small loss simplybecause you don’t want to risk a bigger loss (fear/ego).• You stop trading altogether during a drawdown—rightbefore things turn around (fear).• You take a profit prematurely because you don’t want togive it back, thereby missing a big profit (greed).• You double up or increase your position size in an effort toget back to break-even or in an effort to “make a killing”(greed).This list goes on and on ad infinitum.
How To Avoid Mistake #4Of the four biggest mistakes in futures trading, a lack ofdiscipline is the most difficult mistake to avoid. The othermistakes detailed in this book can all be dealt with beforeyou start a trading program. You can lay out every stepof your trading program down to the last detail. But thenyou must pull the trigger. That is when Mistake #4 comesinto play. As a result, the opportunities to make thismistake are limitless.A lack of discipline occurs while you are in the line of fire.Picture a new soldier who goes to military school, bootcamp and engages in other extensive training. Thensuddenly he finds himself in live combat for the first timewith somebody shooting real bullets at him. Now consideran individual new to futures trading. He has plannedeverything and knows exactly what needs to be done inorder to ensure his long term survival. Then he suddenly
82
THE FOUR BIGGEST MISTAKES IN FUTURES TRADING
finds himself in a difficult situation, with real money—hismoney—on the line. How people react in difficult situationscannot be known until that time arrives. Hopefully theirplanning and preparation will allow them to overcome anypsychological obstacles. But you never know for sure howthey will react until the moment of truth arrives.Just telling yourself to put fear and greed and ego asidewon’t do the trick. You must identify the points within yourown trading plan where you will most likely confront theseobstacles and make plans to avoid their negative effects.For example, if your approach requires you to interpretchart patterns, you need to define your rules very carefullyto remove as much subjectivity as possible. If you do not,you may find yourself interpreting the same patterndifferently at times. If your trading has not been goingwell lately it may be easy to find some perfectly justifiablereason not to take the next trade. Likewise, if you areplanning to use mental stops you must prepare yourself toalways follow through and to place orders as needed. Ifyou fail to do so, then one bad trade can do you in.
Overcoming The IQ ObstaclePeter is at the Gates of Heaven. A long line of souls arewaiting to enter. Peter is frantic. “Quick,” says Peter tothe first in line, “what is your IQ?” “Why, my IQ is 210,”replies the first soul. “No, no, get out of line!” yellsPeter. “You, what’s your IQ?” he asks the next soul.“175” is the reply. “No, that’s no good!” cries Peter ashe continues to works his way down the line. “150,”“130,” “110” come the replies. But still Peter is frantic.
83
TRADE SECRETS
Finally he reaches a poor soul whose reply to Peter’squestion is “my IQ is 75.” “Oh, Thank God!” cries Peter.“Now quick, tell me, where did November Soybeans closetoday?”This story gets passed along from one self-deprecatingfutures trader to another and everyone has a good laugh.The implication is that all futures traders are dimly lit.This is certainly not the case. However, there is oneelement of truth to this story that needs to be addressed:believe it or not, intelligence can be an obstacle to tradingsuccess. This is not to say that intelligent people cannotbe and are not successful in the area of futures trading.All it means is that their intelligence can work against themat times. How so you may ask? Well, one thing thatintelligent people do is to analyze things more deeply thanothers. In futures trading such a propensity can be a verydangerous thing.Futures markets do all kinds of unpredictable things. Theygo up when everyone thinks they are going to go down.They go down when everyone thinks they are going to goup. They may have no reaction at all to a major piece offundamental news. They may have a big reaction to aseemingly trivial piece of news, etc. None of which makesthe least bit of sense. And therein lies the rub. Intelligentpeople like things to “make sense” to them. If somethingdoes not make sense to them then it needs to be analyzedso that an understanding can be gained. In futures tradingtrying to understand exactly why something is happeningcan be a costly exercise in futility.Consider the following scenario. A person with an IQ of84
THE FOUR BIGGEST MISTAKES IN FUTURES TRADING
200 is short T-Bond futures because he expects the nextunemployment report to show a sharp decline inunemployment, indicating a stronger than expectedeconomy. He believes that such news will cause interestrates to rise and T-Bond futures to plummet. He figureshe will risk $1000 per contract using a mental stop. OnFriday morning the unemployment report comes out andit is exactly what he had expected. The numbers aresharply lower. Our trader has nailed it right on the money.But there is one small problem. T-Bond futures havestarted to rally sharply. How can this be? Apparently alot of other traders had been anticipating the same numberand had also been selling short in recent days. Now thatthe bad news is out of the way and all the sellers havealready sold, the buyers take charge and T-Bondsinexplicably shoot higher. Within two minutes of thereport’s release our trader is sitting with an $1,200 loss.And here is where intelligence becomes an obstacle.The natural thing to do is to immediately begin mentallyprocessing “why” this has happened. “I got it exactly right.How can I be losing money? What’s going on here?” ourtrader might ask himself. And he will begin trying to makesense of a market that is rallying in the face ofincontrovertibly bearish news. All the while his lossesmount. By the time he finally pulls the trigger he has lostover $1,600 a contract. What should he have done?When he entered the trade he told himself he would riskno more than $1,000. Right after the news came out hewas down $1,200. What he should have done was cut hisloss immediately at that exact moment as he had plannedto when he entered the trade. But because his thought85
TRADE SECRETS
processes forced him to try to make sense of things firsthe did not pull the trigger when he needed to. This typeof scenario plays out all the time, which leads to the nextbit of advice.
A Word of Advice: Don’t Think, ReactHere is another example of how futures trading is quitedifferent from everything else in life. In every otherendeavor we are taught to think first, then react. Infutures trading—with a caveat to follow—you are often farbetter off reacting first and then thinking later. The caveatis this: this is only true if you have developed and areexecuting a well thought out trading plan. If you decidethat you will exit a particular trade if a certain set ofcriteria is met, then that is exactly what you need to do.The specific chain of events that caused your exit criteriato be met are completely irrelevant. While they can beanalyzed after the fact for information that may help in thefuture, they cannot be allowed to convince you to do onething when you know you should be doing something else.At the most base level consider a floor trader who typicallyscalps the market trying to make two or three ticks pertrade. He is long 30 T-Bond contracts when a huge waveof sell orders hits the trading floor. He has two potentialcourses of action:a)
Stand around and try to figure out “why” a wave ofselling is occurring
b) Start hitting bids instantly to exit his long positionsIf he is a good floor trader and if he wants to survive, hewill choose b. In other words, he needs to react86
THE FOUR BIGGEST MISTAKES IN FUTURES TRADING
immediately. Every second he spends analyzing the situationcosts him money.If a situation arises for which you have already determinedexactly what you should do in case of just such an event,react and do it. Don’t think (whoever thought you’d hearthat kind of advice?). If a situation arises for which youhave not prepared, and you have no idea how to react,then think in terms of risk control. Ask yourself, “whatare my choices and which one is the least likely to resultin a huge loss?” Then do that.
Avoid Simple TrapsThere once was a trader who adopted a trend-following,position trading approach and was quite successful. Hisapproach was to generate a trading order for the next dayafter the close of trading each day and to always follow hissystem. Although he was not a day trader, he obtainedreal-time quotes from his data vendor, ostensibly to keepbetter track of his successes. One day, in the midst of astrong intermediate-term rally, he was long four contractsof Lumber with an order to sell short at 4080. In theopening minutes of trading his order was hit and he wasreversed into a short position. A few minutes after that areport came out that caused Lumber to soar higher byalmost its full daily limit. Suddenly this trader was down$3,712 on four contracts in just a matter of minutes.Completely distraught he tried to figure out what to do.Should he cover his short position immediately? Should hehold on? What is the proper course of action? Fearingthat the market would “lock” limit higher, he covered hisshort position and went flat. Would it surprise you to learn87
TRADE SECRETS
that by the end of the day, Lumber closed back downexactly at the price at which he had shorted it earlier thatday? The next day Lumber opened sharply lower and justkept sinking. Instead of losing a little on the first day andholding a profitable short position the next, our tradersuffered a loss of $3,712 and could not bring himself toget back into the short position, thereby missing out on asubsequent $10,240 profit. His momentary lack ofdiscipline cost him $13,952. Ouch!Where did this trader go wrong? Two things come tomind. First off, if you have made the decision not to bea day trader, then live quotes can be a very dangerousthing. To the undisciplined trader a quote machine can bethe equivalent of a slot machine. You see the opportunitiesflashing before your eyes and you feel compelled to play.Also, based on his trading approach, by all rights the traderin this example should not even have been aware ofLumber’s intraday gyrations. Had he been off reading agood book instead of staring at his quote screen he wouldnot only have saved himself a considerable sum of money,but also all of the emotional angst that went with watchingthe market move sharply against him, arbitrarily decidingto bail out, and then watching the market move back inthe right direction without him being on board.The second error this trader made was in failing to adhereto his approach. His system told him to be short, but hesuccumbed to fear and stopped himself out at the point ofmaximum pain. The markets do not know that you arelong or short and certainly do not move in a particular
88
THE FOUR BIGGEST MISTAKES IN FUTURES TRADING
way simply to inflict pain upon you personally. It justseems that way sometimes.One key to longevity is to know the following: The marketswill frustrate you and inflict pain upon you from time totime. This is simply a fact of trading life. The trick is tonot frustrate nor inflict pain upon yourself. The marketsare going to do whatever they are going to do and thereis no way that you can control them. The only thing youcan control is your reaction to market events. Your bestbet for doing so is to have a well thought out plan and tofollow it precisely. If you succumb to fear or greed or egoyou become your own worst enemy. Knowing yourself aswell as you do, do you really want you as your worstenemy?
The Cure for “Woulda, Shoulda, Coulda”: Points A,B,C,and DBecause there is always so much room for improvementbetween what you could have made and what you did makeit is very easy for traders to spend a lot of time fixatingon what might have been, the dreaded “woulda, shoulda,coulda” syndrome. “If only I had gotten in sooner (orlater) and exited sooner (or later). If only this, if onlythat.….” This is a difficult malady to avoid, particularlybecause it can affect you even if you are making money.Interestingly, as much as traders hate losing money, quitepossibly the single most frustrating experience in futurestrading is to close a trade with a profit and then have themarket explode causing you to miss out on a much largerprofit than the one you took. The only way to avoid the
89
TRADE SECRETS
“woulda, shoulda, coulda” syndrome is, when trading, tofocus solely on the action of the market from the time youenter the trade until the time you exit the trade. For thesake of your own sanity, what happened before you enteredand after you exited the trade should be ignored (for now).Traders often focus their attention in the wrong places.Consider an undisciplined trader who enters a long positionafter a market has already experienced a sharp advance.Instead of focusing on the trade itself and being thankfulhe climbed aboard at all, this trader will constantlyadmonish himself, sighing “I should have gotten in sooner!”After the trader exits this trade with a nice profit themarket keeps rallying without our trader on board. Henow beats himself with “I should have stayed in longer!”And the next time he finds himself in a similar situationhe does everything just the opposite way. He jumps in toosoon and the market tanks. He stubbornly continues tohold on because he doesn’t want to miss “the big rally,”which this time around never comes.The antidote to the dreaded “woulda, shoulda, coulda”syndrome is twofold:• The first part is to understand the psychological significanceof Points A, B, C, and D.• The second part is to separate the act of trading from theact of trading system development.What are Points A, B, C, and D?• Point A to Point B is what happens to the market beforeyou get into the trade.• Point B to Point C is what happens to the market whileyou are in the trade.90
THE FOUR BIGGEST MISTAKES IN FUTURES TRADING
• Point C to Point D is what happens to the market after youexit the trade.From a trading standpoint the thing to remember is this:• The ONLY thing that really matters is what happensbetween Point B and Point C.• Point A to Point B (what happens before you enter thetrade) is irrelevant.• Point C to Point D (what happens after you exit thetrade) is irrelevant.Adopting this mindset can relieve a trader of a tremendousamount of excess emotional baggage. But this mindset alsobegs several key questions. “Shouldn’t I be trying toimprove my system?” “Doesn’t it make sense to look atways to enter and exit trades more efficiently?” “And ifso, by ignoring Point A to Point B and Point C to PointD aren’t I ignoring possibly useful information that mightimprove my trading results on future trades?” The answersto these questions are “yes,” “yes” and “yes.” However,the time to address these questions is NOT when you arein the middle of a trade. The time to focus on thesequestions is when you are focusing your efforts ondeveloping a trading approach or enhancing your currentapproach, in other words, when the markets are closed andyour mind is clear. This leads us to another cause of lackof discipline know as “system tinkering.”
System Development Versus System “Tinkering”Using an objective, systematic approach to trading offersseveral benefits to a trader. He can do his best thinking“up front,” build all of his knowledge and experience intoa system and then let the system generate the trading91
TRADE SECRETS
signals. This in turn removes the psychological burden ofhaving to make a lot of trading decisions while standing inthe line of fire. It also can remove ego from the tradingprocess, thereby eliminating one of the three primary causesof Mistake #4. If a particular trade loses money, it canbe blamed on the system and the trader does not need toblame himself.One pitfall that snares a lot of systematic traders is the urgeto constantly “tinker” with their trading system. Oneproblem with developing a trading system is that it neverquite feels like it’s “done.” No matter how good a givensystem performs, the ambitious trader can’t help but tothink that there must be some way to alter it to improveperformance (“…maybe if I lengthened this oscillator orshortened this moving average…”). In the minds of mostsystem traders the best trading system is the one youhaven’t developed yet. Once a system is “done” it neverlooks quite as good as it might have. This is what causestraders to tinker.The danger is that if you are constantly tinkering with yourexisting system, then you may never truly develop theconfidence in it that you need to have in order to stickwith it when the going gets tough. If you are tinkeringwith your system while you are trading, it is likely that youwill start changing the rules or adding new rules as you goto match your most recent experience. If you exited thelast trade too soon you may find yourself adding anotherrule to your system to hold trades longer (which may beexactly the wrong thing to do the next time around). Ifyour last four trades were losers in quick succession you
92
THE FOUR BIGGEST MISTAKES IN FUTURES TRADING
may find yourself adding a rule designed to “filter” tradesand thereby avoid some whipsaws. While well intentionedand perfectly logical, this may cause you to miss the nextbig winner altogether. Over time your system starts to looklike a house that started out as a two bedroom shanty.Then a garage was added, then a family room, then anupstairs, etc., etc. In other words, it ends up not evenresembling its original form. There is nothing wrong withadjusting a trading system. There is, however, a time anda place for everything.The best advice is to designate a specific time—whether itis once a month, once a quarter, or whatever—at whichtime you will sit down and analyze all aspects of yoursystem to determine if you have learned anything since thelast time that you can use to add value to your currentapproach. This is when you want to analyze Point A to Band Point C to D for previous trades to determine if youcan improve the efficiency of your entries and exits. Doingso in this manner allows you to delve into your system asdeeply as you want without the emotional attachment thatmight otherwise cloud your judgment if you were makinga change based solely on your last trade.The proper approach in order to avoid system tinkeringis to:• Develop the best system that you can given your currentknowledge base and experience.• Start trading.• At scheduled intervals—even while you continue to tradeusing your original system—open up and analyze each partof your trading system and see if there is anything new that93
TRADE SECRETS
you can add or subtract that might add value. Approachthis process with the attitude that “if I improve my system,great, but if not that’s OK too.”Following these steps allows you to separate trading fromtrading system development. Focusing on one task at atime will make you better and more efficient at both.
Asking The Right QuestionOne thing that is very important is to ask the “right”question. This is an extremely simple concept but sometraders are doomed to failure because they only look atthings one way and therefore don’t examine all of thepossible outcomes in a given situation. When you areconsidering entering a given trade there are two primaryquestions to be asked and answered. The first question is“what is the likelihood that the market will move in theright direction?” The second question is “what will I doif the market moves against me?” The problem is thattraders often focus too much attention on the first questionand not enough on the second.Your answer to the first question represents your theoryregarding what you think is likely to happen next in themarket. Your answer to the second question representsyour fail-safe plan should disaster strike. In the long runwhat will make the biggest difference in your success orfailure is not your prediction about what is going tohappen in each situation, but how you react when thingsdon’t go the way you expect them to. This is a case oftheory versus reality. In theory, you may feel, based uponyour analysis, that your risk on a given trade is low. That’s
94
THE FOUR BIGGEST MISTAKES IN FUTURES TRADING
all well and good, but what if the reality of the situationturns out to be different? Are you prepared to deal withthat situation? This is what asking the right question is allabout.When a trader considers buying a contract of Soybeans heasks the question “will it go down?” If he enters the tradethen obviously he believes the answer is “no” or hewouldn’t put the trade on in the first place. However,answering this question provides a trader with nothing morethan the rationalization for entering into and holding ontothe trade. No matter how certain he is that his analysisis correct, statistically the odds remain 50/50 that themarket will rise after he buys. Once he puts the trade onall the brilliant analysis in the world isn’t going to help himone bit. The only thing that matters from that pointforward is “does he make money or does he lose money?”Regardless of what a trader thinks is going to happen andwhy, the market will move however it sees fit.By putting all of their focus on the first question traderscan fall into the trap of false confidence, which can causethem to not bother answering the “right” question whichis “what will I do if the market goes the wrong way?” Atrader may reassure himself by saying “I’m so sure themarket is going up that I’m not worried about thedownside” (which is tantamount to whistling past thegraveyard). Try to argue with this trader by asking him“but what will you do if the market does go down?” andhe will likely counter with a list of reasons why he doesn’tthink it will, as if any of them really matter.
95
TRADE SECRETS
To borrow a stock market example, a trader takes a hugeposition in Wal-Mart stock. When asked what he perceiveshis downside risk to be he replies “Nil.” His reasoning?“Wal-Mart’s practically got a monopoly” (whatever thatmeans). One thing it does mean is that this trader has notasked the right question. He has answered the question“will it go down” with a reason why he believes it will not.He is also using this answer as a rationalization to notbother answering the more important question “what willI do if it does go down?” This trader could be standingon the edge of a canyon but he refuses to evenacknowledge the risk in front of him.The purpose of asking the right question is simple. Inorder to survive long-term, in each situation you must beprepared ahead of time to deal with the potential risksinvolved. Be sure to constantly ask yourself, “what is theworst case scenario and what will I do if it unfolds?” Ifyou always have an answer to this question you have thepotential to be a highly successful futures trader. On theother side of the coin, if you find yourself reassuringyourself that, based on your analysis, you have nothing toworry about, then you DO have something to worry about.If you have no real contingency plan for protecting yourselfif you turn out to be wrong, be afraid, be very afraid.Remember, it only takes one bad trade to wipe out a lotof hard earned money. If you don’t believe me, ask VictorNeiderhoffer.
96
THE FOUR BIGGEST MISTAKES IN FUTURES TRADING
SummaryOne of the keys to long-term trading success is to developan approach to trading that removes as many outside (andoften irrelevant) influences as possible from the decisionmaking process. At any given point in time there are atleast a million and one reasons available to justify not doingwhat your trading method tells you to do. What a tradermust do in order to succeed—and one of the things thatmake successful futures trading so difficult—is to ignore allone million and one reasons and do what you are supposedto do anyway. Richard Dennis referred to this as “doingthe hard thing.”In one of the most successful experiments ever conductedin the area of futures trading, Richard Dennis and anothertrader recruited a group of individuals they dubbed the“Turtles” in the late 1970’s. What they did was to bringin a group of individuals with no prior experience in tradingwith the goal of teaching them to be successful traders.The challenge was to find out if individuals are born greattraders or whether individuals could be taught to be greattraders. The Turtles collectively have enjoyed great successthanks to some of the important lessons they learned alongthe way. One of the things they were taught was to “dothe hard thing.” Some examples:• If you get a signal to go short on the next day’s open andthe market gaps sharply lower the next day, the easiestthing to do is to not make the trade (“it’s too late; it’salready made a big move”). The hard thing to do—andthe right thing to do—is to make the trade anyway.
97
TRADE SECRETS
• If you are in a long position using a mental stop and themarket in question reaches your stop price but is nowextremely oversold and certainly appears to be due tobounce, the easiest thing to do is to wait just a little longerbefore exiting the trade. The hard thing to do—and theright thing to do—is to cut your loss anyway and move on.• Richard Dennis gave the Turtles a test and one of thequestions was “Your system tells you to buy Soybeans.You find out that I (Richard Dennis) am selling short heavilyin the Soybean market. What should you do?a) Buy anywayb) Sell shortc) Wait for another signalThe easiest thing to do is to put off making the trade. Thehard thing to do, and the right thing to do, is, a) buyanyway.Second guessing a trading decision is the single mostsimple act in all of futures trading. It is also one of thedeadliest habits in all of futures trading. If you findyourself repeatedly second guessing your trading approachand making things up as you go along, it is time to stoptrading and develop a new approach.The moral of the story: A lack of discipline can destroyeven the most talented and best prepared trader.
98
THE FOUR BIGGEST MISTAKES IN FUTURES TRADING
CONCLUSIONMany books on trading attempt to boost traders’ confidenceby suggesting ways to make trading success easier to comeby. And certainly most traders would prefer that tradingsuccess be “easy” to achieve. The purpose of this book,however, has been quite the opposite. One of the goalsof this book has been to strip away all of the hype and hopeand pretense and to lay bare the fact that success in futurestrading is no easier to achieve than success in any otherfield. By now you have hopefully rid yourself of the notionthat trading futures is going to line your pockets with “easymoney.” If you are to make money as a futures trader,make no mistake: you will earn it.One primary goal of this book has been to instill therealization that there is only one person who can controlyour success or failure as a futures trader (as well aseverything else in life for that matter). And that personis you. In the end you are responsible for your owntrading success or failure. You now know that the futuresmarkets, while seductive and very accommodating at times,can be cruel and unforgiving and will cause you to suffergreatly from time to time no matter how great of a traderyou might end up to be. How you deal with this simplefact of reality will determine if you join the 10% ofwinning traders or the other 90%.
99
TRADE SECRETS
One of the most common pitfalls in futures trading is forsomething to go very wrong for a trader, for that traderto blame the markets rather than himself, and for anegative experience to cause a downward spiral in histrading. Working past a bad trading experience is doublydifficult because not only does it leave you emotionallyfeeling (lousy, angry, or frustrated, it leaves you with lessmoney to your name. Now that really hurts. The key isto understand and accept the simple fact that this is partof life as a trader and to not allow a bad experience tohave a negative residual effect on subsequent trades. Thisis easier said than done.For example, say you are long Crude Oil, which closedyesterday at $21.60/barrel. Today you enter an order tosell short at $21.00. Crude Oil trades down to exactly$21.00 and you get reversed into a short position. CrudeOil then rallies back up to close unchanged at $21.60. Forthe day you lost $600 on the long side plus $600 on theshort side for a total loss of $1,200. The next day youpick up the paper and the story reads “…and Crude Oilclosed unchanged in dull trading.” “Dull trading?” youmight scream. “I lost $1,200 bucks. What’s so dull aboutthat you !@#$%!.” This is but one of many possibleexamples, but the common result is a maddening feelingof frustration and a desperate need to “act” to somehowmake things “right.”A trader is left wondering why he or she was so “unlucky.”“How could I sell short at the exact low of the day? Whydid the market single me out? I can’t blame myself. Iplaced my stop right where my system told me to.” The
100
THE FOUR BIGGEST MISTAKES IN FUTURES TRADING
danger here is that a trader may suddenly feel a compellingurge to “act” in order to compensate for the badexperience just completed. This is a mistake.Losing traders follow through on this urge to act. Winningtraders do not. Winning traders do what they are supposedto do.If a bad trade leaves you wanting to double up to get evenor to widen your stops next time around, etc., etc., youare in danger of making a critical error. And doing so cansend you down a very slippery slope. Think back to whenyou were a kid and you stole a cookie out of the cookiejar despite specific instructions not to do so. The first timeyou did it you were wracked with guilt. But wasn’t it somuch easier the second time around? And by the third andfourth time it was almost fun to figure out new ways to dosomething that you knew you should not do. This is anappropriate analogy for a futures trader.The first time you violate your trading plan it involves atremendous amount of angst. You know you arecontemplating doing something you should not, buteventually you come up with enough reasons to “justify”(or more accurately, rationalize) violating your plan. Andso you do. And you find that it’s not that hard to do afterall. No one questions you or tries to stop you. The tradingpolice don’t show up and haul you away. You just call yourbroker, place an order (or change an order or cancel anorder) and the deed is done. No muss, no fuss.And the next time you find yourself contemplating anotherdeviation from your trading plan, you find it is “way easier”
101
TRADE SECRETS
than the time before. In the short-term it couldn’t be mucheasier. In the long-term there is one drawback: In sodoing you have stepped down the path of the 90% offutures traders who lose money. Whatever the market didto you to cause you to act this way is not relevant. Whatis relevant is this: only you can make the decision to turnaround and head back toward the right path and to staythere.I hope that the material in this book helps you to do so.
102
THE FOUR BIGGEST MISTAKES IN FUTURES TRADING
Appendix AMathematical Formula forStandard DeviationStandard DeviationsStandard deviation is simply a measure of distribution. Itshows how data is clustered around the average value fora given set of data. For a given set of data, a one standarddeviation move above and below the average encompasses2/3rds of the data under consideration. A two standarddeviation move above and below the average includes 96%of the data and a three standard deviation move above andbelow the average includes 99