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The Trader’s Triad

Introduction

This triad of principles effectively encapsulates some the important principles that contribute to making a trader successful.

The first rule emphasises the importance of staying in the present moment when you trade, the second rule identifies the importance of discipline, while the third rule outlines the importance of remaining impartial to the ups and downs of stock market trading.

‘Present impartial discipline’ is one of the keys to financial markets success

Principle 1: Stay in the present moment

How can you expect to become a success if you are preoccupied by the past?

As we have discussed the only thing you can affect is what you experience in the here and now.

You cannot change the past, or directly influence the future. In the dynamic world of stock market trading market prices move up and down constantly. The potential pitfall with this is that you can easily become distracted with past market prices, biasing your expectation of where the price will move.

As a trader your mind needs to be making decisions on the current market price

Although a significant proportion of traders use past market behaviour to extrapolate future movements and prices, your mind must still keep a firm grip on your positions current action.

As we have discussed in the previous section you must differentiate between ruminating and objectively analysing the past. Fortunately computer systems and mathematical models do most of this analysis for you, providing you with no excuses but to keep your focus firmly fixed on the present moment.

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Remember: The rules of trading are context dependent and if you are still attached to the price your stock was trading last week, you will end up applying strategies that are irrelevant for the current price.

Learn to always focus on your current situation and apply trading rules to fit this context. By doing so, you allow yourself to make intelligent predictions about future prices without being anchored to the past.

By focusing on the here and now, you will find that you are better equipped to deal with the pressures of working in such a demanding environment.

Maintaining your focus on the present moment is a skill some individuals take a lifetime to master. Buddhists spend several hours daily , dedicating their time to the quiet practice of meditation to become totally immersed in the present, so be aware that this skill is hard to perfect.

Improving your ability to keep your focus glued on the present is likely to positively impact your trading performance. Here is one strategy to help you to stay absorbed in the present moment.

Strategy:

Imagine that your conscious experience is like a flowing river, allowing your thoughts and feelings to flow in and out of your consciousness mind. Furthermore in order to stay in the present allow them to drift by, without becoming attached to them. Latching onto the metaphor of a flowing river will help you mentally visualise your past thoughts, feelings and actions moving out of your conscious sight and down the stream.

Principle 2: Remain Impartial

Whenever you conjure up the image of a busy trading floor, you may imagine the rush and panic of market traders running around like headless chickens. Trading is an emotional game for most people however the market wizards of our time have all mastered the ability to remain unaffected by the ups and downs of financial trading.

They understand that in order to behave rationally you need to remain impartial in the face of winning and losing trades.

After generating highly successful trades they have the ability to not get over-excited and pre-occupied with any egotistical thoughts that accompany winning. While at the other end of the spectrum, faced with significant losses they tend to remain calm and collected.

Obviously after making substantial gains, you cannot help but feel a little proud and excited with your efforts, and during substantial losses there will inevitability will be some feelings of disappointment.

The main difference between top and novice traders is that top traders can effectively manage their emotions, while novice traders allow their emotions to influence their decision making process.

Strategy:

One way to remain impartial in the face of losses is to follow every bad trade by writing down 3 more things that you have learned. This will shift your focus towards the positive aspects of the experience, preventing the feelings of frustration and negativity from creeping in.

To balance out your positive emotions after a successful trade, write down 3 or more things that could happen the next day in the markets that could cause you to lose your profits. This will bring you back down to earth, making you realise you can lose money just as quick as you can make it.

Onto Part Two

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Click here to read part two of this article.

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