Friday, February 17, 2012

Can you stick to the rules?

I had the pleasure of a recent training session with someone who already knew about trend following as a concept, and had read of lot of material on the subject.

One thing that stuck in my mind as we finished the session was that, although he knew 'what' to do, the acid test would come when positions started to go against him - would he be able to hold his positions until he got an appropriate exit signal?

Proper risk management will help in this regard - as Market Wizard Larry Hite said, you need to have an 'emotional indifference' to every trade.

This is what I mean about trading is simple, but not easy. It is easy to see in hindsight what you should have done, but are you able to religiously take all entry /exit signals as required? The market is a harsh taskmaster.

In this regard, if you are a trend follower, you should consider something I did myself a while back - force yourself NOT to look at the markets during the trading day. That way, you can avoid making emotional, irrational decisions that you can live to regret. You can review your trading account in the evening, when the markets are closed, with no pressure to sit there and do something.

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