What is SAP?

Jay's Market Outlook for 29th June, 2006 : Most European markets improved marginally, and US stocks also regained part of the previous day’s loss. Asian markets are also up this morning, and the global short-term trend is up. This should result in a rally for our market as well today.


Introduction to SAP

Established in 1972 - SAP - Systems, Applications and Products in Data Processing in Germany, is the leading global provider of client/server business application solutions and platforms. With US headquarters located in Wayne, PA -SAP markets two frontline products: R/2 and R/3. Both share many features and provide similar functionality via an integrated suite of software application modules.

The modules address the requirements of most companies and are available for selection based on a company's individual requirements. Thousands of companies in more than 50 countries have chosen SAP client / server and mainframe business applications to manage comprehensive financial, manufacturing, sales and distribution, and human resources functions essential to their operations. SAP's client/server suite alone has been installed in more than 7,500 companies worldwide. R/3 is accepted as the standard in key industries, such as oil, chemicals, consumer packaged goods, and high tech/electronics.

This is not to imply that all SAP customers are large, global organizations - they are not. In fact, of the more than 12,000 SAP installations around the world, more than half are in small to medium-sized businesses. SAP AG employs a workforce of more than 32,000 and has offices in over 50 countries worldwide. SAP also offers consulting services, providing support and service for the installation and implementation of R/2 and R/3 software. SAP is now the number one vendor of standard business application software and is the third largest independent software supplier in the world, demonstrating strong performance in the third quarter of 1997. SAP is a major weighting component of the DAX, the index of 30 German blue chip companies.


Accredited to being the worlds 3rd largest independent software solutions provider and with over 32,000 staff, 12 million users and 1500 partners SAP manages to focus and deliver for people – operating in over 50 countries worldwide. The core elements of SAP are the sustainable efficiency that its solutions provide, the adaptability to current technologies and the fact that it improves day to day business functionality and processes by connecting all area’s of SAP partners in their day to day business requirements, regardless of Industry. The best way to define SAP is that it provides business solutions by connecting advancing staff, resources data and executive bosses though to the ground level workforce.


This is achieved by interfacing databases, operational systems, departmental needs and almost every form of daily application a company uses and lives by, thus proving why SAP has to be so versatile. SAP is a constantly updating platform, with technologies capable of adapting to current business environments which is essential for understanding and delivering improved methods for the supply and demand chain many businesses in today’s world face.


Convergence – if you can imagine how PC or software system can deal with a full life cycle or the task from start to finish, this is essentially what SAP provides, but with 12 million users in almost every industry today’s economy’s provide, there are many different implementations and interpretations of SAP

Business Planning For Trading

Jay's Market outlook for 28th June, 2006 : European markets declined yesterday, and the US indices finished with a proportionately larger loss. Asian markets are down sharply this morning, and global markets are facing strong selling pressure now. We too can therefore expect a fall today, despite the indices improving yesterday.

Business Planning For Trading :


When people choose to trade the markets, they always want to rush in and get started straight away. They foolishly think that are going to miss the next “big wave.” But the market doesn’t know when you get in or when you get out. So don’t be foolish, take the time to plan. ~Mel
The entry price to being a trader or investor is fairly low. All you need is enough money to open an account. Your broker doesn’t care whether you understand expectancy or objectives. Your broker doesn’t care whether you understand that position sizing is the key to meeting your objectives. And your broker certainly doesn’t care that you must have your personal psychology in order for any of the other to matter.

Your broker cares about two things:
1. That you have enough money to open an account, and,
2. That you don’t lose many times the value of your account so that the broker gets in trouble.
That’s it!
You can easily open an account without knowing the first thing about trading.


Is this true of other professions? Can you become an engineer without understanding calculus? Can you become a doctor without going to medical school? Can you be an attorney without passing the bar? Of course not.
Similarly, could you play golf against a pro the first time you stepped on a golf course? Would you put yourself in a chess tournament against a master player if you’d never played before? If so, the worst you could do is lose a few games or your pride.
But what do people lose in the markets? Anything from a few dollars to their life savings; yet there are no rules about who should or shouldn’t be in the markets.
Day in, day out, people jump into the markets recklessly: without experience, without training and most definitely, without any type of formal plan. In fact, your broker may not even know the real nuances and fundamentals of safe and profitable trading themselves. And more often than not, people who open a brokerage account will lose money.
If you are serious about being a good trader, then you need to approach the practice of trading with the same level of rigor in which you would approach any high level endeavor. The market does not owe you or anyone great riches. The market does, however, occasionally tease a large number of people with seemingly easy gains (during bubbles and other manias) only to take them away again.

Trading is a business. It’s a profession. It’s a skill to learn.
Most businesses fail because they fail to plan.
Business planning is the backbone to success. It shows you where you’re coming from and helps you to organize your thoughts and your objectives, and come up with a plan to keep you trading successfully and in the markets for the long term.
Therefore Van recommends that every trader or investor develops a thorough business plan to guide your trading. And even if you are trading well, he still recommends developing a planning tool. Those who are doing well will just have a little less work to do.
Your business plan should cover all of the following areas:
* Your vision.
* Your purpose.
*Your objectives.
* A thorough self-assessment of your strengths and weakness based upon real trading logs that * you collect (if you haven’t done so already).
* A thorough assessment of the big picture and the fundamentals that might be behind any trend.
* A complete understanding of your beliefs about the market.
* Procedures for getting empowering beliefs and mental states behind you.
* A documentation of your research procedure for developing new systems and determining how to analyze their effectiveness.
* Your procedures for developing and maintaining discipline.
* Your budget and cash flow systems.
* Other necessary systems such as marketing, back office record keeping, etc.
* Your worst-case contingency plan.
* System 1—which is compatible with the big picture.
* System 2—which is also compatible with the big picture.
* System 3—which might come into play should the big picture change.

If you have all of those things, then you have a chance of doing well. But your business plan becomes a tool for you to continually use to improve yourself and your trading.
How to Handle Hot Tips:
What happens when someone gives you a tip or idea about the market? Do you get very excited about it and want to act? In some cases, you probably do act. Or, do you become skeptical and suddenly distrust the person giving you the tip? Or do you notice if the tip fits into your game plan? If it fits your plan, you need to do more evaluation according to the criteria that you use in your plan. If it does not fit, then you simply discard it, saying that’s not something I know much about.
The only correct response to any “hot tip” is to integrate it into your game plan for trading to see if it fits and you can evaluate it. An improper response is to go out and buy some closed end Thai mutual fund just because “Van recommended it."
Van discusses mental rehearsal as one of the ten tasks of trading. The point of mental rehearsal is to determine what could go wrong with your trading plan and determine how to deal with it in your mind. That way, when it does occur under the heat of battle, you are ready to deal with any distractions that might come up. Think of the tip you received as a possible distraction. How did you react?
This tip is a test in several ways. First and foremost it is a test of whether or not you even have a game plan.
Do you have a plan that helps you deal with learning of a “new sure-fire can’t lose” investment you’ve heard about? If not, then it’s time you developed one. Just do whatever it takes to develop a thorough business plan to cover your trading or investing.
Having a plan of this nature is so important that Van ranks it among his top requirements for traders.
Every outcome is preceded by a process. You will not make money trading unless you follow a predetermined plan and continually stick to that plan. That’s why you should pat yourself on the back every day if you can honestly say that you totally followed your rules throughout the day. Every "Market Wizard" arrives at that stature by taking one trade at a time. The primary difference between that person and the average trader is that the Market Wizard probably continued to follow his plan every single day. ~Van Tharp

About Author : Van Tharp: Trading coach, and author Dr. Van K Tharp, is widely recognized for his best-selling book Trade Your Way to Financial Fre-edom and his outstanding Peak Performance Home Study program - a highly regarded classic that is suitable for all levels of traders and investors.

Experts, Novices, and Trading Performance: by V. Zeriderhofer

Jay's Market outlook for 23rd June,2006 :
European markets posted moderate gains, and US indices aloso rallied for the second successive session. In AsiaHang Seng is up smartly. Overall, global markets seem to be recovering now. The global rally may help our market today.

Experts, Novices, and Trading Performance: by V. Zeriderhofer

A large body of research examines skilled performance in various fields by comparing experts with novices. These fields range from athletics (both team and individual sports) to chess to various performing arts. Having now read scores of books and research studies on the topic, I see where much of this research could be of value to traders seeking to achieve their own levels of expertise.

A book that I am planning for 2006 will chronicle these investigations--and their implications for trading--in considerable detail. This article will focus on one particular finding of interest from studies on expertise in medical diagnosis: the differences in reasoning styles between accomplished professionals and neophytes.

Having taught in a medical school for 19 years (and having traded stocks and equity indexes longer than that), I can vouch for the similarities between arriving at medical diagnoses and coming up with trade ideas. Both involve an initial absorption of detail, followed by a comparison of the details with known patterns, and then a sharpening of one's ideas prior to taking action. Traders and physicians alike bring with them mental maps of familiar patterns based upon didactic learning, research, and personal experience. In that sense, a trader's assessment that we are moving higher is not so different from a psychologist's diagnosis of an anxiety disorder. The trader knows what trending markets look like--including certain configurations of price, volume, and volatility--and the therapist has an internal representation of anxiety disorders. Pattern search following careful observation is crucial to their expertise.
It turns out in the medical expertise literature that novices (such as beginning medical students or laypeople) lack the internal representations of experienced professionals and thus have a harder time making sense of the data they collect. Such novices will collect blood test results, physical findings, and data from the medical history in a far more haphazard fashion than experts, creating both inaccuracies and inefficiencies. Most crucially, the novices employ what researchers call "backward reasoning": they jump from initially presented information to diagnostic impressions and then move backward from their impressions to identify data that support their views. For example, an inexperienced psychology student might observe low energy in a patient and leap to the impression of depression. From this impression, the neophyte therapist would ask questions that would be relevant to mood disorders generally and depression specifically.

Expert doctors, however, do not function this way. They employ "forward reasoning". They collect a wide range of data that are relevant to making differential diagnoses. Instead of jumping to a single conclusion, they have in mind several possible conclusions and collect the data needed to distinguish among them. Thus, for instance, the expert therapist would seek a blood workup and a full history and physical to accompany the usual psychosocial questions regarding mood. This is because the expert knows that low energy in a patient can be the result of hormonal imbalances, nutritional deficiencies, and disease processes--not just depression. Where the novice works backward from an initial impression, the expert assembles large amounts of data into clusters and narrows hypotheses until the best one remains.

It is not unusual for traders to become married to market opinions: They get an idea in their head where they think the market is going and then they ignore information that tells them otherwise. I have watched traders selectively pick information from markets that confirms their biases while ignoring huge trends that are contradicting their ideas. Only after their markets close do these traders look back and wonder how they could have missed what was so obvious.

I contend that the trader who is married to an opinion is behaving like novices in the medical expertise studies. They form an impressionistic view of their market and then search for evidence to support their bias. Expert traders, however, "let the market come to them": they gather enough information to sort out random movement from significant tendencies, eventually arriving at trade ideas that represent their diagnosis of the market. New traders, I've found, are like medical students in that they haven't received enough training and seen enough variations of patterns to know how to assemble data into differential diagnoses. Only with repeated experience do they learn to identify meaningful clusters of information and use these to sort plausible ideas from implausible ones.

If this is true, trader education might need to more closely approximate medical education. Traditional medical education consists of a pre-clinical phase that teaches basic science fundamentals, so that students understand principles of anatomy, biochemistry, cell and molecular biology, pathology, and the like. After this comes a very different clinical phase where learning is at the bedside, with students encountering a variety of clinical cases and "reading up" on these. Traders, too, need a basic education in the fundamentals of auction markets and statistics, so that they understand the significance of bids, offers, volume, and price levels and patterns that appear over time. After the basics, however, traders learn at their equivalent of the bedside: by viewing markets under varying conditions and looking deeply into these.
Ultimately, what physicians and traders learn is not just a fund of knowledge, but a method of reasoning. What makes a good trader may come less from the trade ideas themselves than from the forward reasoning process used to generate these ideas. Traders who keep journals and work on their performance may want to think about monitoring more than their moods, trades, and profits/losses. They also need to think about their thinking.

A Trader’s Self-Evaluation Checklist

Jay's Market outlook for 16th June, 2006: European and American markets recorded strong gains last night, and Asian stocks are also off to a flying start today. The global short-term trend is clearly up, and very strong at the moment. We can expect to see another day of large gains here today

A Trader’s Self-Evaluation Checklist : by Brett N. Steenbarger, Ph.D.

1) What is the quality of your self-talk while trading? Is it angry and frustrated; negative and defeated? How much of your self-talk is market strategy focused, and how much is self-focused? Is your self-talk constructive, and would you want others to be talking with you that way while you’re trading?

2) What work do you do on yourself and your trading while the market is closed? Do you actively identify what you’re doing right and wrong in your trading each day—with specific steps to address both—or does your trading business lack quality control? Markets are ever changing; how are you changing with them?

3) How would your trading profit/loss profile change if you eliminated a few days where you lacked proper risk control? Do you have and strictly follow risk management parameters?

4) Does the size of your positions reflect the opportunity you see in the market, or do you fail to capitalize on opportunity or try to create opportunities when they’re not there?

5) Are trading losses often followed by further trading losses? Do you end up losing money in “revenge trading” just to regain money lost? Do you finish trading prematurely when you’re up money, failing to exploit a good day?

6) Do you cut winning trades short because, deep inside, you don’t think you’ll be able to make large profits? Do you become stubborn in positions, turning small losers into large ones?

7) Is trading making you happy, proud, fulfilled, and content, or does it more often leave you feeling unhappy, guilty, frustrated, and dissatisfied? Are you having fun trading even when it’s hard work?

8) Are you making trades because the market is giving you opportunity, or are you placing trades to fulfill needs—for excitement, self-esteem, recognition, etc.—that are not being met in the rest of your life?

9) Are you seeking trading success as a part-time trader? Would you be seeking success as a surgeon, professional basketball player, or musician by pursuing your work part-time?


10) Can you identify the specific edges you possess over the many other motivated, interested traders that fail to achieve success in the markets? Do you really have an edge, and—if so—what are you doing to maintain it?

The Importance of a “Price Discipline” : D. R. Barton, Jr.

Jay's Market Outlook for 15th June , 2006 : European markets were mixed and little changed, while US stocks rallied quite strongly last night. Asian markets are up this morning, and the global short-term trend has turned up finally. This could help finally trigger a rally here today.


Trading Tip
The Importance of a “Price Discipline”
by D. R. Barton, Jr.

“The price of excellence is discipline. The cost of mediocrity is disappointment.”
-- William Author Ward

My friend and great trader Tim V. talked ad infinitum about what he called his “price discipline.” I got the basic meaning at first, but it took me a little longer to understand the subtleties and power of this term.

You see, by price discipline, Tim meant much more than just having the restraint to stick to your buy and sell points. He was really talking about building a belief system or attributing a structure to the market. And there is real power in that.

If you don’t have a specific belief system about how the market works, your mindset and trading can get blown around by any wind that comes along, be it an ill wind or a favorable one.

A price discipline or structure that you believe in is so valuable because:
• It takes the “need to be right” away from you. It’s no longer you who is right or wrong about the position, it’s your price discipline. It’s much easier to get out of a position because the Gann Number / Elliott Wave count / moving average band was wrong than it is if it’s your idea and your position.

• Nothing is right every time. So finding the perfect market structure or price discipline is impossible. Finding one that is useful (meaning profitable) and fits you is much more important. Then you can stick with it in bad times and good ones.

• It gives you a framework for decision making. You can base a trading system on this framework. More sophisticated traders create a family of trading systems around their price discipline to take advantage of different time frames and other subtleties. And some people have such a well-defined market structure that it takes the place of a system in their trading. The folks that trade in this way are the most sophisticated traders that I know.

Negatively Skewed Trading Strategies : By Glyn A. Holton

Jay -> this is a good article about, strategies which consistently make money but can occasionally give all that (and more ) Back.

Imagine a speculative trading strategy that is guaranteed to make money 98% of the time.
Are you interested? There are many ways to accomplish this. Here is a stylized example:
You draw a card from a 52 card deck. If it comes up any card other than the ace of
spades, you earn a million dollars. If it comes up the ace of spades, you lose 52 million
dollars. On average, you will lose just over $19,000 each time you play, but you will win
51 out of 52 hands. This is what is known as a skewed trading strategy.

Here is a non-stylized example. A client of mine recently hired a new head trader. One
five-minute meeting with the guy was enough to convince me he was a bad apple, but my
stark warnings weren’t enough to curb the client’s enthusiasm for their new hire. The
trader set to work and quickly established himself as a consistent money-maker. Month in
and month out, he earned three million dollars for the client. It was like clockwork. He
was the champion trader—the trader who walked on water. He went around telling
people “I’ze the man!” Less than a year after he joined the firm, it all fell apart. In one
bad month, he lost 30 million dollars. To make matters worse, he tried to cover up the
losses by hiding losing trades in his desk draw, but that is another story. The trader had
been making his money by selling way out-of-the-money options. Month in and month
out, he pocketed three million dollars in premiums, until one month when the markets
moved dramatically against him and the options were exercised. He had been trading a
skewed strategy.
Skewed trading strategies derive their name from the shape of the probability distribution
of the P&Ls they generate. Exhibit 1 indicates the shape of the distribution for the P&L
of a non-skewed trading strategy. It is symmetric. Absent a competitive advantage or
disadvantage, this strategy will, on average, break even before financing and transaction
costs. This means that the distribution will have an expected P&L of zero. Fifty percent
of the time the strategy makes money. Fifty percent of the time it loses money.

While the actual shape of the P&L distribution of a skewed trading strategy depends upon
the particular strategy and the length of time over which P&Ls are calculated, they all are
skewed. Exhibit 2 illustrates such a P&L distribution. Again, absent a competitive

advantage or disadvantage, the strategy will break even on average. Its expected P&L is
zero. However, because of the negatively skewed distribution, there is now a high
probability of making a little money and a low probability of losing a lot. Overall, there is
a sixty percent probability of making money and a forty percent probability of losing
money.

Those probabilities can be made more extreme by increasing the skewness of the
distribution. How do you do that? The answer depends upon your particular trading
strategy. If you are selling out-of-the-money options, sell options with even further outof-
the-money strikes.
There is an old saying on trading floors:
Watch the trader who makes consistent money. He is the one who is going to
blow up.
Hedge funds are a category of investors that make consistent money. They also have a
noticeable tendency to blow up. Long Term Capital Management (LTCM) is the obvious
example, but there have been others … the Granite Fund, Fenchurch Capital Management
and the Manhattan Fund.
Many of the trading strategies—statistical arbitrage, convergence trades, risk arbitrage—
that hedge funds employ are negatively skewed strategies. Here is an example. A trader
tracks over time the credit spreads of a large set of bonds. When a bond’s spread widens,
the trader buys the bond. He waits for the spread to return to its historical levels, sells the
bond, and pockets a profit. It works like a charm, except occasionally the spread
continues to widen, and the trader is left holding a distressed bond.
When a bond’s spread widens, this usually means something has happened to cause
investors concern about the issuer. Most of the time, those concerns aren’t realized, and
the spread returns to its past levels. Occasionally, the concerns prove all too valid, and the
spread continues to widen. In this sense, statistical arbitrage is like selling far out-of-theContingency

money options. It makes consistent money, but occasionally realizes a dramatic loss. It is
a negatively skewed trading strategy.

Do hedge funds add value? No one is sure. Their returns are so dominated by the
skewness in their trading strategies that it is impossible to tell. I suspect that, after the
managers have subtracted their management fees, investors are taking a bath. Of course,
this can be true only on average. Investors in hedge funds that don’t blow up often make
money. Investors in hedge funds that do blow up lose their shirts.
Value-at-risk (VaR) is the standard tool for assessing market risk in trading portfolios.
Most implementations are poorly equipped to warn of skewed trading strategies.
Depending upon the specific trading strategy and the specific VaR implementation, your
VaR measure may or may not recognize what is going on. If a trader is selling far out-ofthe-
money options, a Monte Carlo or quadratic VaR measure will recognize this. Either
type of VaR system can be modified to report the (mathematical) skewness of a trader’s
P&L distribution along with the usual measure of his VaR. The more negative that
skewness number, the more you should be concerned.
Most VaR systems cannot recognize skewness arising from other trading strategies, such
as statistical arbitrage. They do not incorporate a sufficiently sophisticated model of
relative price dynamics to do so. The solution is to be aware of what trading strategies are
skewed and closely monitor traders to see how much they rely on those strategies.
If you have a trader walking around saying “I’ze the man,” it may be too late.

Glyn A. Holton is a risk consultant and author of the new book Value-at-Risk: Theory
and Practice.

Implementing Money Management Techniques

Jay's Market Outlook for 7th June, 2006 : European markets lost heavily last night, and US stocks declined as well - even though they closed near their session highs. Asian stocks are down again this morning, and the global short-term trend continues to be down. The odds favour at least an initial decline today.

The market’s intermediate trend has been down since the sensex’s May 11 market top of 12,671. An intermediate uptrend appeared to have started after that, but it fizzled out immediately, and is best ignored.The levels to be crossed to enter an intermediate uptrend have now come down to 10,552 for the sensex, 3,125 for the nifty

A fall below 9,000 (rounding down to a psychologically important figure) will confirm the existence of a bear market. The sensex would go below its 200-day moving average when it falls under 9,600. The CNX Midcap has just fallen below its 200-day moving average.


Todays Learning :

Implementing Money Management Techniques

Implementing sound money management encompasses many techniques and skills intertwined by the trader's judgment. All three of these ingredients must be in place before the trader is said to be using a money management program along with their trading. Failure to implement a good money management program will leave the trader subject to the deadly "risk-of-ruin" exposure leading eventually to a probable equity bust.

Whenever I hear of a trade making a huge killing in the market on a relatively small or average trading account, I know the trader was most likely not implementing sound money management. In cases such as this, the trader more than likely exposed themselves to obscene risk because of an abnormally high "Trade Size." In this case the trader or gambler may have gotten lucky leading to a profit windfall. If this trader continues trading in this manner, probabilities indicate that it is just a matter of time before huge losses dwarf the wins, and/or eventually lead to a probable equity bust or total loss.

Whenever I hear of a trader trading the same number of shares or contracts on every trade, I know that this trader is not calculating their maximum "Trade Size." If they where, then the "Trade Size" would change from time to time when trading.

In order to implement a money management program to help reduce your risk exposure, you must first believe that you need to implement this sort of program. Usually this belief comes after having a few large losses that cause enough psychological pain that you want and need to change. You need to understand how improper "Trade Size" actually will hurt your trading.
Novice traders tend to focus on the trade outcome as only winning and therefore do not think about risk. Professional traders focus on the risk and take the trade based on a favorable outcome. Thus, "The Psychology Behind 'Trade Size'" begins when you believe and acknowledge that each trade's outcome is unknown when entering the trade. Believing this makes you ask yourself, how much can I afford to lose on this trade and not fall prey to the "risk-of-ruin" outcome?

When traders ask themselves that, they will then either adjust their "Trade Size" or tighten their stop-loss before entering the trade. In most situations, the best method it to adjust your "Trade Size" and set your stop-loss based on market dynamics. During "draw-down" periods, risk control becomes very important and since good traders test their trading systems, they have a good idea of the probabilities of how many consecutive losses in a row can occur. Taking this information into account, allows the trader to further determine the appropriate risk percentage to take on each trade.

Let's talk about implementing sound money management in your trading formula so as to improve your trading and help control risk. The idea behind money management is that given enough time, even the best trading systems will only be right about 60% to 65% of the time. That means 40% of the time we will be wrong and have losing trades. For every 10 trades, we will lose an average of 4 times. Even trading systems or certain trading set ups with higher rates of returns nearing 80% usually fall back to a realistic 60% to 65% return when actually traded. The reason for this is that human beings trade trading systems. And when human beings get involved, the rates of returns on most trading systems are lowered. Why? Because humans make trading mistakes, and are subject from time to time to emotional trading errors. That is what the reality is and what research indicates with good quality trading systems traded by experienced traders.

If we are losing 40% of the time then we need to control risk! This is done through implementing stops and controlling position size. We never really know which trades will be profitable. As a result, we have to control risk on every trade regardless of how sure we think the trade will be. If our winning trades are higher than our losing trades, we can do very well with a 60% trading system win to loss ratio. In fact with risk control, we can sustain multiple losses in a row without it devastating our trading account and our emotions. Some traders can start and end their trading careers in just one month! By not controlling risk and by using improper "Trade Size" a trader can go broke in no time. It usually happens like this; they begin trading, get five losses in a row, don't use proper position size and don't cut their losses soon enough. After five devastating losses in a row, they're trading capital is now too low to continue trading. It can happen that quickly!

Three Trading Principles To Aid In Your Success As A Trader

Three Trading Principles To Aid In Your Success As A Trader - By Larry Pesavento, Leslie Jouflas


It is a given that traders cannot win 100 percent of the time, because with reward comes risk, and losses are as much a fact of life as taxes and death. But there are highly valuable lessons to be learned about the trading process that go far beyond the dollar signs. How traders put reliable steps in place to ensure that their performance may be enhanced on the road to success is critical. For most success is dependent not only on what is done correctly but also on what potentially havoc-wreaking mistakes can be avoided and/or corrected.
There are three principles that can aid in anticipating and possibly avoiding mistakes, they are;
1. Probability
2. Self Discipline
3. Responsibility

These are simple enough to write about, but harder to carry out.

Probability; Trading is all about probabilities and while every trader encounters a losing streak or draw down of equity, success as a trader is measured by how well losses are handled mentally. A sure sign of potential disaster is holding large losses in open positions while at the same time taking many small profits. A trader mentally dupes himself into believing that the small profits will offset the large losses. This is working against probabilities and a winning strategy.

Most losing streaks are the result of probability distribution. As an example, in 100 trades a system should encounter a losing streak of up to eight trades in a row. This is usually the time the trader begins to question the validity of the system. It is also the worst time to stop trading; the trader must continue to follow his methodology, because it has been shown that winning streaks generally follow losing streaks.

Traders must train themselves to think in terms of probability for three very important reasons:• No one knows with 100 percent certainty whether the trade will be profitable or not.• No one knows how much money will be made or lost on a trade.• If the trader does not control the profit outcome and does not know with 100 percent certainty which trade will work, then the trader should spend 100 percent of his time concentrating on the only element of the trade he can control – the risk.

Take care of your losses and your profits will take care of themselves. This is sage advice from Amos Barr Hostetter of Commodity Corporation.

Self Discipline; Trading is all about discipline; discipline to take the trade and more importantly to take the loss when necessary. If you possess the necessary discipline to follow a profitable methodology it can lead you to freedom – the freedom to make as much money as you need, work at a profession you love, and the freedom to do what you want to do!

Discipline is a two part process:
1. Preparation2. Execution

Preparation covers several aspects, such as mental preparation; thinking through what risks are present in the trade, knowing how to get out of the trade - this is very important. Getting in most times is much easier than getting out. It has been said that it is better to be out of a trade wishing you were in – than in a trade wishing you were out.
When the markets are closed, that is the time to prepare your self mentally for trading. You want to avoid making compulsive trading decisions while the market is moving. Your preparation prior to the market open should consist of your trading plan for that trading day.
We suggest not consuming alcohol during the trading week and getting adequate rest is important to preparing yourself mentally for trading and eating a healthy diet along with physical exercise. These will all contribute greatly to trading successfully and should be part of your personal discipline.

The execution part of discipline involves preparation for the actual trades, doing the technical analysis work or the fundamental work. Knowing what you are going to trade requires homework. covers several aspects, such as mental preparation; thinking through what risks are present in the trade, knowing how to get out of the trade - this is very important. Getting in most times is much easier than getting out. It has been said that it is better to be out of a trade wishing you were in – than in a trade wishing you were out.

When the markets are closed, that is the time to prepare your self mentally for trading. You want to avoid making compulsive trading decisions while the market is moving. Your preparation prior to the market open should consist of your trading plan for that trading day.
We suggest not consuming alcohol during the trading week and getting adequate rest is important to preparing yourself mentally for trading and eating a healthy diet along with physical exercise. These will all contribute greatly to trading successfully and should be part of your personal discipline.

We are pattern recognition traders and routinely follow various stocks, futures and commodities. Each pattern we trade has its own probability of success and each pattern has its own measurement of risk control. You must have a plan for executing your trades and be able to follow that plan.

The mixture of the execution process is risk control and profit protection. Finely tuned execution skills are going to account for a great percentage of success in trading.

Risk is the only thing we can control in the trading process. We can never know which trades are going to work or how much we will make on a trade.
Profit protection requires monitoring the price action in order to reduce risk as soon as possible. Once a trade begins to work, it is good money management to take steps to reduce risk in the trade. If you control your risk the probability of getting a winning streak is increased. If you don’t control your risk, the probability of ruin is certain.

Maintaining routines can be very helpful in developing discipline in trading. Every trader develops different routines they follow, but they should always include ample time for preparing mentally and technically for the next trading day. Another benefit to having a trading routine is that it will help re-center you when your trading is off or you are going through external pressures. We would strongly recommend doing some type of chart work by hand, this is a great part of a trading routine as it helps the trader recognize patterns and opportunities.

Responsibility; in trading this can not be emphasized enough. The trader must have an attitude that they take responsibility for their trading. The markets are not responsible, the brokers are not responsible, the computers are not responsible, only the trader. Once the trader adopts this attitude setbacks will be much easier to deal with. Of course the unexpected can and will occur in trading, but you must learn to take it in stride and go forward. Trading requires the ultimate characteristic trait of responsibility because markets are like a river and we have to jump in to be involved. Once we are in the grasp of the market and all of its forces only you can save
yourself.

One excellent way to take responsibility for your trading is to keep a trading journal. The journal can review the days trading and set a plan for the next day, address trading errors with solutions and also record successful patterns from winning trades.
Probabililty, discipline and responsibility are all elements that go hand in hand with each other in trading. They each have many different levels and aspects that can aid a trader on his journey to success.

Train to Failure - Becoming the Person You Know You Can Be

Jay's Market outlook for 2nd June, 2006 : European markets posted moderate gains, and US indices rallied for the second successive session. In AsiaHang Seng is rallying smartly (though Nikkei is down). Overall, global markets seem to be recovering now. The global rally may help our market recover, even though it finished weak yesterday.

Today Learning :

Train to Failure - Becoming the Person You Know You Can Be

This is one of the shortest articles, and it may be one of most important.
In bodybuilding, there is a principle known as "train-to-failure" (TTF). The idea is that
you lift that amount of weight that permits you at least ten repetitions, but continue the
lifting to the point of failure: the point at which you can no longer sustain the repetitions.
Such a heavy-duty program, as outlined by the late Michael Mentzer, is low force (to
minimize injuries) and high intensity (drawing upon the body's full reserves). This
program also contradicts usual practice, which has athletes lifting every day. Mentzer, a
world class bodybuilder, found that a limited number of repetitions to failure were
sufficient to stimulate muscle growth, as long as there was an adequate period of
recovery following the training stimulus. When first espoused, the idea of doing a
limited number of intense repetitions and then staying out of the gym during the recovery
phase was heretical. Now it is the backbone of many successful approaches to
bodybuilding and strength training.


As Mentzer noted, the idea of TTF is itself a reflection of a principle in exercise
physiology called SAID: Specific Adaptation to Imposed Demands. The body, according
to SAID, will develop along the lines of the demands imposed upon it. If you impose
intensive demands upon a muscle set, that set will develop more than others that have not
been challenged. The opposite of SAID is deconditioning: the absence of demand upon
the musculoskeletal system. Astronauts in space for a considerable period of
weightlessness lose body mass due to deconditioning and, at times, have had to be carried
from their spacecrafts due to a loss of strength. Their bodies adapted to the absence of
demand.


The vast majority of people live their lives the way uninformed athletes train: they take
on too many demands, none of which are sufficiently intense to take them to failure.
Theirs is the equivalent of lifting a twenty-pound barbell for hours on end. They become
tired, but not strong. By the time they get old, they are chronically tired, and then retire
from all demands. For many, retirement is an exercise in mental, physical, and spiritual
deconditioning.


Truly great people live their lives on a TTF basis. They challenge themselves until they
fail, and that provides new challenges. They ultimately succeed, because the challenges
that produce failure also build their adaptive capacity. Their minds and their personalities
exhibit SAID: they adapt to imposed demands.


Now ask yourself: If you trained in the weight room as hard and as smart as you train for
trading success, how strong would you be?


The reality is that few traders train at all, and those that do rarely impose demands on
themselves that require growth and adaptation. The bodybuilder knows that effort is a
friend, a stimulus to development. You push yourself to your limits, and then you adapt
to those imposed demands. In simulated trading--and in the practice that comes from
trading small size--it is not enough to concentrate and focus: you develop the capacity to
operate in "the zone" by testing the limits of your mental stamina. Similarly, don't just
follow your trading ideas; test them until they break. Then you'll be able to figure out
where they are weak and how you can fix them. We cannot know our limits unless we
are willing to venture beyond them.


Mentzer realized that, to become the person you know you can be, you have to do more
than you think you can do. Paradoxically, you will find your greatest freedom, in the
gym and in life, in the imposition of your most stringent demands.

Essential Reading for a Trading Career : List Of Books

Jay's Outlook for 1st June : since the Indian markets are moving down each day, the short and Medium trend is definitely down. If this trend continues as expected, then we should see more the fall today.


Todays Learning :

Essential Reading for a Trading Career : List Of Books

• Trading For A Living - Alexander Elder
• Trading to Win - Ari Kiev
• Connors on Advanced Trading Strategies – Larry Connors
• Fooled by Randomness The Hidden Role of Chance in the Markets and in Life – Nassim Nicholas Taleb
• A complete guide to the futures markets - Jack D. Schwager
• A Multifractal Walk Down Wall Street - Benoit Mandelbrot
• Beyond Technical Analysis. How to Develop and Implement a Winning Trading System - Tushar S. Chande
• Campaign Trading – Tactics and Strategies to exploit the markets – John Sweeny
• Chaos and Order in the Capital Markets - Edgar E. Peters
• Come Into My Trading Room - Alexander Elder
• Day Traders Bible or My Secrets of Day Trading In Stocks - Richard D Wyckoff
• Disciplined Trading - van K. Tharp
• Dynamic Hedging. Managing Vanilla & Exotic Options - Nassim Nicholas Taleb
• Fractal Market Analysis - Edgar E. Peters
• Hit and Run Trading - Jeff Cooper• How to make money in stocks - William J. O'Neil
• Reminiscences of a Stock Operator - Edwin Lefevre• Smarter Trading - Perry J. Kaufman
• Stock Market Logic - Norman G. Fosback
• Stock Market Wizards - Jack Schwager
• The Compleat Day Trader Vol 1 & 2 - Jake Bernstein
• The Day Trader's Bible - Richard D. Wyckoff
• The Disciplined Trader - Mark Douglas
• The Dow Jones - Irwin Guide to Trading systems - Bruce Babcock
• Trading in the Zone – Mark Douglas
• Day Trading with Short Term Price Patterns & Opening Range Breakout – Toby Crabel (Traders Press)
• Street Smarts – Larry Connors and Linda Bradford Raschke
• Market Wizards - Jack D. Schwager
• Master the Market with Confidence Discipline & A Winning Attitude - Mark Douglas
• Methods of a Wall Street Master - Victor Sperandeo
• Money Management Strategies for Serious Traders - David C. Stendahl
• New Market Wizards - Jack D. Schwager
• One up on Wall Street - Peter Lynch
• The new commodity trading systems and methods - Perry J. Kaufman
• Trade Your Way to Financial Freedom - van K. Tharp
• Trader Vic : Methods of a Wall Street Master - Victor Sperandeo
• Trader Vic II - Principles of successful speculation - Victor Sperandeo
• Trading by the Book - Joe Ross
• Trading Systems and Methods - Perry J. Kaufman
• Understanding Options - Robert Kolb• Winning on Wall Street - Martin Zweig