Trading Discipline

[Matt Bowen]

Trading Discipline

Trading Discipline by Doug Zalesky CEO of E-Local Trading
ELocalTrading: Http://WWW.ELOCALTRADING.COM

Click on the link below to open the Discipline PowerPoint:

Http://www.mtptrader.com/Discipline.pdf

[durgesh147]

Hi Matt,
I see you have posted such wonderful articles/links through out the forum.
Certainly these help to boost and improve the psychological aspect of trading, which i feel is very very important.

Thanks for all this brilliant stuff,

[durgesh147]

Hi Matt,

Can you please explain Rule No 21..

Learn to sweat out (Scale out) your winners.

I din understand this one.

Thanks in advance,

[spp]

Can you please explain Rule No 21..

Learn to sweat out (Scale out) your winners.


Hello Durgesh
My thought was it was another way of emphasizing 'let your winners run'.

He's saying "sweat it out" refering to the usual tendency of most to want to exit prematurely and lock in that winner before it's done - so holding on to it might cause anxiousness but you've got to learn to do it.
That's what I got out of that one
Cheers
Sean

[Biggo]

Hi Guys

I use a scaling out system as part of my trading plan.

The outline of my system is.
1. Sell 33% at 2-3 profit zone
2. Sell 33% using normal MTP trade guidelines
3. Sell 33% when stopped out using a wider stop allowing for more "wiggle" in price.

There are many ways of doing this & there are pro,s & con,s to it.
The reasons I personally do it are
1.Bank some profits early on..
2.Can allow me to participate in very big moves in price that I may miss out on using a close stop loss.

Steve covers this in Chapter 11 of the part 2 manual under....
Trading in multiple units

[Matt Bowen]

Hi Matt,

Can you please explain Rule No 21..

Learn to sweat out (Scale out) your winners.

I din understand this one.

Thanks in advance,

Hi Dugesh...

Yes, Biggo answered this spot on the the scaling technique of peeling them off as you go. A friend of mine who used to trade for Millennium Partners (way before the scandal) used to use this scaling technique to exit positions. It's basically a way to bank profits as soon as possible and reduce exposure/risk at the same time. But the fip side to the coin is if the trade works out to be 10X winner or 15X winner you will only have a 1/3 of the original position on after 2-3 times risk area. It really has more to do with risk-tolerance than anything. I mean you can slice and dice the pros and cons of all exit strategies, but the bottom line is what you end up with at the end of the quarter/year.

[Matt Bowen]

Hi Matt,
I see you have posted such wonderful articles/links through out the forum.
Certainly these help to boost and improve the psychological aspect of trading, which i feel is very very important.

Thanks for all this brilliant stuff,

Thanks for the kind words...

It is my only hope that people will read this stuff and then more importantly USE IT. Otherwise, it has fallen on deaf ears. I had to learn this stuff not from books, but rather hard work and many losses... I see far to many people make 2 or 3 losses and then they give-up or go buy another system. I would like to say thank you to you as well... you have provided a lot of helpful guidence here and are a great role-model for other traders.

I like what you said in your post over on the Forex board...

Many people live in a world of delusion and fantasy. They see what they want to see and ignore what they don't want to see. Traders are especially prone to this ailment.

This was excellent... unfortunately, many people don't see it or understand it... kind of like telling an alchoholic they have a drinking problem (they generally don't want to hear it...which really means they don't want to have to change, the prefer to live in a fantasy or as you say: "delusional world".

Again, thanks for the great post of the past few weeks!!!

All the best,

[dctommy]

from another site:

Once the search for the Holy Grail is aborted, one can turn his or her attention to that which
we do have access to and control over (e.g. emotions, risk capital, accepting or rejecting risks,
planning ahead, following rules, testing idea's, committing to a system and/or approach).

It is the search for the Holy Grail that destroys most new traders (via constant adjusting and
fiddling of indicators and/or switching from system to system). This on-going activity sidetracks
new traders from focusing on key elements of their trading that they can control.
(e.g. discipline, risk control, position management):)


dctommy

[longtang]

Trading Discipline

Trading Discipline by Doug Zalesky CEO of E-Local Trading
ELocalTrading: Http://WWW.ELOCALTRADING.COM

Click on the link below to open the Discipline PowerPoint:

Http://www.mtptrader.com/Discipline.pdf

Quite a few of the slides are utterly incompatible with a trend follower type of trader.

As a trend follower, I certainly am NOT going to:

1. Sweat out the winners.
2. Hit singles. [Nor did Babe Ruth, ever.]
3. Prematurely jump out of a trade just because it isn't going any where at the moment.


--
Incompatible.

[Rob E]

Quite a few of the slides are utterly incompatible with a trend follower type of trader.

As a trend follower, I certainly am NOT going to:

1. Sweat out the winners.
2. Hit singles. [Nor did Babe Ruth, ever.]
3. Prematurely jump out of a trade just because it isn't going any where at the moment.


--
Incompatible.

Trend follower or otherwise... if you're not going to "Sweat out the winners"... nor bother to "Hit singles"... then I guess the only thing left for you to do is...

NOT TRADE AT ALL!!! :D


Oh... and btw... Babe Ruth had in his distinguished 22 year career a total of 2,873 hits of which... 1,517 were SINGLES!!!

Just in case you were wondering! ;)

[longtang]

Hi Rob E:

Heheh. I got caught. I don't know anything about baseball stats. All I know about Babe Ruth is the one anecdotal story where he was asked about his occassional dry spells. His Answer: he just continues to go up there and swings. In other words, he does not worry about those strike outs. He knows that the Homers more than make up for the strike outs.



Now, regarding the "Sweating Out," comment --which is mentioned on slide 21. On that slide, he says to Scale Out. Well, as a trend follower, I most certainly am not going to scale out of a trade. I am going to take my home run and trail my stop with my entire position.

Along the same lines, I certainly am also not going to worry about letting the occassional winner turn into a loser. It makes little sense for me to move a stop to break-even, prematurely. I won't touch a stop unless there are technical reason for it. If the choice is to take a small profit right now vs. giving the contracts some room to breath for a chance at the home run . . . well, I am holding out for the home run. I will trail with my indicators. And if that means occassionally a small winner will turn into a loser, that is just part of the game of trading. In a trend following system, it is carries negative expectancy anytime you deny a trade the opportunity to be a home run.

So, there you have it: 4 things which I see as incompatible with a trend following system:

1. Sweating (scaling) out of the trade. [No. I exit all or nothing.]
2. Swing for singles. [No, the whole point of trend following is to swing for the homeruns.]
3. Never let a winner turn into a loser. [No. Do that and you hurt your expectancy.]
4. Close out the trade if the particular time frame isn't going any where. [No. You don't have control of When something will happen. You just know that you have to be in position when it does.]

As you can see, trend followers think very differently. They are more like turtles than the normal human being.

cheerios.