August 29, 2010

The Three M's of Successful Trading

Extracted from the book: Come Into My Trading Room, Alexander Elder

To succeed in trading, you need several innate traits without which you shouldn't even start. They include discipline, risk tolerance, and facility with numbers. In additional, successful trading requires 3M's - Mind, Method and Money

- Mind means developing psychological rules that will keep you calm amidst the noise of the markets. 
- Method is a system of analyzing prices and developing a decision-making tree. 
- Money refers to money money management, which means risking only a small part if your trading capital on any trade.

Trading is a journey if self-discovery. If you enjoy learning, if you are not scared of risk, if the rewards appeal to you, if you are prepared to put in the work, you have a great project ahead of you. You will work hard and enjoy the discoveries you'll make along the way.

The first Steps
Trading lures us with its promise of freedom. If you know how to trade, you can live and work anywhere in the world, be independent from the routine, and not answer to anybody. Trading attracts people of above-average intelligence who enjoy games and aren't afraid of risks. Before you rush into this exciting venture, keep in mind that in addition to your enthusiasm you will need to bring a sober understanding of the realities of trading.

- Trading will stress your feelings. To survive and succeed, you will need to develop a sound trading psychology.

- Trading will challenge your mind. To gain an edge in the markets, you will need to master good analytic methods.

- Trading will demand good mathematical skills. A math illiterate who can't manage risk is guaranteed to bust out.

Trading psychology, technical analysis, money management - if you learn all three, you can make it in trading. The market are set to separate the maximum number of people from their money. Stealing is not permitted but markets are heavily slanted in favor of insiders and against outsiders. Markets keep changing, and flexibility is the name of the game. Market operate in an atmosphere of uncertainty. There is no certainty, only odds. Here you have two goals - to make money and to learn. Win or lose, you have to gain knowledge from a trade in order to be a better trader tomorrow. Scan your fundamental information, read technical signals, implement your rules of money management and risk control. Now you are ready to pull the trigger. Go!

Good traders keep good records. They keep them not just for their accountants but as tools of learning and discipline. If you do not have good records, how can you measure your performance, rate your progress, and learn from your mistakes? Those who do not learn from the past are doomed to repeat it.

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