Dear Trader,
This issue, number
8, and the
next issue, number
9, should be of real help to those traders
using the Fibonacci Trader program to construct
their own trading plans.
There is much more to developing a trading
plan than just setting down some rules and
parameters, clicking a computer key to check
the results, and you are ready to go!
If it was as easy as that we would all be
millionaires. The concepts shown in these two
issues should help reality sink in, and you will
learn how to adjust your trading plan accordingly.
It will be more work, but you should
see valuable results.
LETTERS
Some letters have come in asking about the
psychology of trading, and if I have anything
available that may help with discipline, etc?
The "Mental Harmonic Audio Tapes for Relaxed
Trading" that Jack Schwager described
in his book New Market Wizards are still
available for $99 plus $5 S&H. There are two
tapes, the first one teaches you how to relax,
and the second tape tells your subconscious
mind that you "deserve you winnings" and
helps you focus on your trading plans.
If this is of interest you can call 512 443-5751.
By the way, these tapes are not the "Holy Grail"
nor will they replace a valid trading plan. But the
tapes will certainly help to set a positive mental
attitude towards your trading. We'll continue this
discussion in the next issue.
very trading system is built using set rules
that are based on some implicit expectation of the
market's movement. For example, if you are using
a trend following system, such as a simple
moving average crossover, your system will capture
profits from the markets if the markets trend.
That is too say, if the price direction either rises
or falls at a persistent rate then the system will
realize a profit.
On the other hand, a sideways trending market
will cross back and forth over the moving
average and the system will produce a series of
losing trades.
While the above comment may not seem
particularly profound, the key point is that any
mechanical system is a template because of
the fixed rules, and if that template matches
well with the rhythm of the market then profits
are realized, but if the template of the system
does not fit the rhythm of the market then
the system will produce losses.
But does this have to be a totally black and
white situation? No. Through detailed analysis
of the individual trades of a system you will see
that there is a mix of trades, some profitable and
some losses. Looking closer, some trades are profitable
immediately, while some trades will be at a
loss, then recover, and the system exits at a profit.
Then unfortunately, some trades are profitable
for a period of time only and turn into losses, and
finally, some trades are a loss from entry.
What can we do with this information? The best way that I have found to improve our trading
method is to analyze the results using a measurement
called Maximum Favorable Excursion (MFE)
and Maximum Adverse Excursion (MAE).
Go to Beginning >>> FIBONACCI TRADER JOURNAL
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