. In actuality, few systems have morethan 65 percent winning trades, and the more trades in your sam-ple, the smaller this figure will be. Systems that are correct as littleas 30 percent of the time can still be good systems, and systemsthat are accurate as much as 80 percent of the time can be bad sys-tems. It’s easy to see that even a high degree of accuracy with alarge average losing trade and small average winning trade doesnot make a good system.
Average Trade. This statistic will tell you what the averagehypothetical trade has been. You must make certain that whenyou test your system, you deduct slippage and commission fromyour average trade. Commissions add up, even discount commis-sions. And slippage is an important factor when determining sys-tem performance. As a rule of thumb, I recommend deductingbetween $75 and $100 per trade for slippage and commission.92 = Chapter Eight
Optimization
Once this has been done, you will often significantly reduce theaverage trade figure. As I pointed out earlier, you must also payclose attention to the largest winning trade and the largest losingtrade when evaluating the average trade. The average trade figureis important, since it considers all profits, all losses, slippage, andcommission.
There has been considerable controversy about trading systemoptimization. What exactly is wrong with optimizing systems?Can you go too far? Is there a happy medium?
The real issues in system optimization are complex, and they’vebeen exacerbated by the tendency of systems developers to opti-mize their programs above and beyond any reasonable degree. Tooptimize a system is to discover the parameters that provide thebest results in hypothetical back-testing. In other words, optimiza-tion is a form of discovering what would have produced the bestresults using numerous if-then scenarios.
Before affordable computer hardware and software were avail-able, optimization was a long and laborious procedure. To discov-er the best fit, the systems developer would need to repeatedlybacktrack and test several variables. If the system parameters werenumerous, the process was virtually impossible. Obviously, com-puters have made this a quick and efficient task. Now any traderwith several thousand dollars can develop optimized systems.
Such ease of testing and optimizing is both good and bad. Onthe one hand, it allows traders to develop, test, and refine (i.e.,optimize) systems much more rapidly. On the other hand, it hasopened the door to what is called curve-fitting. The simple fact isthat the powerful system-testing programs now available allowtraders as well as systems vendors to repeatedly test a host of tim-ing variables, stop losses, and other risk management schemes inorder to determine which combinations would have produced thebest results. In effect, this procedure fits the best parameters onpast history to produce the best hypothetical results. However, theconclusions reached by such methods are often specious.
The trader who tests and retests to find the best fit will eventu-ally reach his or her goal, but the goal itself may be nothing morethan a reflection of the curve-fitted results. Tests tell us what hasworked in the past but may not reveal anything worthwhile about92 = Chapter Eight
Optimization
Once this has been done, you will often significantly reduce theaverage trade figure. As I pointed out earlier, you must also payclose attention to the largest winning trade and the largest losingtrade when evaluating the average trade. The average trade figureis important, since it considers all profits, all losses, slippage, andcommission.
There has been considerable controversy about trading systemoptimization. What exactly is wrong with optimizing systems?Can you go too far? Is there a happy medium?
The real issues in system optimization are complex, and they'vebeen exacerbated by the tendency of systems developers to opti-mize their programs above and beyond any reasonable degree. Tooptimize a system is to discover the parameters that provide thebest results in hypothetical back-testing. In other words, optimiza-tion is a form of discovering what would have produced the bestresults using numerous if-then scenarios.
Before affordable computer hardware and software were avail-able, optimization was a long and laborious procedure. To discov-er the best fit, the systems developer would need to repeatedlybacktrack and test several variables. If the system parameters werenumerous, the process was virtually impossible. Obviously, com-puters have made this a quick and efficient task. Now any traderwith several thousand dollars can develop optimized systems.
Such ease of testing and optimizing is both good and bad. Onthe one hand, it allows traders to develop, test, and refine (i.e.,optimize) systems much more rapidly. On the other hand, it hasopened the door to what is called curve-fitting. The simple fact isthat the powerful system-testing programs now available allowtraders as well as systems vendors to repeatedly test a host of tim-ing variables, stop losses, and other risk management schemes inorder to determine which combinations would have produced thebest results. In effect, this procedure fits the best parameters onpast history to produce the best hypothetical results. However, theconclusions reached by such methods are often specious.
The trader who tests and retests to find the best fit will eventu-ally reach his or her goal, but the goal itself may be nothing morethan a reflection of the curve-fitted results. Tests tell us what hasworked in the past but may not reveal anything worthwhile about92 = Chapter Eight
Optimization
Once this has been done, you will often significantly reduce theaverage trade figure. As I pointed out earlier, you must also payclose attention to the largest winning trade and the largest losingtrade when evaluating the average trade. The average trade figureis important, since it considers all profits, all losses, slippage, andcommission.
There has been considerable controversy about trading systemoptimization. What exactly is wrong with optimizing systems?Can you go too far? Is there a happy medium?
The real issues in system optimization are complex, and they’vebeen exacerbated by the tendency of systems developers to opti-mize their programs above and beyond any reasonable degree. Tooptimize a system is to discover the parameters that provide thebest results in hypothetical back-testing. In other words, optimiza-tion is a form of discovering what would have produced the bestresults using numerous if-then scenarios.
Before affordable computer hardware and software were avail-able, optimization was a long and laborious procedure. To discov-er the best fit, the systems developer would need to repeatedlybacktrack and test several variables. If the system parameters werenumerous, the process was virtually impossible. Obviously, com-puters have made this a quick and efficient task. Now any traderwith several thousand dollars can develop optimized systems.
Such ease of testing and optimizing is both good and bad. Onthe one hand, it allows traders to develop, test, and refine (i.e.,optimize) systems much more rapidly. On the other hand, it hasopened the door to what is called curve-fitting. The simple fact isthat the powerful system-testing programs now available allowtraders as well as systems vendors to repeatedly test a host of tim-ing variables, stop losses, and other risk management schemes inorder to determine which combinations would have produced thebest results. In effect, this procedure fits the best parameters onpast history to produce the best hypothetical results. However, theconclusions reached by such methods are often specious.
The trader who tests and retests to find the best fit will eventu-ally reach his or her goal, but the goal itself may be nothing morethan a reflection of the curve-fitted results. Tests tell us what hasworked in the past but may not reveal anything worthwhile aboutSystem Testing and Optimization: Friend or Foe? 93
the future. Since the past is not a carbon copy of the future, it isdoubtful that the optimized parameters will work in the future.The more parameters in the decision-making model, the less likelythey are to work in the future.
Overly optimized results lead to false conclusions. The resultwill likely. mean losses. For those who develop and sell futurestrading systems as a business, optimization is an amazing toolthat allows the creation of outstanding hypothetical performanceresults that, in turn, allow systems developers to make incredibleclaims. And claims sell systems.
Time will tell if I am wrong about overly optimized systems.Vast personal experience, however, strongly validates my conclu-sions. I recall recent developments regarding several popular trad-ing systems sold’by a software developer. The advertised claimswere fantastic. Systems were sold for T-bond futures, S&P futures,and currency futures. The outstanding performance claims pro-vided a strong media campaign.
Naturally, all of the proper disclaimers were made to complywith the then-current regulatory requirements. There were no dis-claimers regarding optimized results, however, nor was it dis-closed that not all buyers of the systems would be using the samesystem parameters. Because the systems were continually opti-mized for best results, the hypothetical track records were trulyimpressive. However, the results did not jibe with results experi-enced by those who had old versions of the software—versionsthat did not reflect the new optimized parameters. This is high-tech deception. Recognizing that there might be legal liability, thesystems developers eventually disclosed this fact in small print.Few buyers understood the meaning of the disclosure and evenfewer cared, given the impressive hypothetical performancerecord. Naturally, buyers of the software felt that they could matchthe hypothetical performance.
In many cases, these traders did well initially. A customer in mybrokerage firm purchased one of these programs and began trad-ing it strictly according to the rules. The results were impressive. Ibegan to watch intently every time a trade was made. It wasuncanny how well the system entered and exited trades. It was asif the system had internalized a sixth sense about the market.
Then, after several months and excellent results, the systembegan to unravel. Numerous large losses occurred and perfor-mance deteriorated more rapidly than it had climbed. The dangersof an overly optimized system became apparent once again.94 Chapter Eight
A Rational Approach toSystem Development
Summary
I do not totally oppose optimizing trading systems; however, I dofavor a rational approach to this procedure. My rule of thumb issimple: Your trading system should have no more than four to sixvariables. You should search for the best combination of entry andexit variables, as well as a reasonable combination of stop loss andtrailing stop loss amounts. But this is where the optimizationshould end. The more variables you build into the system, the lesslikely will be the future performance of the parameters.
Another aspect of system development relates to market per-sonality—a topic that has received little attention by most tradersand market analysts. Rather than heavily optimizing a system, Irecommend tailoring your system to the personality characteris-tics of the individual markets, provided that such characteristicsexist and that they are sufficiently stable.
The development and testing of trading systems is perhaps one ofthe three most important issues in trading. System results can bespecious if the developer uses faulty rules, optimizes excessively,or fails to understand the differences between reality and fantasy.Armed with a computer, historical data, and a few ideas, a tradercan easily fall into the trench of highly optimized systems thatlook good on paper but that fail to produce results commensuratewith the back-test.
In addition, guidelines for effective system development werepresented with the proper caveats. I defined a number of termsand gave you some ideas of how to differentiate systems that werelikely to go forward with similar results to their back-tests andsystems that were unlikely to perform as expected.Emotions, Traders,and Markets
Madness is rare in individuals, but in groups,parties, nations and ages, it is the rule...FRIEDRICH NIETZSCHE
In his brief but powerful commentary on the nature of insanityand human emotion, Friedrich Nietzsche unknowingly but explic-itly described the nature of the human condition in the stock andfutures markets. To apply his profound words to the markets is,perhaps, to pervert his intent, yet they are so deeply apropos thatthe comparison begs to be made. For the day trader intent uponsuccess, Nietzche’s words may well prove to be a cornerstone ofmarket fact.
The history of humankind is the history of speculation. In oneform or another, speculation dates back thousands of years to theearliest days of recorded history. Our forebears speculated dailyon the weather in their search for shelter. In growing crops and inwarding off hostile animals and aggressors, their speculative ven-tures became matters of life and death. Whether for the purpose ofsurvival or success in business, risk taking has always been a vitaland necessary part of life on our planet.
With risk and speculation, however, come the inevitable andunavoidable consequences and evils of emotion. We fear that ourdecisions will lead to pain or losses, and we are therefore readyChapter Nine
victims of other emotional and behavioral consequences. We fearthat failure to take action will lead to negative consequences, sowe act impulsively. Impulse is the primary enemy of all traders;however, it can be particularly destructive to the day trader.
We seek to protect what we have gained for fear it will be lost orthat its quantity may be diminished. We are motivated by greed toexpect large profits from small investments, which causes us toignore our rational thoughts and prompts us to act on emotion.There are literally thousands of human behaviors that are motivat-ed by the expectation of financial gain or by the fear of financialloss.
Even a cursory study of world financial history leads to theinescapable conclusion that there has always been a close relation-ship between the intensity of human emotions and significantmarket turning points. Whether novices or seasoned veterans,investors and traders know that the madness of crowds is oftenhard at work when markets establish major tops and bottoms. Asa day trader, you will need to keep your emotions in check at alltimes, since the intensity of emotional expression is most readilyobserved within the trading day and in response to news reports,international events, and crises.
We know, almost intuitively, that the crowd will be wrong mostof the time. In order to avoid being trampled to death in a burningtheater, we must choose the exit that the mob has not chosen. Tosurvive financial panics and crashes, it is imperative for us tomuster every ounce of courage so that we may buy when the“whole world” is selling or sell when the panicked crowd is in abuying frenzy.
We know from repeated and often costly experience that thosewho can buy into crashes and panics will be successful, whilethose who can sell into buying panics will also profit handsomely.Yet we are also painfully cognizant of the fact that to do so runstotally contrary to the primordial maps that have shaped ourbehavior for hundreds and thousands of years. The “fight orflight” response causes us to fight markets or to flee from them,rather than to evaluate them objectively and unemotionally.
Emotional extremes correlate closely with major market topsand bottoms. This correlation can be readily ascertained by exam-ining certain evidence such as newspaper accounts, magazine arti-cles, television and radio reports (where available), and traderanecdotes. Study them to know whether a market is close to bot-Emotions, Traders, and Markets 97
toming or topping. When the news is most bullish a top is immi-nent. Pervasive bearish news suggests a bottom. Many of the day-trading indicators discussed in this book translate emotion in mar-ket methodology.
Various technical market indicators such as trading volume,specific chart formations, and timing signals also have shown con-siderable predictive validity when correlated with measures ofinvestor emotion, particularly in the day time frame. Mob psy-chology is clearly in evidence at virtually all major market topsand bottoms. Emotion can be your worst enemy or it can be yourbest friend. Make it your friend and ally in the day time frame, forit is a formidable enemy that cannot be defeated. In order to dothis, you will need to rely on objective, operational, and definablemethods.
Develop Your Rules
In order to steer your emotions in a positive direction, you mustfollow certain general rules. To those who have been in the mar-kets for many years, the time-tested and oft-repeated trading rulesare well known. In fact, they are so well known that few of us givethem sufficient attention.
If you understand these important rules in the light of your per-sonal psychology, you may be more willing to use them. I havefound it very useful to keep a list of these rules where I can referto them often; they help keep me on the right track.
= Plan your day trades and keep them available for reference. If you arespecific, organized, and act on plans, you will avoid costlyefforts often caused by spontaneous decisions. A concise day-trading plan will help you avoid the losses that can arise fromacting impulsively. In short, plan your trades and trade yourplans.
= You alone are responsible for your success or failure. You mustassume total responsibility for results, good or bad. You aloneare the vehicle to profits and losses. By assuming total responsi-bility and not blaming brokers, friends, or market letters forerrors, you accept the seriousness of trading. You will learn thatthe situation is entirely under your own control. This will makeyou consistent and truthful to your trading system, which is theChapter Nine
single most valuable key to success as a position trader or as aday trader. :
Never hope that a day trade will go your way; never fear that a daytrade will not go your way. Both attitudes lead to unrealisticexpectations, emotionally inspired decisions, and negative atti-tudes. A day trade, once established, will result in whatevermarket action prevails.
Once the trade has been made, its fate is sealed and no
amount of hope or fear will make things different. Hope andfear are two of the greatest enemies of the day trader, fosteringonly false perceptions. You must avoid these feelings at all costs.If your system says to exit, then do so. Do not carry your daytrade overnight unless your system so dictates.Monitor your performance—feedback is important. One of the mostimportant things a day trader can know about his or her systemis whether it is working. The only way to know this is by keep-ing a thorough record of results. This will also provide the feed-back necessary to reward you for good trading. At any time youmust know how well or how poorly you are doing.
A positive attitude is your greatest asset. A good day-trading sys-tem is perhaps only 20 percent of the total picture. A positiveattitude may very well compose the balance of successful trad-ing. You must constantly be aware that the enemies of profitableinvesting and speculation are never absent. The only way tocombat the negative effects of losses, interference from others,and poor trading signals is by the maintenance of a positive atti-tude, regardless of how bad things may seem. I know that this ismore easily said than done.
Cultivate effective and positive relationships. We are known by thecompany we keep. Moreover, we are influenced by thosearound us. If we surround ourselves with losers, loafers, pre-tenders, depressives, or whiners, we will not learn any positiveskills. If we associate with those who are highly motivated,who seek to achieve, who have ambitious goals, and who arewilling to forge ahead regardless of obstacles, then we willacquire similar goals. Personal relationships, as well as busi-ness associations, should be cultivated along these generalguidelines.
Don’t take the market home with you. If you day trade for a living,then you must take great care to leave the market when youEmotions, Traders, and Markets 99
leave the office. Even if you are only a part-time trader and donot have a full-time market-related job, you must also avoidspending too much time or thought on the markets. Whenthings go well, you may allow the markets to have too muchinfluence in fulfilling other areas of your life. This is not advis-able, since it will cause you to avoid or delay solving otherproblems.
Trading must be considered a means to an end. It should notbecome a way of life, and it should not dictate your every move.Make certain you take vacations. Take time each year to getaway from it all. By being too close to the situation, you may notsee it for what it really is.
Enjoy the fruits of your labor—spend some profits, save some profits.Make it a regular practice to remove profits from the market.Spend some of them and save some of them. You must directlyexperience the positive feelings of using profits to acquire someof the things you have always wanted to buy. I suggest you dothis regularly, perhaps monthly. You will not be motivated tomake profits if you do not experience firsthand the enjoymentthat can come from spending money.
= Avoid overconfidence—it could be your greatest enemy. Day tradingdoes not always move in a positive direction. Just as you shouldnot allow your losing day to bring you down, you must notallow the winning day to get you up too high. If you are oneither of these emotional extremes, your judgment can beimpaired and you will not be rational enough to trade effective-ly. You will be either too brave or too meek. The best course is toeven out the peaks and valleys. Each loss should be a negativeexperience, but not a totally destructive defeat. Similarly, eachprofit should be taken in stride.
= Your next goal should always be in sight. Once you have attainedan objective, make certain that your next challenge is set. A well-known commodity trader made several million dollars in themarket one year. He lost it and almost went bankrupt the nextyear. I asked him how this could have happened. “Simple,” hereplied. “When you climb a mountain and you are sitting on thetop of the world, it gets lonely. There’s no place left to go butdown.” If, however, you have another mountain to climb onceyou get to the top, you will not be tempted to go down in orderto have a new challenge.100 Chapter Nine
Systems Trading,Discipline, and Profits
Cut your losses and let your profits ride. The big moneyis made in the big pull. Don’t add to a losing position.
Always use stop losses. Don’t meet margin calls. Whenin doubt, stay out. The trend is your friend.
 
The clichés are worn and weary. By now you've heard the rulesabout trading discipline at least a thousand times, and you're tiredof hearing them. To most traders these rules are nothing morethan words—simple to understand but near impossible to imple-ment. And there seems to be little anyone can do to drive the pointhome.
Traders are only human and, as a consequence, are subject tothe frailties of the human ego. We are unwilling to accept losses,unhappy when profits are small, afraid when prices are too low,and too brave when prices are high. Regardless of how oftentraders take losses, they rarely learn from them. In one form oranother, this subject has been the focal point of numerous books,tapes, seminars, courses, and psychoanalysts’ couches. Sad buttrue, few traders ever learn how to discipline themselves no mat-ter how many losses they take.
Even more amazing is that many traders are still convinced thattheir ticket to success is to find a better trading system. Actually,most traders will lose with any trading system no matter how wellit tests or how promising it appears to be. A disciplined trader canbe highly successful with a mediocre trading system, and a badtrader can be a failure with an otherwise outstanding trading sys-tem. Clearly, there is only a limited positive correlation betweentrading-system potential as revealed by historical testing and itsactual performance in the hands of a trader. There is absolutely nodoubt in my mind that the trader makes the system and not viceversa.
Now that the problem has been stated, the issue is how to reme-dy it. To suggest that I can provide the answers in several pages oftext would be the height of sophistry. I can, however, address thesubject with considerable authority given my years of tradingEmotions, Traders, and Markets 101
experience and my intensive observations of how others trade.Traders throughout the world have told me of the benefits theyhave derived from my 1980 book, The Investor's Quotient, and frommy 1988 book, Beyond the Investor’s Quotient. My work with trad-ing systems both as developer and trader has given me a uniqueperspective on the discipline problems that face all traders.Although my suggestions can be very helpful, they are not to betaken merely at face value. You will need to study and refine themto fit your trading style and your personality.
A Few Good Ways to Lose MoneyTrading the Futures Markets
E.L. Thorndike, the father of American learning psychology, notedthat there are literally thousands of wrong behaviors and only rel-atively few right behaviors. His point was made in reference to theuse of punishment as an aid to learning. While some new behav-iors may be taught with punishment, the use of rewards forappropriate behaviors gets faster, better, and longer-lasting results.
Although there are many ways to lose money in the markets,there are only a few ways to make it—and even fewer ways tokeep it. While traders collectively spend millions of dollars everyyear attending seminars and buying books, tapes, and trading sys-tems, they focus little energy on learning behaviors to facilitatesuccess. Why? Because the rules of trading systems, methods, andindicators are specific, often objective, and frequently requirenothing more than rote memorization. In other words, they’reeasy to learn and easy to apply.
Behaviors that contribute to success, on the other hand, areoften intangible, somewhat subjective, situation-relevant, andindividual-dependent. No hard-and-fast rules apply to every trad-er. Frequently, traders are not in touch with the problems thatrequire remediation. Not knowing what to change, they will sure-ly be at a loss for techniques to help them make changes.
Perhaps my backdoor approach will be sufficiently unorthodoxto get you started. Ignoring Thorndike and other outstandingbehavioral psychologists, I’ll tell you what you may be doingwrong. In so doing, I hope to break the monotony of do-this anddo-that rules—ones often heard that somehow fail to find theirway to the cerebral cortex. Here, then, are some good ways to losemoney in the futures (and stock) markets.102 = Chapter Nine
Plunge Headlong into the Marketwithout a Plan of Action
This is an excellent way to lose money and lose it quickly. Why makea plan anyway? If you trade without a plan, your chances of successare slim to none. You may be one of the lucky few who hits it big thefirst time, but the odds of doing so are minimal. Without a plan, youwill find yourself buffeted by the winds of chance, the opinions ofothers, the persuasion of newsletters and advisors, the pandering ofbrokers, and the bias of the media. Your responses will be whimsical.But the greatest danger is that you will not learn anything from yourbehavior. If you are unaware of what you did wrong, the conse-quences of your actions will not be readily apparent to you. And youmay run out of money before you learn your lessons.
But what exactly do I mean by a plan? Is it a trading system? Aschedule? A set of rules? I define a trading plan as:
A system or set of indicators that will permit relativelyobjective evaluations of market entry and exit as well as
risk management.
 
This could mean that you are following a computerized tradingsystem, signals from a chart book, a newsletter, astrology, a ran-dom-number generator, the I Ching, or your broker. Regardless ofthe source, the input must be treated as relatively unalterable andfollowed as closely and as often as possible. For some traders, Iadvise against rigid adherence to any system. Some traders cannotblindly follow a totally mechanical system. I suggest insteademploying a relatively mechanical trade entry system and a moreflexible exit system (to be discussed later on). In other words, Iadvise against rigidity, against inflexibility, and against blindlyfollowing any plan. However, to stray from a plan intelligently,you must have a plan at the outset.
There are various levels of adherence to a plan. Every tradermust find his or her own level of comfort in deviating from thatplan. Some traders will feel uncomfortable with only a minordeviation from the course, while others will be able to toleratewide variances from their plans. You alone can determine the rightformula by trial and error.Emotions, Traders, and Markets 103
Read Many Publications,Watch the Television BusinessNews, and Follow theConsensus of Opinion
This is a surefire way to get confused and lose money at the sametime. I call this approach “Edsel trading,” named after the infa-mous Edsel that was designed by a committee attempting toincorporate all of the changes and features recommended byexperts and consumers alike. While the Edsel may have been wellahead of its time, it failed miserably as a product. When youattempt to trade on the basis of the consensus of opinion, you'llend up with an Edsel trading system, a system that seems like itshould work but doesn’t. In fact, my research with contrary opin-ion indicators strongly suggests that you are better off tradingagainst majority opinion than with it. Futures trading is a loner’sgame. You must find a combination of indicators and tools thatworks for you—shut out as much outside influence as possible.
Add to Losing Positions toAverage Your Cost
Here’s a great method for losing your speculative capital. In fact, itworks so well that many traders have virtually guaranteed them-selves losses by following this time-tested strategy. The methodol-ogy is simple: Whenever a position goes against you, hold on to itand add to it repeatedly to lower your average cost. When themarket eventually moves your way, you will come out ahead. Thereasoning is very logical in a game where no margin is requiredand time is not important. But in futures, and particularly infutures options, time passed is money lost. Contracts expire, mar-gin calls continue, and the trend most often continues in its exist-ing direction. While you may be right in the long run, you willmost likely be broke in the short run.
Take Your Profits Quickly andRide Your Losses
This is another popular strategy among losers. To see why thisapproach is so popular, let’s examine its psychology. Most tradersare anxious. They are so worried about the ego-deflating experi-104 = Chapier Nine
ence of being wrong and losing money that when they have aprofit, they are afraid it will not last. They are inclined to jump outof their profits quickly to get the gratification of knowing that theyhave banked the money and that the market cannot take it back.However, when there is a loss, things are quite different. Traderssimply cannot admit to a loss. There is the perennial hope thatthings will eventually get better, that the market will turn around.And each small turnaround rewards the trader for hanging on.Unfortunately, it is often a classic case of one step forward andtwo steps back as the position continues to erode.
Start with Limited Capitaland Attempt to Parlay It into
a Fortune
This is the trader’s utopian dream. The Horatio Alger story is stillthe image that inspires traders to take their shot at making it big infutures trading. Most traders begin with limited capital, seeking tohit the one big trade that will propel them to success. However,the odds of doing so are slim. The simple fact is this: The less youstart with, the lower your odds of success. It’s a matter of logic. Ifyou're hoping to get on board that one big move, it may take 10consecutive losers before the winner comes. By then your capitalcould easily be depleted, and you'll miss the move you were hop-ing for.
My advice: Be realistic. Begin with a good capital base. Be pre-pared for numerous small losses. Expect to be wrong 5, even 10,trades in a row before you hit a big trade. When you do hit a bigone, don’t get out too quick. Remember that the less you beginwith, the less likely your chances of success.
Find a Trading System,Advisory Letter, or MoneyManager That Has PerformedWell and Latch On
Now here is another surefire way to lose your shirt. The time to gowith a winner is when it has had a-string of losses. Unfortunately,this is not the way most traders make their decisions. The tempta-tion to go with a system or money manager is greatest when theirperformance has been outstanding, when they have attracted themost attention by their performance. I suggest that you find aEmotions, Traders, and Markets 105
good performer, wait until it has experienced a good-sizeddecline, and go with it. However, please note that your incentiveto get on board will not be very high