the best trading opportunities in the market

There was a video on FXStreet where Chris Capre predicted where EURUSD will end the year.  This was during an ad hoc interview with FXStreet.  Keep in mind, this was October that year, and I had not only called the top within 70pips, but also called a 900+pip drop while predicting the small range it would end the year at.  How did I do this?  Through pattern recognition of the price action and a developed memory to spot the pattern.

The Good Thing

Now many of you might be saying, ‘well, I have a bad memory, or I’m not that good at recognizing patterns‘.  And guess what?  That’s ok, you don’t have to have them now to be great at trading. The good thing is you can develop them with relative ease and a little training.

Remember, the brain has a neuro-plasticity to it, meaning it is elastic in what you can learn, develop and become good at, especially memory and pattern recognition.  So with the right training, you can improve these in no time while also increasing your IQ (useful for trading and life).

brain training chris capre 2nd skies forex
Lumosity

When you need to become a fast runner, you go to the track and start training.  When you need to lift heavy objects, you go to the gym and train the right muscles.  And when you need to improve your memory and pattern recognition skills, you go to a brain gym.

What is a brain gym?  It is a program (could be in a school, class or on the internet), whereby you do various activities and exercises to improve key aspects and regions within your brain.  Some of the areas are;

-Speed of Processing
-Problem Solving
-Attention
-Flexibility of Thinking
-Pattern Recognition
-Memory

What we have learned about human learning and the central nervous system, is to develop something like memory, it is far less effective to just do memory exercises.  Why?  Because the brain is so interconnected, that having weak connections in many areas, but having just a strong memory, decreases the overall brains performance.  But by developing many key areas, all the increased connections help influence all the other areas and increase their performance.  So to develop your memory and pattern recognition skills, you have to stimulate all the areas in the brain.  How can you do this?

Lumosity (http://www.lumosity.com).  They have on their site activities you can do each day (few mins per day) to strengthen and develop all these areas, especially memory and pattern recognition.  They have won numerous awards, are being used in test schools, along with hospitals to work with the brain in improving performance.

They track your performance so you can see the development over time, while keeping the activities and games fun and challenging appropriate to your skill level.  By doing these simple but fun exercises everyday through the internet, you can not only increase your IQ, but develop your memory and pattern recognition skills to improve your trading.

In Closing

We can now see how critical it is to have the Two Traits (pattern recognition and a developed memory). The good thing is if you are not strong in these areas, you can easily develop them with little effort through the brain gym I suggested (and am a member of).

Developing these two skill sets not only empowers your trading, but also helps you to build your own price action systems, ichimoku trading models, or spot the best opportunities out there.

It could lead you to improve your current system, or build a completely new one.  It could mean shorting when your system is already long, or help you to protect your profits.  It could also lead to you finding one of your weak points in trading by remembering/noticing the pattern, and then taking key steps to correct it. When you become your own teacher in trading, there is nothing limiting you to becoming a highly successful and profitable trader, but it all starts with developing the Two Traits.

For those of you who did not read What Do You Need to Trade Successfully, visit the link to download the article.

Meanwhile stay tuned as part three in this series is coming in the next few days where we talk about Building the Three Habits.

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What Do You Need To Trade Successfully Pt. 1

Chris Capre - 2ndSkiesForex - What You Need to Do to Trade Successfully

 

We just wrote part 1 of ‘What Do You Need to Trade Successfully‘.  If you are a developing trader, or still struggling to trade consistently profitably, then you will want to read this article which goes into the two necessities of trading.

 

Kind Regards

Chris Capre
2ndSkiesForex

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3 Tools To Improve Your Trading

To be successful at anything, it requires work and sometimes the work you have to do to build your skillset is not entirely glamorous, sexy or fun.  For example, I am doing competitive archery, and some of my training actually has to do without shooting an actual bow, but working with an elastic band to help work on a specific technique. Sometimes, I am firing the bow, but with no target, and at a distance of 3meters.

Yes, it’s true…my favorite part of the training is shooting from the 18m distance, but I know that all of my training in the other exercises is critical to how I shoot when it really counts.  It is the exact same for trading. There are many things one has to work on to be a successful trader besides just making trading decisions.  Enter Patricia –
Just the other day, I did a follow up session with Patricia.  She is from China and wanting to live off of just trading. She has impressed me as she had very little experience in this market before she took my Price Action Course.  But since she has taken the course, she has been one of the most diligent students, working very hard at every aspect needed to be a successful trader.
Every month, she emails me all her reports and has worked on them to absolute perfection. Below is a screenshot of her first month of live trading.

This is contrary to many students who when I do the follow up session with them, and ask for their reports, I get the ‘yeah, I never filled those out’.  This tells me how serious they are (or are not) about trading.
To be a professional at anything, there is no cutting corners.  There is no ‘Ill skip practice, or doing free throws, or working on my conditioning for some other day‘.  The path of being a professional is not about skipping anything or putting things off till tomorrow. What you do today either moves your forward, backward, or keeps you treading water, and treading water is really going backwards.
Patricia has discipline, diligence and the right mindset towards trading, and I expect her to be successful at this in a short period of time.  In fact, after a few months of study, she just went live and did quite well as you saw from the image above.  6 trades, 4 profitable, largest winner was over 3x larger than her biggest loser and +307pips of profit.  Not bad for her first month of live trading.
She only wants to trade on the daily time frames so she is not active, but she is effective, and my guess is many of you would be happy with +307pips of profit in November, especially considering how crazy it was, along with a holiday week, so less trading.
Maybe trading off the daily chart is for you – fine.  No problem. The key is to find out what works best for you, what kind of lifestyle you want to live and what is most natural to your mentality.
There have been some people which have stated you are only a pro if you trade the lower time frames. That you are only pro if you make 4-15 trades a day, sit at your computer and crank out trades. This is ridiculous.
What time frame you trade does not make you a professional trader. What makes you a professional trader is if you make your living off of trading, not what time frame you trade, how many trades you make per day, or how many hours you spend at the computer. Tell that to Jesse Livermore who made over $100million dollars mostly viewing the daily closes to make his big trading decisions.
Try telling that to my friend George who only spends 2hrs a day max trading, and does 60% a year. Why 2hrs a day? Because he spent almost 2yrs studying and programming his system that now does most of the work for him, which means he does not have to be at the computer pushing buttons all day to make money.  He can be at the beach or playing golf.
If a short term trader does 60% a year, and so does George, while George makes say 100 trades a year, and the other 500, and George spends only 200hrs at the computer, while the other does 500hrs, does this make the short term trader a professional and George just an amateur? Obviously not, so don’t be poisoned with some idiotic belief you have to trade a certain time frame to be a professional – that is just stupid.  Again, what makes you a professional is if this is how you make your main bread and butter and can repeat your successful performance year in-year out. But I digress.
With all that said, we want to list 3 tools you can use to improve your trading. True, they are not sexy – but they are critical towards your development and success.  Many of you have heard them before, but I’m going to talk about why you need to do them.
chris capre https://dev2ndskies.wpengine.com/
The Performance Worksheet
This worksheet has your entire month’s trading on it.  It has all the pairs you traded, your accuracy per pair, your accuracy per system, and total pips gained (or lost) for each pair.  We always recommend doing this at the end of each month.  What does this do for you?
1) Knowing how you did on a pair can tell you a lot of information. You may be good at some pairs you think you are bad at, and bad at some you think you are good at. One year when analyzing my trading, I had traded 9 pairs, but over 80% of my profits came from 2 pairs.  So the next year I traded just those two pairs. And what happened? I almost doubled the amount of pips I made.
By trading the pairs you are most successful at, while eliminating the ones you don’t seem to have a rhythm with, you increase the chances you’ll be most profitable. Each pair has its own patterns and behaviors, and some will simply match with your style and talents better than others, so once a month, I recommend making a worksheet to look at all this data and see where you are with each pair.  My guess is the data will likely surprise you.
Trading Journal
If I had to guess, this is the one thing every trader dreads doing.  Yet it is the one thing which could give the greatest insight into you, your tendencies (good and bad) and help you become your own teacher. Having a trade journal can help you see your own mistakes and learn to correct them. Early on in my career, I noticed a pattern in my trade journal of not letting the trade run to its full target.
Honestly, it took me a while to first find this, and then months to correct it as I was generally going for targets of 100+pips. I would typically take profits on what I thought was an exit signal and really had nothing to do with my system. Once I corrected this, the result was undeniable; 8+years of profitable trading without one losing year. Yes, I had my losing months, but the things which were holding me back were being corrected because of what I learned in my trading journal.
If your not filling out a journal, ask yourself this, ‘how many trades did I make last year, or the last 6mos?‘  What would you say? 100, 500, 1000? Now ask yourself, ‘what are the chances I remember every one of my mistakes, say over 100, 500 or 1000 trades?‘  Not going to happen. So this translates into mistakes and habits which get swept under the rug and never dealt with. They become the weak links in your trading.
Remember, the weakest links in your trading set the height of your success. Whether it is risk management, trading psychology, your equity threshold or trading discipline, any weak links will separate you from your goal of trading successfully month in-month out, year in-year out. Having a journal helps you to be accountable while being your own teacher.
Screen-Recording
This can be a substitute or stand-alone for the journal but it is a highly effective tool. Reviewing your trades via video can reveal all kinds of information about what you saw in the market, how you traded the last play, how you executed your system, and what the price action looked like when you made your trade.
One software program good for this is Camtasia which you can use to record all your trades, make comments, follow the trade, and study how the market looked when you made your trade.  I had one student Marius who not only recorded all his trades, but also took screenshots of every winning and losing trade right at the time of entry. He then studied all the screenshots to see if there were patterns behind the successful and not successful trades.  What was the result?
He increased his accuracy on the system from 64% (which was the base performance of the system) to 78%.  How?  He actually found a pattern/qualifier which would improve the overall system. Very clever on his part and something he would have never found if he wasn’t screen recording his trades.  Well played Marius.
For those of you who are active day traders, I’d recommend this over a typical trading journal as you might not have enough time in between trades to fill your journal out.  Or for the tech lovers, this is also an option.
I use this for all my trades and then review them at the end of each week before I start my next trading week.
Summary
Like all endeavors, trading requires one to be good at many skills. I cannot imagine my archery abilities if I only worked on distance, or only worked on my power, or only worked on my release, or only worked on my stance, or my concentration, or any one thing.  Trading is not just making trades, it’s managing risk, it’s being highly focused, it’s being aware of one’s emotions and not letting them interfere with your trading, it’s finding patterns in the market and then building a system, it’s learning from your mistakes and becoming your own teacher.
If you just focus on your system and making trades, it is highly unlikely you will become a successful trader because there will always be mistakes you will repeat. Mistakes unchecked become habits, and habits are like holes in a bathtub. You cannot fill a bathtub with water while there holes in it as the water will continually leak out.  The more bad habits you have, the more holes in the bathtub. In the beginning and developing stages of your learning process, trading is about plugging the holes.  Once you have them taken care of, then we work on building more profits, but you cannot skip a step, and you have to do the work.
Please remember to leave your comments below and to ‘Like’ / ‘Tweet’ to share the article. 
For another great article on trading psychology, check out Trading Analysis and Gary Kasparov.

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Trading Analysis and Gary Kasparov

In 2009, Gary Kasparov, one of the world’s greatest chess players of all time (now retired from competitive chess), played what is a called a simul game exhibition. In this exhibition, he played 25 simultaneous games against some of the top local talent all that the same time.  The opposing players had as much time as they wanted to think about their moves while Gary had only about 5 seconds (max 30) per table to make his move.  Below are the results of this exhibition;
Gary Kasparov – 21 wins out of 25 matches, 4 draws, no losses.
Chris Capre Kasparov Photo https://dev2ndskies.wpengine.com
Gary has actually participated in many Simultaneous exhibitions and contests with similar results, many of which he did speed or blitz style with him having very limited time (often under 30secs) to make a move.
The fact that he did this with only 5 seconds per table on average was quite impressive, but there is something here which is really unique.  His highest FIDE rating (a rating system for his skill and performance) ever in his career was 2851, and when he retired, he left with a 2812 rating.  Technically since he is no longer competing, his rating has been frozen.  But when he plays in exhibitions like these, they still give him a general rating based on performance, competition and play.  Herein lies the kicker.
During this exhibition they gave him a rating of about 2600.  This is only 212pts behind his retirement rating of 2812 (a 7.5% reduction) and 251pts behind his all time high of 2851 (an 8.8% reduction).
Translation;
In all those other games where he had loads of time, anywhere from 30mins up to an hour,  it only improved his performance and rating by a mere 7.5-8.8%.  This means the bulk of his analysis, reading, intuition and performance lies in the first few seconds he looks at the board.  All the extra time is to work out alternate scenarios and do deep calculations that amounted to an approximate 8% increase.

How Does This Relate to Trading?

Have you ever heard of the phrase ‘analysis paralysis‘?  Most likely you have and this topic points to how fruitless it is to spend massive amounts of time analyzing a situation to find the best trading opportunity and most precise entry.  Trading should not be a huge process where you go into some deep long think about;
a) whether there is a trading opportunity and
b) how you should trade it
chris capre overthinking in trading https://dev2ndskies.wpengine.com
Trading should be a natural endeavor, where you look at the market, quickly see if there are setups according to your trading system, your trading rules for entry and exit, then make the trades.  If you are spending a lot of time deciding if there is a trade, or if you should take it, your likely spending too much time thinking about it. It could also be that you are not dealing with the psychology of risk.  It also highlights the importance of Concentration and Trading, for if you are really focused and concentrated, you will not let any excess thinking to take you off track and get caught up in some thread of thinking that takes you off course.
Overall, all this extra thinking can bring in the bugaboos, causing doubt, playing off any lack of confidence you have, any recent bad trading experiences, etc., instead of you just trading your plan/system and making the trade.
Again, for an expert like Gary Kasparov, one of the greatest chess players of all time, all that extra think he had after 5-30secs amounted to a small 8% increase in performance.  For you and trading, that extra thinking could easily result in a missed opportunity, along with re-inforcing self-doubt, lack of confidence, over-thinking and allow the mind to paralyze you (hence the name ‘analysis paralysis’).

A Similar Experience

Back when I was trading for the hedge fund, we went through some internal training programs and one of them was to point this out exactly.  Here is how the exercise went down;
Our President had put the current 10 traders and 15 trainees in a room to look at some charts.  What he did in the beginning was show us a chart which we had 2mins to examine. We then had to decide from there if the next move was going to be bullish or bearish and put our answer down on a sheet of paper. We did this 10x and then turned in our answers.  I scored 70% accuracy on this.
Then, he would expose us to a chart, but we had only 3 seconds to look at the chart and then make a decision what the next move was. He did this 10x and of course we wrote our answers down, then turned them in. To some surprise, my score increased (to 90%) while everyone of us (save one) had all shown an increase in scores when compared to the decisions we made when we had 2mins per chart. Although I wasn’t totally surprised by this, it had a great impact on me and how I traded from there on out.
intelligent trading chris capre https://dev2ndskies.wpengine.com/
It really communicated to me how quickly we can process information, get the gestalt of the market, & through less thinking + intuition, we can make far better trading decisions. By taking less time, we short-circuit the minds ability to over-analyze a situation, along with not allowing any negative thinking patterns to enter into our trading decisions.  One thing to consider is having a rule-based system which will help streamline the thinking/trading process and thus eliminate the need to think about whether you have a trade or not.  But the next time you find yourself spending a lot of time thinking about it, go to another chart. This will get you thinking about another problem and get you out of the thread you were going on with the last trade. Then come back to the previous trade and see if you have a quick read on it and go with that as long as your rules for entry are there.
Please remember to leave your comments below and to ‘Like’ / ‘Tweet’ to share the article. 
For another great article on trading psychology, check out Trading Lessons from the Archery Range pt. 1.

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The Psychology of Risk

Just a few days ago, I was talking to someone named Marshall.  His dad is the head of a major investment firm which manages over $1Billion.  We are in talks with his fathers firm about investing with our fund and Marshall was the first person we were talking to.  We got into a really good conversation about the psychology of risk and some great things came out of the conversation. But first, we are going to start with a question;
Have you ever heard of a hedge fund having a few years of impressive performance, maybe even a +60% year, but then they have a year where they lose 50%?  
It has happened many times and what happens next is quite predictable.  They close up shop…only to do what?  Start a new fund about a year later.
Why do they close up shop, start up a new fund and what does this have to do with the Psychology of Risk?
Well, lets do the math.  Perhaps they are managing $100 million and take a 50% loss.  That brings them to $50 million.  Being they make money on performance, what do they have to do now?  Have a 100% return on the $50 million just to get back to break-even. So what do they do? They say to themselves, ‘Well, even if I have a stellar year and do 100%, i’m still working for free for an entire year…f-this, i’m closing up shop‘.  This is why many hedge funds close up shop in such a situation.
Now the real question should be, ‘why did they take a 50% loss’?  The answer has to do with risk.  If they were controlling risk, they would never had gotten that far down.  If one is managing risk properly, it will take an immense series of consecutive losses, or massive over-leveraging to get to that place.  But hedge funds are different from you – they are not trading their capital – it is their clients money so if they lose it, it’s not the end of the world.
You on the other hand are trading your own capital, and you cannot just close up shop and start over.  If you lose all your capital, that’s it.  This is why you have to control risk.  Capital is your ammo, and once you are out of ammo, you are out of the war.  Now lets get into risk and psychology.
chris capre and the psychology of risk
The Psychology of Risk
As we wrote just recently, everyone has an equity threshold – a level of money whereby it affects you psychologically.  Because you are working with a larger amount of money then usual, it affects your emotions and thoughts which can cause you to make bad trading decisions. This is your equity threshold.
In terms of losses, you also have one as well.  An equity loss threshold.  After you have lost a certain amount of equity, you become psychologically affected and emotional about the losses.  For everyone, it is different, but you have it nonetheless. Once you cross this level, the psychological pressures mount and they can manifest in many ways.
Perhaps this sounds familiar;
-You start to think negatively about your trading ability
-You lose confidence
-You start to increase the leverage to ‘make up your losses’
-You start to doubt whether you can get back to break-even
-You are thinking about those losses, even while you are not trading

Has this happened to anyone?  Especially after some big losses?  Understandably so, especially to the developing trader.
This is why it is more critical than ever to manage risk – so you never get into this position where you add psychological pressure. Trading is already hard enough, why add any additional pressures?
Now that we have established how critical it is to control risk psychologically, let’s talk about some methods to do so.
A Fixed Percentage of Risk
When trading your system, whether it be price action or ichimoku trading, you will want to risk a fixed percentage of equity per trade.  By doing this, you are guaranteeing no matter what size the stop is, the risk is the same.  This makes it easier to;
a) psychologically accept the risk
and
b) keep consistency in your trading.  
Once you become a successful trader with a long track record using a system, you will have a more finite understanding of how to gauge the risk per trade. Then you will have;
1) more confidence to deal with losses and trust your abilities
2) more information and experience to know how your system performs
3) a greater understanding of how your psychology works in regards to risk
chris capre trust
But if you are a beginning or developing trader, you will not have this extra trust in your abilities and confidence to deal with large losses.  You will not have a lot of information about your trading system.  You will not have a significant understanding of how you psychologically work with risk.
Thus, we suggest keeping the risk small.  This will minimize any additional psychological pressures affecting your trading. If you are using 1%, it would take a large amount of losses to get into some really negative territory.
It would also stand to reason once you get better at your trading, you start taking on larger risk per trade correct?  Ironically, the best fund managers and traders in the world all keep their risk low, around 1-2% per trade.  Why?  Because they know how important it is to control risk, but also, how the psychology of risk affects one’s trading.
Reducing Risk as Your Losses Increase
Everyone enters a losing streak.  It could be where you are psychologically off, or your system does not rhyme well with the market. This happens to all the best traders.  So when it happens to you, do what they do – they lower the risk on their system.
If losses are mounting, lower your risk per trade. Cut it in half.  This helps you to protect your downside and bottom line. Forget about making up the losses.  Just focus on getting back in rhythm.  When you do, the wins will increase and so will your equity. This will build confidence in your trading which will help lead to more wins. It becomes a self-reinforcing loop to making better trades.
Get a Trading System
If you do not have one already, get a trading system. You will want one which is rule-based that has clear rules for entries, exits, stops, limits, taking profits, everything! Why?
Money-management is a game of numbers. It is pure mathematics. If you have a discretionary trading system, how can you test your system to see if it’s working, or what parts are and what parts are not? You cannot, so get a rule-based system.
Why do you think algorithmic trading is on the rise? Do you think they have rules to enter and exit trades? Do you think the best traders with long successful track records have rule-based systems? What are patterns based on? Rules.  What are systems based on? Patterns. What are you trading? Patterns. So get a trading system which is rule-based.
price action trading system chris capre
It is said that an expert can simplify complex things. This is what a good mentor should do. If they are trading, they are likely doing so through patterns. And if so, then you know you have a good mentor when he can simplify the patterns into simple rules which are clear and well-defined. If they cannot, then they are not a good mentor nor an authority or expert.
Having a rule-based system will also take a lot of the confusion and emotions out of trading.  One of the most challenging things for developing traders is having to make decisions about making a trade. Is the market going up or not? Where do I put my stop and limit? Is this a good trade or not? All of these questions affect your psychology, and without rules, all the pressure is on you.
Consequently, having rules makes it easier to manage risk because if you are trading a rule-based system, you can see the 3rd dimension of money management – accuracy.  Without knowing your systems accuracy over time, money management is meaningless. You could have an R:R (reward to risk) of 3:1 and lose money. You can have and R:R of 1:1 and make money. What is it that separates the two? Accuracy. And the only way to know this is to have a rule based system. This is 3-dimensional risk.
In Conclusion
In dealing with the psychology of risk, it is important to understand how psychological pressures can affect your trading. It is thus imperative to have proper money management.  Trading is already hard enough so no need to add undue pressures.  How can you manage this?
1) Have a fixed equity % at risk per trade.  This allows you to psychologically deal with losses better along with keeping yourself out of bad situations where you feel you have to make up the losses instead of working to make good trades.
2) Reduce Risk after a Series of Losses.  This helps you to protect your capital and downside. There is wisdom in the cliche ‘win more when you win and lose less when you lose’.  This also makes it easier to make up your losses should you get out of sync.
3) Get a Trading System. By having a system which is rule-based, you can understand how the mathematics are working for you (or against you). This will allow you to make changes in your system to give you that edge.  Proper money-management is all about mathematics and when you put them in your favor, you dramatically increase the chances to make money. Having a rule based system also reduces emotions and psychological pressures to you can make better trading decisions.
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Make sure to check out our latest video on Advanced Price Action Forex Trading.

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Poker, Concentration and Trading

When I am not trading, or preparing for trading, I spend a lot of my time watching professionals, particularly high-level professionals.  I find watching any high-level professional in any field gives me tremendous insight into being a professional, how to operate at a high level, and how I can improve my trading.
This week I had a buffet in studying professionals from various fields.  There were several people who influenced me in many ways, but one really stood out.  Pius Heinz.

Who is Pius Heinz?


A 22-year old german who was the first to ever win the World Series of Poker just 4 days ago.  After 9 days, over 80+hrs of poker playing, going up against over 6500+ other people who wanted nothing more than to take his money, he prevailed. Something should be said about his story and his winning the greatest prize in the world of poker.
The Beginning

Pius first watched poker on german tv and was fascinated.  He played a few games and then decided it was a game of skill.  He then spent the next several months studying intensely the game of poker and immersed himself in learning it inside out.  He started off playing online poker and had some success, but felt unprepared for live play.
So what did he do?
He spent over a year learning live play and entered in several tournaments to gain experience in playing live as opposed to online.  After having mixed success, he was deciding whether he wanted to play poker full time.
But he stuck with it as he felt he could be successful, despite having mixed results.
Enter the 2011 WSOP tournament.

The first day he had to play for over 10hrs with very few breaks.  He was playing against 6500+ contestants many with more experience then he.  Every day he won, meant another 10+hr day, making sure his reads were sharp, his math was on point, his patience never-ending and his concentration never wavering.
Imagine playing in the largest tournament in the world, playing against people who will do anything to make you lose. Imagine having someone stare at you with the most intense look possible while not having to give off any clues as to what your hand is?  Imagine playing with larger amounts of money than you have ever seen in your life, keeping your emotions in check and completely focused.  And every day he won, the energy got more intense, the stakes higher,  all while remaining patient, concentrated and focused.  All at the age of 22.
Going into the last few days, Pius was not the chip leader. In fact, he was not even in the top 10.  Did he get discouraged?  No, he kept completely focused on his task whether he just won a lot of money, or lost of ton of money.
Day 9

The final day of the tournament is called Day 9 where the final 9 players would play at the final table, all competing for an $8.7million prize.   Again, Pius was not the chip leader going into this.  He was in the middle of the pack against many more experienced players, including the 2011 player of the year Ben Lamb.
Playing for 7.5hrs, waiting for the right hands, paying attention to every detail, and maintaining his patience and discipline, he began to climb.  He was building his stack of chips and moving up the ladder.  While others were making mistakes, he was playing perfect poker.  After 7 were eliminated, it was Pius going heads up against the 35 year old Martin Staszko, a chess and mathematical wiz who used to work at an auto paint shop.  Now, they were competing for the WSOP bracelet and $8.7million for the winner.
In the final heads up play, they exchanged the lead 9x over 119 hands.  At one point, Staszko had a 4-1 chip advantage.  On remembering this part in the play, Heinz commented, “I tried not to lose my nerve.  At some point I was not making a hand. I was getting frustrated, honestly. I just tried to play my game.” Even after things not going his way, he kept to his discipline and his plan.  Eventually, he got his hands, made the right play, and won the tournament.  He was the first German player to ever win the WSOP, all at the age of 22.

Poker, Concentration and Trading
After being introduced to poker by a friend of mine, I became addicted.  Not because of the money, but because of the similarities to trading.
Mathematics and Risk Management
In poker, you have to play the mathematics in your favor.  Yes, you have to read the players and that is a critical skill.  But, there is nothing more powerful then having the mathematics in your favor. The chances of winning when you have a dominated hand puts all the odds against you, and over time, they play out. You actually have to learn money-management and violating this only increases the chances you will lose your money which is your ammo.
Learning to play with smart money management is critical in poker and trading.  If you doubt the power of mathematics, why do you think casinos on average make over $1billion a year?  Because they know the mathematics to the tee and they put all of the numbers in their favor.  They play the math against people who do not know the numbers, and that is why they win.  If you cannot manage your money, it is like trying to fill up a bathtub with holes in it.  You will always find all your efforts spilling out from your account.  This is why it is essential to learn proper money management.
Concentration
Poker players need immense concentration to play at a high level. They have to watch the reactions of all the other players, study every detail, remember what hands they had and how they played them. And while they are not watching others, they are being watched with the most intense scrutiny.  They need discipline not to give any clues and patience with every turn.  At one point in the tournament, a player waited 10minutes to read the other player.  Imagine being stared at for 10minutes while your competitor is watching every breath, move, inflection and gesture.  Amazingly, the player being watched never flinched, never took his eyes off his focus point, never changed his breathing and was perfectly stoic.  He showed immense skill, focus and concentration.

Traders need this razor sharp concentration as well.  Every detail offers information.  Every move you make either makes or loses you money.  While things are going against you, do you adjust your stop?  When you see the money draining out of your account, do you follow your plan?  When you are watching the markets, are you easily distracted, or like a sniper putting the cross hairs on the target?  Concentration is absolutely critical and every mistake could be disastrous.  All high level traders have immense concentration.
In Closing
Ask yourself how strong is your concentration when trading?  Are you taking calls, reading emails, scanning the web, or are you focused on nothing but the markets?  If this is lacking, work on building your concentration.  A simple technique before you start trading is to spend 15 minutes just watching your breath through the inhales and exhales.  Notice how quickly your mind gets distracted from doing something so simple.  Then imagine what it is like during trading which is far more complex. Continuing the meditation practice will be invaluable for your attention and concentration.
Along those lines, also ask yourself how strong is your money management. Do you know your risk of ruin?  And do you follow your rules diligently, or do you go off the reservation.  Make sure to put the mathematics in your favor as it will be a tremendous asset in your trading.
It also helps to understand your Equity Threshold and if you are there or not.  Pius definitely was playing with more money then he ever had in his entire life and bumped up against his equity threshold.  If it weren’t for his concentration, emotions would have dictated his play, and we would likely have another champion.
Lastly, how much have you dedicated yourself to studying a system or methodology?  Pius knew poker was a game of skill, and spent months end over end learning his craft.  He wasn’t in it for the quick money and wanted to do it well.
Ask yourself do you have a forex trading system and have you spent months studying it?  If not, have patience as you never know what could happen. You could be deciding one day to quit trading, and next day be on top of the world.  You could be working in an auto paint shop for years, and the next competing for an $8.7million dollar prize.  One day, you could be just like Pius, who after years of studying his craft, – be facing some big decisions at the highest level.
Congratulations to Pius.  Through hard work, study, patience, discipline and concentration, you were successful at the highest level.
As for you reading this article, what will be your story?
Remember to click on the ‘tweet’ and ‘like’ buttons below. Your comments are welcome so let us know your thoughts on this article.
For those of you wanting to learn a system, check out this article Understanding Price Action.

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Preparation and Forex Trading

Before anything else, preparation is the key to success.
-Alexander Graham Bell

Many times I talk to my private course students and ask them what they do to prepare for the day’s trading. These are the general responses I get;
-Drink a cup of coffee, maybe two
-Check out what announcements are coming out
-Look at the markets and then get ready to trade

And it ends about there.  To me, this is somewhat shocking.  Perhaps because I trained in martial arts, played semi-professional futbol or compete in archery, I have a habit of preparing for anything I am doing seriously, including forex trading. This is the same for forex currency trading – preparation is key. Why?

Think about what you are doing when you are going to trade for the day.  You are going to do all of the following;
-Make critical decisions
-Access long-term memory and use your pattern recognition to find trades
-Come up against your psychological issues around money and Equity Threshold
-Sit down for hours meaning your bodies energy will be less active and more stagnant
-Use the reptilian part of your brain which thinks more of near term rewards instead of long term benefits

Anyone notice a pattern here?

Other than the fourth one on the list, all the others have to do specifically with your mind.  The most important tool you are going to be using while trading is your mind so preparing this is the most critical thing you could do before trading.

Ask yourself the following questions;
-Would a professional futbol player not warm up their muscles before a game?
-Would a football coach not watch video of their team or the opposing team before a game?
-Would a professional archer not take a few shots with the bow before starting a competition?

No – and there is a reason for this.  All professionals know one thing for sure and have one thing in common – they all prepare for whatever their task, skill or thing they have to execute.  And why shouldn’t you?  Why shouldn’t you be preparing your mind before you start your day of trading.

Do you really think drinking a cup of coffee will do the trick?  Are you really going to take an artificial stimulant to get yourself prepared to have a calm mind through chemical means which stimulates your adrenal systems?  How is drinking caffeine going to help you access your pattern recognition skills in your brain, help you keep a calm cool mind when making critical decisions, or keep your emotions in check when things are not going your way?

It is not, and you have to prepare for your day.

 

Trading takes discipline, trading takes diligence, and trading takes the right psychology to trade successfully.   All professional traders have three things in common;

1) They have excellent pattern recognition skills
2) They have tremendous discipline
3) They have the right mentality

If you do not have all of them now, do not worry, these are things you can all develop through the right training.  Since we have been talking about forex currency trading preparation, I’m going to give you a list of things you can do to prepare yourself mentally for every trading day. Remember, you are not catching a football, pulling a bow or striking some opponent…you are using your mind which is your primary tool and the sharper, more prepared this is, the better your trading experience will be.  On top of this, the more you will get out of your trading and accelerate your learning curve.

 

3 Things to do to Prepare for the Trading Day

 

Get up early and shower before you start your day

-Your central nervous system actually needs certain things to get in sync with your body biologically. Getting up around the time the sun does activates a protein sequence in your brain which helps it get chemically prepared to for an intense day of critical thinking.  Showering helps to stimulate your nervous system and wake up your body and mind so you are more fresh for the day. Showering also helps to increase your windhorse which we talked about in my Laws and Mindset of Abundance video.

 

 

 

Do some exercise, whether it be physically or mentally, ideally both

-Each day, before I do anything, before I make any critical decisions or start work, I practice yoga and meditation every day.  Yoga helps calm my breathing which allows me to control my emotions and thoughts while having a body physically healthy to sit for long hours in the day.  Meditation sharpens my mind to help develop awareness of my thoughts and emotions which could influence my trading.  It also helps me think clearly while making critical decisions.  I then spend the last 10-20mins visualizing what I am going to accomplish for the day, how I am going to trade, and what I will do successfully.

At a minimum, do a few stretches since you are sitting all day and at least do some visualizations to program your mind for success.

 

Review your work for the day

-Did you know professional football coaches after each game will spend anywhere from 20-40hrs a week reviewing tape of their last game, how things went, and then look at tape of their upcoming opponents? Sometimes they are spending as many hours as people work in a week, just preparing for the next game. They will make notes, look at several different angles of the games, then prepare some tapes for their players to review to see what mistakes they did and learn from their mistakes.  There are actual poker players who have rooms full of journals with notes they took on players, how they played, what decisions they made, and how the hand played out.

What do you do to review your trading and correct your mistakes?  Do you have a trading journal which you actually fill out religiously?  Do you screen record your trading and make comments of what you were seeing so you can see your mistakes and what you did correctly?  Do you review your systems performance monthly, quarterly or yearly?

Trading is not just sitting in front of the computer when the markets are open, pushing a few buttons on the mouse, buying, selling and putting in stops or limits.  Trading, like all professional endeavors, is about preparing yourself for the immense challenge trading is.  Trading is having a rule-based system so there is no confusion about executing your trades while following proper money management.

Trading is simple, but is often not easy.  It is an uphill climb against your psychologically tendencies to take the easy way out, to gloss over the details, to take short cuts instead of being disciplined.  Trading is about working overtime before and after you are done with your trading day.  Daily forex trading is about preparation, preparing the most critical tool – your mind, so it is sharp as a samurai sword to cut through emotions and confusion, find the direction of the market, and make money.

Ask yourself what you are currently doing to prepare yourself for trading, and then see what more you can do.

Remember to click on the ‘tweet’ and ‘like’ buttons below. Your comments are welcome so let us know your thoughts on this article.

Also, make sure to check out another great article on the topic called Trading Lessons from the Archery Range pt. 2.

 

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Trading Lessons from the Archery Range pt. 2

Yesterday was the most interesting class at the range in the last year and a half.  Not because it was the last class before I move to another country, but because of the exercise we practiced for an hour and a half. It required an absolute sense of awareness with one’s technique, feeling and positioning, but it required something else.  It required one to go against temptation.
The Exercise
After doing our usual warmup, we moved to our traditional 18m (60 ft.) distance, but had to shoot with a twist.  Normally when we shoot, we actually start off with our eyes closed.  We move through the first three steps of the position with our eyes completely closed so we direct all our attention to our positioning. Then we open our eyes to gather our aim on the target, and with the final pull of the cord, we release the arrow.
This time we did the same, except after we gathered our aim, instead of keeping our eyes open and focused on the target, we closed them again.  We would pull the cord (with eyes open) till the arrow was about 1-2cm from activating the clicker (which measures the distance of the arrow pulled so we have the exact same pulling distance).  This had to be done with complete feeling.  But once we got there, we closed our eyes, and continued with the pull until the clicker fell and it was time to release. Why?

 
The answer has to do with temptation.  When one is shooting, even though our eyes are normally closed for the first 3 out of 4 positions, once they open, and focus on the target, there is a natural temptation to relax our energy from the position/technique, and focus on the target.  This often causes us to lose awareness of our bodily alignment  that can have a tremendous impact on the release, flight and ultimately, the arrows impact on the target.
Remember, when shooting from 18m (60 ft.), any adjustments so much as a quarter of a cm could cause the arrow to move several inches off the target.  This could happen in the hand that is holding the bow, the hand which releases the arrow, the back elbow’s alignment with the front gripping hand, or a number of other subtleties in the archers posture.  In other words, any slight adjustment has huge implications.  This is why archery is a precision sport.
Why Does This Happen?
70% of all the data our central nervous system takes in is through our eyes.  This is the reason our maestro had us close our eyes for the first three segments of our positioning, so that our energy and focus, which often leaves our body when the eyes are open, stays completely centered in our body and alignment.
What also happens (and far more critical), is when we open our eyes, we tend to naturally focus on the target and loosen our awareness where it should be – not on the target, but right where we stand.
This exercise was completely designed to be a reminder of where our attention and awareness should always be.  With our eyes closed, instead of our energy following the arrow, and leaving our body at the moment of release, it stayed with us completely. It was monitoring our follow-through, the expansion of the arms, and the relaxing of the bow.  But far more importantly, it kept us focused instead of falling into the natural temptation of looking at the target.  The practice of archery is really not just one of precision, but one of going against temptation.
How Does This Relate to Trading?
In trading, there are more temptations then there is in archery.  The promise of working from home, having no boss, making more money than ever before, not having to follow a dress code, or show up when someone tells us, or work the way they want us to, go on vacation when we want, buy the things we never could before, to be financially free.  There are massive temptations in trading and the list is endless. Trading – like archery, is a practice of going against one’s temptations.

There is another critical way archery and trading come together.  When we are trading, it is ever so easy to relax our focus on what we are doing, and become focused (almost enchanted) with the target.  With every new win, increased wealth is a possibility.  Push a few buttons of the mouse and we can be richer than we were before.
However, when we relax our focus and concentration, we increase the probability for errors and losses.
How?
Hopefully, if you are trading, you have a system which is rule-based so there is no confusion about what is a valid signal, when to get in, where to take profit and where to put your stop.  Assuming you do, then all you have to do is follow your rules.  But how many people do this?  How many people abandon their trading plan when executing or are in the middle of a trade?  Let me know if these examples sound familiar;
-You took a trade that was not a part of your system
-You did not use the proper risk management and over-leveraged
-You were watching your balance instead of what the market was doing
-You were thinking of what you can do with your profits instead of trading your system
-You adjusted your stop before you were supposed to
-You increased your stop when the trade went against you
-Assumed the success/failure of the trade by the first few pips movement after your entry
-You took profit before reaching your systems target
-You closed the trade in fear or emotion instead of what the charts were telling you
Do any of these things above sound familiar?  Have you ever done any of these things?  If so, do not worry, as these are the traditional mistakes of a developing trader and you are in large company.  But, if you have been doing these things and still are, it is pointing to something specific like the head of an arrow.
It is pointing to how you are losing focus before and during the trade.  It is pointing to how you are focused on the target and not following a technique.  It means your awareness has left you with the trade, like the arrow heading towards the target. Trading – like archery, is learning to go against one’s temptation. Trading – like archery, is a precision endeavor.

At all times, work to be focused on only three things; 1 ) trading your plan, 2) trading your system, and 3) keeping your eye on the markets, and not the targets (balance checking, profit checking, how close you are to your limit).  By doing this, you short-circuit the opportunities for your emotions to steer you off course. By doing this, you eliminate the moments temptation can affect your trading for the worse. By doing this, you build the habits of successful and professional traders. Trading takes discipline and it is a skill based endeavor.
Luckily, skill is a drill and something that can be learned.  Just make sure you are not drilling in the habits which take your focus, which keep the eye of your mind on the wrong target.  Follow the three things you should be focused on, and your trading will take flight.  You will become more disciplined, diligent, and build the right mentality.  You will make less mistakes, and find greater consistency.  When this happens, you will be well on your way to becoming a successful trader.
Remember to click on the ‘tweet’ and ‘like’ buttons below. Your comments are welcome so let us know your thoughts on this article.
Also, make sure to check out another great article on the topic called Willingness, Responsibility and Ownership in Trading.

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Willingness, Responsibility and Ownership

Willingness
One of the key qualities you will find behind all successful people (across all fields of work and craft) is a ‘willingness‘.  A willingness to take full responsibility for their efforts, actions and results.  A willingness to take ownership of every step along the way from training, to the process, to daily actions and the results that come from them.
Remember, you are asking to be something only at best 1 in 4 will be profitable at, and from them, only 1 in 3 will make serious money.  To be in this small percentage of traders, you are going to have to work;
-work on being disciplined
-work on following your risk management to the tee
-understand how your mind helps and hurts your trading
-follow your trading plan
-break through personal obstacles
-go against your biology and emotions
-orient your life towards supporting your success instead of hampering it

To do this, you need willingness, a willingness to go forth after defeat, a willingness to break old habits, to work harder then you are now.  You also need to take responsibility for your trading process.  You need to take responsibility for your daily actions. And you need to take responsibility for your results.  In essence, you need to take ownership of the entire process at all stages, at all turning points, with each decision, and with each result (success or failure).
Responsibility
Many developing traders are willing to take responsibility for their winners, few are willing to take responsibility for the losers. Somehow when they win, there is no talk of the broker or market-maker, the market behaving strangely, the system, their risk management or mind affecting their trading.
However, during a loss, all of sudden these bugaboos appear at the frontline of their thinking. When things do not go your way, there is a tendency to look at someone other than yourself, the one who pushed the buttons.  Having a gut level responsibility makes no distinctions between winners and losers.  They are the same.  They all came from the common denominator in the situation – you!
Do you challenge yourself to learn from your mistakes or immediately look for excuses?  When you succeed, do you build up your ego or do you build on what you did right to accomplish more?
Trading is holding a mirror to oneself, seeing what needs work, and working on it, while seeing what is working and augmenting it. A failure to look in the mirror is to attach yourself to an invisible chain which binds you to your weakest skill.  And it is your weakest skill in trading which sets the height of your success and income.   Luckily, skill is a drill that can be easily molded to build the pillars of your success.
How Can We Take More Responsibility?
First, have a goal.  Have a goal that is clearly defined and a clear path from here to there.  If these are vague, your efforts will be uncoordinated to a cloudy future.  But if they are defined, we can make concrete steps to get there.  Once we have the steps, we can take massive action to getting there starting with the next step in front of us.  But along this entire journey, we have to take personal responsibility for getting from here to there.
When we fail to take personal responsibility for our results, we create holes in the tapestry of our work and trading process. Not taking responsibility cuts us off from our natural intelligence.
Ask yourself, what are the aspects of trading you most neglect, you enjoy the least, you pay the least attention to?  These are likely your weakest aspects of your trading and consequently the ones that need to be developed the most.  Take a long think about it, then make a list of them.  Meditate on this list as to how it has affected your trading in the past, and what you are going to do to develop this in the future. Remember, it is your weakest skill in trading which sets the height of your success and income.

If you really care about your work, you are willing to face not only the reality you have now, but whatever comes up through your efforts (success and failures).  And you will do what it takes to get the results which manifest in you reaching your goals. This comes from willingness and responsibility to make every action count and help you build your pyramid to success.  The base is the largest, and all higher levels come from the level of work and success you have built before.  It is critical to spend time becoming clear on what actions you take which truly bring you toward you goal, not just when you are in front of the charts, but when you are away from them.  If you are taking on this responsibility fully, it is not a burden, but an inner expression to own the outcome and development towards your goals.
Obstacles to Responsibility and Success
The only thing holding you back from success are your long-established habits, the ones you are unaware of, the unconscious patterns which manifest as the bugaboos to your success.  It could be being disciplined, being diligent, your thoughts around money, success and being wealthy.  It could be you have not developed the mindset of abundance.  It could be away from your trading desk or in front of it. Regardless, it is in you and your mind.  You are the common denominator.  These are the obstacles to taking full responsibility.  These are the obstacles to your success.

Once we start to take responsibility for our training, process, path and actions, we will naturally discover that which is holding us back.  We will be watching every turn of the experience and seeing with a neutral mind what was part of our success or failure in those moments.  More than likely, you will have to work harder to reach your goals and that comes with working harder on your weaknesses, on discovering your long-established habits, on what steps will get you from here to there.  You will face problems and challenges, some that may have counter-intuitive solutions.  How you face these challenges will determine what obstacles you overcome.
Stepping Into Responsibility and Ownership
The moment we step into being fully responsible, we crystallize an energy which will feed you in your process.  You will engage your work more completely then ever.  You will take charge of every aspect of your training, trading and process.  This opens your mind and field of vision to what is going on.  This leads you to training and working everyday which leads to the decisions which build you as a trader.  This comes from stepping into responsibility and this leads to ownership of the process.
This ownership is the ship which will take you to the next port of call.  It is the fruit which comes from all the hard work you have put into the process.  It is the second level where challenges and obstacles are overcome, where we fight against our long-established habits and build the mentality of success.  It is being an architect of your trading process, where clear results and progress build confidence and take your trading to the next level.  It is going into the places that scare you, that you enjoy the least, of working with discomfort without being affected by it.  It is grounded, and comes from the mind and the heart working as one.  It is this ownership which will be the vehicle for your growth and the first goal you should be setting your eyes on, not a particular balance in your account.
Methods and Tactics to Build Willingness, Responsibility and Ownership
1) Ask yourself what reasons have you habitually used to take your process, training and trading to the next level?  Ask yourself what thoughts, feelings or emotions underlie these experiences and how you can relate to them differently.
2) Ask yourself what skill-sets are your weakest and require the most attention? Is it;
-Risk Management
-Trading Psychology
-Discipline
-Diligence
-Following a Trading Plan
Write them down on a list and ask yourself what you can do to work on these.  Then take action every day and week to work on these so they become pillars to your success instead of hindering it.
3) After quieting and relaxing your mind, think about an aspect of your trading which you are willing to take more responsibility for.  You can either start with your least favorite aspect or the one that affects you the most (often they are likely one and the same).  It will definitely be something which challenges you on an inner level.  Then picture yourself taking action to remedy this habit.  Do this until you understand all that you’d need to do to develop this skill, and how you will go about working on this.  Set a timeline for becoming competent in this area and hold yourself to it.  Review your progress periodically so you can adjust along the way.  Do this until you have come to the time allotted for it and assess your progress.
4) This last one is an exploration.  After relaxing your mind, think of some business or athlete or high level performer.  This should be someone which naturally comes to mind.  Imagine yourself as the owner of this business, as the athlete or high level performer.  Imagine that every decision you make sets your development, failure and success.  Imagine each step and success/failure and how it is a reflection of your inner vision, your willingness, your taking responsibility and becoming an owner of the process, effort and results.  As you bring these images to mind, what thoughts, emotions and feelings are evoked? What inside you gets provoked?
Note them all, particularly your negative reactions such as jealousy, resentment, fear, anger, frustration or worry.  This could be towards those individuals you think of what comes up when you think of yourself in this position.  Note what comes up as they will be beacons asking for your attention.  They will mark the path towards an inner understanding which liberates your actions and efforts.  They will be reflective of what long-established unconscious patterns are affecting your trading and ultimately, your success.
If you liked this article, then please make sure to ‘tweet’ and ‘like’ them via the buttons below.  Your comments are also welcome so please make sure to share.
And for those of you wanting to learn more about the Mindset of Abundance – make sure to register for my upcoming webinar by clicking on the link.

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Your Equity Threshold and the Psychology of Money

A Brief Story
We had this one trader (we’ll call him James) at the broker who had been trading a small mini account (about $3,000) for several years.  James could consistently bring it to about $10,000 in a matter of months. As he got to $10,000, James would then take $7,000 out and start all over again, only to do it again and again.
Eventually we all noticed James’s ability to do this.  Some of the people on the prop trading desk checked out the trading record, and it all held up; a good equity curve, good R:R (Risk to Reward Ratios), consistently accurate, low drawdowns…all the major ingredients of a good trader.
Armed with this knowledge, the company gave him a proprietary account to trade and started with $100,000.

What Happened?
James began to lose and lose badly. He lost 2 out of every 3 trades, could not repeat any of his previous success and was making mistake after mistake after mistake, not being disciplined, not following his trading plan, or risk management rules, or anything.
Risk Profit Loss

Everyone began to wonder, ‘is it the market…is it James’s system that’s not for this environment…was it because it was someone else’s account?‘ All kinds of questions came about but they all missed one crucial thing…he had gone beyond his equity threshold.

What is an Equity Threshold?
James had been used to making X amount of dollars for a long time in his job and in the market. It was where his psychology was comfortable with in terms of the amounts he was dealing with. When James was trading a $3,000 account, his largest risk was around $500. When he was trading an account this large and dealing with a risk of $500, losing $500 was not that big a deal to him and something he could tolerate. Because he made X amount of dollars every month, losing $500 did not really push his psychological buttons around money, so they never affected his judgment in trading.
But, when he was trading a $100,000 account, the average size of his risk was about $3,000.  This was 6x larger than what he was used to and his mind could not handle it.  He wasn’t used to losing $3,000 in a trade before as that was the entire size of his account.  Thus, when the trade started to go against him $1,000 or more, it hit all his hot buttons around money, and in came like the Niagara falls, a flood of emotions which totally affected his judgment.  As the emotions took over, reason and rationality left, along with good decision making and good trading.
It simply was more money than he was used to dealing with and his mind had gone past James’ equity threshold.
Whether you realize it or not, everyone has an equity threshold.  For some people it’s more, others less.  It is most likely linked to a) your current financial situation and more importantly b) your psychological beliefs about money.
I always find it amazing how much time people spend on systems, finding the holy grail, looking for some DaVinci Code system – basically spend all their time with a one-dimensional approach to the trading process.  What they often fail to find is the real enemy in trading (no, it is not the markets, or the market makers, or anything outside of you), but YOU!  Trading is a human endeavor against your emotions, psychology of money, and the reptilian part of your brain which undermines the path to successful trading.
Do you really think your mind is so well trained, that when trading, you can not think about how much money you could make, how many bills you have to pay, what kinds of things you’d like to buy, vacations you want to go on, cars you’d purchase, how little you have, or any of your current issues around money, that they would not be having an effect on your trading and decision making?

What most who embark on the path to become a successful trader have never realized, is the greatest obstacle in trading is you and your own mind.  Ask yourself if any of these scenarios sound familiar;
1) Have you ever overtraded and not followed your trading plan?
2) Had a long series of wins only to be undermined by one large loss (or a few large ones) and lose all your gains?
3) Ever felt over confident in your abilities to trade only to find the next series of trades were big losers?
4) Have you ever said to yourself, ‘I just can’t seem to make a winning trade’? and ‘Everything I do goes the wrong way’?
5) ‘I could make money on the demo account but all of a sudden cannot make money on a live account?’
6) Or said to yourself ‘All I need is a good high-accuracy system and i’ll be successful’?

Any of these sound familiar?
If so, don’t worry, your not alone and likely 9 out of every 10 traders has gone through this.  The thing is, what is the one common denominator in all these situations?  YOU AND YOUR MIND!
Yep, that is right…in all of them, both you and your mind were the common denominators, nothing else.
It is more likely your mind and psychological beliefs around money have more to do with failure (or success) than any other ingredient.  Not your system, not the market, but your mind.
Yes, your system does matter, no doubt about it, but your mind, emotions, psychology and beliefs around money can hinder you more than anything else.  It was nothing else but this which tripped James up.  He had for over three years repeated his success with a $3,000 account, yet could not execute his system with the same discipline when the stakes were raised.  What happened when James went back to a $3,000 account after destroying the $100,000 account?  He was successful again and pretty much went on as is.

I recently heard a fellow trader tell me he has been ‘psyched out’ by the market many times.  What they did not realize is the market just held up a mirror and showed him what his mind was like under certain conditions.  The market didn’t force him to make a trade or decision, he did.  It was their inability to realize something in them psychologically was being activated and steering them off course.
To be a trader means to hold yourself up to a mirror everyday.   It means to embark on a process of self-discovery, particularly about two things which tend to bring out the Bugaboos and press all the buttons…that of your ideas and sub-conscious beliefs around 1) Success and 2 ) Money.
One of the most important things a trader can do (besides learning the market, learning a system, and proper risk management), is to learn more about oneself and uncover what unconscious or sub-conscious beliefs you have around money and success which are likely tripping you up.  It is one of the most important things a trader can do besides learning the markets, is learning about themselves.
Trading is not you against the markets, or the market-makers, but you against you.  It is a salmon like swim upstream against your emotions and psychological make-up that only you can uncover.  Luckily, there are many things you can do to help build healthy ideas around money, abundance and success.  By learning these methods, you will learn to make more intelligent decisions while trading, instead of emotional, or irrational ones which often cause the greatest losses.
For those of you wanting to learn more about what you can do to help build the mentality of success and abundance, make sure to come to the free webinar I am teaching this Tuesday with FXStreet on ‘The Laws and Mindset of Abundance‘
If you liked this article, then please make sure to ‘tweet’ and ‘like’ them via the buttons below.  Your comments are also welcome so please make sure to share.
Also make sure to check out this previous webinar with FXStreet I did whereby I talk about one of the Key Laws of Abundance.