Having Structure in Your Trading
Wednesday, 31 May 2006

The Importance of Having Structure in Your Trading 
 By Bennett McDowell, TradersCoach.com

Few would ever argue that today, more than ever before, traders have a potentially overwhelming amount of information to absorb, analyze and process before each and every trade. This exorbitant amount of information can lead to chaos, confusion and emotional trading and result in frustration and losses.

Many traders complain that they feel stressed, anxious and overworked in their pursuit of profits. A number of them attempt to solve this problem through the use of a complex array of indicators and an endless search for the “Holy Grail” trading system. In reality, often times, the indicators traders rely on can actually draw them further from the “Truths” that the market is communicating at the time and, as a result, lead to more frustration and anxiety.

After consulting with traders worldwide, I have found that most of them who feel this stress, frustration and anxiety have one primary problem: They lack structure in their trading and have not properly prepared themselves to trade. There is no such thing as an amateur financial market; every time any of us trades, we are trading against professionals, so we cannot afford not to be prepared. 
There are four important elements to trading as listed subsequently:

Trading the financial markets involves 4 important elements

Trading Element

Definition

1. Risk Capital

You need to have sufficient amounts of capital that you can risk losing to trade the markets.

2. Trading System

A well-developed trading system supplies you with exact trade entries and exits based on market realities.

3. Money Management

A sound risk-control approach is designed to put the odds in your favor while ensuring that your trading decisions are based on probability and not emotion.

4. Psychology

You must control your emotions and develop the “Trader’s MindsetTM” to succeed in the financial markets. A trader’s improperly managed psychology can result in losing trades even when he or she is using a proven trading system.

To be a successful trader, you need to be proficient in putting all of these elements to work for you as you trade. For example, if you have an excellent trading system but poor trading psychology, the chances that you will be profitable are slim. Or, if you have poor money management but are great in everything else, again, your chances of success are almost non-existent. But, here’s the thing: While you need to master all four elements to be successful, this is exactly what makes trading so difficult for so many.

By mastering all four of these important elements, you will add structure to your trading and reduce stress, anxiety, fear and confusion. Adding structure to your trading helps you overcome psychological barriers that may be keeping you from being successful. For example, traders experiencing fear and emotional discomfort while trading usually just lack structure and / or confidence in their trading system. 

Your trading approach needs to be comprehensive and address these four important elements.

A good trading system or approach should be designed to add structure to your trading by identifying exactly when to enter and exit markets. It should help you determine “Trade Size” and, therefore, control your trade risk, thus reducing stress and anxiety that can lead to poor trading. By knowing exactly when to enter and exit markets, you can determine your “Trade Size”

This alone replaces stress and anxiety with structure. The point here is that a trading system with structure in all pieces of the trading pie will leave no room for confusion that can lead to anxiety, which can lead to fear and stress.

So, ask yourself: Do I feel stress, anxiety and confusion when I trade? If so, think about adding more structure to your trading approach by becoming proficient in all four key elements of the trading pie.

Good luck and trade well.

By Bennett McDowell,

www.TradersCoach.com

 
Last Updated ( Tuesday, 06 June 2006 )