Page 19 - Module 2_The_Human_Element

Module 2 - Lesson 3 – strategies for traders

1. strategy for achieving goals

Once a goal (or set of goals) has been set and has started to become part of a person’s belief-system,
it is important to concentrate attention on the strategy for achieving that goal. Goals belong to the
future; the strategy is the immediate task in hand.

Business plans are all well and good, but it is also necessary to utilise the necessary human,
mechanical and financial resources into the cohesive strategy to achieve the plan.

The diversion of focused attention towards strategy is, in fact, critical. This is because there is an
important difference between goals and strategy that is often missed: goals are targets, not
achievements; and it is achievements that attract and manipulate emotional energy. If, therefore,
attention is focused on what can be achieved now huge energy resources can (and will) be released
from unfulfilled desires and from unpleasant emotions and can be used to deal with the tasks of the
moment.

Strategies for traders
The question for the trader in this context is whether it really is possible to divorce the longer-term
goal of profitable trading from the potentially traumatic short-term effects of incurring losses. The
answer lies in the making of two specific commitments.

The first is the commitment to use a technical trading system (the ‘method’) which provides
automatic entry and exit criteria, and which incorporates money management principles. This
encourages the trader to remain disengaged from the motional contagion of the market place and
to limit his or her risk.

The second commitment is the adoption of an attitude towards oneself (the ‘effort’) which is
supportive of trading. The basic need is to maintain the energy levels necessary to cope with the
inevitable shocks and vicissitudes of the markets.

Method
The basic requirements for a successful trading technique are a technical trading system, the use of
stops and the spreading of risk.
In the first place, it is essential to use a trading signal system, which generates trade
recommendations based on market analysis. These signals may be taken as suggestions rather than
as fixed instructions, but they reduce uncertainty by eliminating the need to search for further
confirming information.

Second, it is essential to use ‘stops’ to exit a trade. Stops are levels at which profits must be taken or
losses realized, once the market begins to move in the opposite direction to that required. Stops
should be regarded as instructions to deal and should not be cancelled or altered. Their use will
reduce stress by ensuring that (as far as is possible) losses are not allowed to become too large to
handle and profits are not allowed to erode unnecessarily.

Finally, trading with specific amounts of capital, in more than one market, should help to spread risks
so that the overall volatility of profits and losses is reduced. In this way, ultimate success is not
dependent on the profitability of the last trade. Consequently, the trader’s emotional fluctuations
are kept to a minimum.

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