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Saturday, November 20, 2010

The Three Essentials of Succesful Trading

These are the 3 M’s:
#1 Method
#2 Mind-set
#3 Money Management
…and without all three in place, you will not get to the promised land in trading.
Arguably we can differ on their order of importance, but if you are missing one you can become unbalanced during the trading process.
I always put the most importance on “Method”, because for me this spells out how I view the markets, and the what, where, when, how of identifying set-ups and triggers. My trading plan = Method.  And the method dictates every action from how I prepare for the trading day, to how I home in on which markets I will trade, and whether I’ll trade direction or swing trade. Even my review process following the trading day is based on the same market overview I started the day with, which is spelled out ahead of time in my trading plan.   
The Head Trader at, Al Gaskill, puts “Mind-set” first. He believes success in anything starts with a disciplined regiment, and the confidence of knowing that by following a plan, be it a business plan, an architects plan, or a trading plan, through all seasons, and all conditions you will be succesful. He knows that any number of plans, or methods will work, but without a disciplined regiment, and the patience to stick to that plan, regardless of surrounding conditions — both professional and personal — you won’t achieve your goals. For him it’s a disciplined “mind-set” and the will of a winner that he wants to see in individuals wanting to learn to trade. He takes pride in getting up at 2AM ET to prepare for the London open.           
I think it’s fair to say that both Al and I learned the importance of “Money Management” at a young age, which lend itself nicely to trading. I remember once when I was a child my father saw me put a coin into a pin-ball machine and start to fiddle around with the buttons and peddles. My father was appalled that I just gave money to a mechanical apparatus and didn’t get anything out of it. Usually he would laugh at silly things we children would do, but this time he had a seriousness about him which was generally reserved for dishonest behavior or physical harm. In trading, my own risk threshold is 1 to 2% per trade. Anything more than that and my heartbeat will let me know, just as sure as my Dad’s scowl did when he spotted me puttng that nickel into that machine.  
Always remember the 3 M’s:
Money Management
Jay Norris is the author of  Mastering the Currency Market, McGraw-Hill, 2009 which is the text book for the intermediate level trading course offered though see: Trading Courses    Jay’s second book Mastering Trade Selection and Management, McGraw-Hill will be in book stores in 2011. 
DISCLAIMER: Futures, options and Forex (off-exchange foreign currency futures and options, or “FX”) trading involves substantial risk of loss and is not suitable for every investor. The valuation of futures, options and Forex may fluctuate, and, as a result, clients may lose more than their original investment.

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