Before You Even Consider Trading, Do This (Part 2)

August 20, 2004
Chris Curran

Stock index futures opened Thursdayâ€™s session
under the looming cloud of yet another record high in oil prices. A
grind higher to close the opening gap was stopped in its tracks after a weak
Leading Indicators report attracted some good broker selling. After settling
back up into a lunchtime range, news that U.S. warplanes were bombing the city
of Najaf broke the range down to new session lows. Position-squaring in the
last hour ahead of Fridayâ€™s options expiration helped to pare the losses.

The
September SP 500 futures closed Thursdayâ€™s session with a loss of â€”3.25 points,
while the Dow futures slipped -38 points. Looking at the daily chart, the ES
posted a dragonfly doji and market structure high above its broken downtrend
line, and just under its 38% Fib retracement of the June/August down move. On
an intraday basis, 60-min and 30-min trend lines were broken, but price was able
to retrace on a break of multiple bullish Gartley patterns. The YM and ER2 also
posted market structure highs and were able to hold their broken downtrend
lines.

September
bonds (ZB) continue to form a daily bearish wedge and settled right on the lower
trend line. The Semiconductor Index (SOX) posted a market structure high and
came to settle right on its daily downtrend line.

Friday is
absent of any economic reports and with it being monthly options expiry, I wonâ€™t
be looking for much range-wise. Most likely, the catalyst for any breaking move
will be crude prices and news out of Iraq.

^next^

Plan Your Trade and Trade
Your Plan (Part 2)

On
Wednesday, we talked about that before
you even consider trading, it is important to take the time to seriously
question your intentions in the market to avoid the pitfalls that sting so many
newer traders. Rather than go into the usual drill about “use stops” and “only
use risk capital” etc, etc, I’m gonna share what motivated me to get involved in
this game, what has motivated me to follow my plan throughout the years, and
what continues to motivate me each day.

I personally find the markets
absolutely fascinating. It’s the ultimate game, the ultimate psychological
experiment, and the ultimate proving ground for skill and foresight. The markets
are driven and shaped and at times mauled by every human emotion, and whipped
and driven by some of the brightest and toughest minds on the planet. The
markets represent the ultimate manifestation of human progress and
accomplishment in its most raw form, for both good and for bad. I thoroughly
enjoy looking at the world from a macro point of view, making connections with
my set-ups, and finding relevant analogies and observations in many different
places. In this sense, following the markets for me is a lot like a devoted
baseball or basketball fan following their team. Sports fans find joy in
statistics that have no relevance to their lives except in terms of
entertainment and mental stimulation, such as a player’s batting average. The
advantage over sports is that I get to be an active participant each and every
day that I choose to participate. My theories and set-ups are tested in real
time and offer real reward, which makes it all the more interesting.

The markets are like a mountain to be climbed or an ocean to be crossed. You
may have a specific reason for a trade, or you may have reached an “emotional
maturity” and your reason for your trade may simply be “because it’s there and
it fit my parameters.”

In the course of your learning, weaknesses are exposed with no mercy:
|

If you
are impatient, you will be forced to confront your
impatience.
If you are lazy, you will quickly be disciplined.

If you whine and cry, you will receive no consolation in return.

If you are a fool, you will earn a fool’s wages, and you will be forced to
either starve, quit, or learn.

Trading has great personal benefit to me beyond
financial gain because to reach my goals as a trader, I have to reach my goals
as a person:

Without true internal “alignment,” I will fall short.

Without extraordinary mental toughness and brilliant mental clarity, I will fall
short.

Without peace of mind, I will fall short.

Without continuing to grow and improve consistently as an individual, year after
year, I will fall short.

Like life, trading is a game in which you can never have total knowledge or
total control, ever. You are always exposed to the proverbial “black swan”
event. Even if the odds are 1 in ten million, if it happens to you the odds
might as well have been 100%.
And no matter to what degree you go it alone, your results will be entwined with
others’ results, and entrusted to others’ results
to some degree.

Trading is also a game in which you can never have the most
money. Real trading success can bring you to the point where further pursuit of
money for money’s sake can become a disaster. To brag about $100,000 a year is
dumb. To brag about $1,000,000 is no less idiotic. The trader who has amassed a
small fortune doesn’t need not look far to find a businessman who has made many
multiples of that amount in a humdrum industry, like selling pesticides or coat
hangers, etc. The trader who has amassed a large fortune can always find
someone with a much larger one. At the same time, though, trading ultimately
allows for freedom from the strain of money. Freedom in the sense that money no
longer controls you, and the freedom to work when you want to, not when you have
to. To think about your finances when you choose to, not when you are forced
to. To live the lifestyle you choose within reason of what your desires require,
and, meanwhile, recognizing that true happiness is not a material assets
treadmill. Trading success lets you pursue what you truly want to pursue.

How many people go all out? How many people are willing to continually challenge
themselves and constantly embrace the risk of failure in a desire to keep
expanding and growing? How many people really approach the markets in a state
of honesty? By honesty, I mean recognizing what you are committing to, that
your goals could take decades to achieve (if they are substantial enough), that
you will be forced to confront inner demons that will not go quietly into the
night, that success is far from guaranteed,
that you will be forced to puke your emotional guts out, and that you will
confront the temporary limitations of your abilities and beliefs more times than
you can count. BUT, while you’re doing all of that, you’re also cultivating a
deeper foundation of really knowing yourself from 1 year to the next. That is
what it’s all about and those are some of my motivations.