Trading Live Online Annual Mastery Program Probabilities and Trade Execution High probability of pot knocked over

Probability Is a Key Concept Successful Traders and Investors Understand It does not mean – “It is probably going to go up or it is probably going to go down” “Probable: Having more evidence for than against, but not proven conclusively. All trading and investing activity deals in probabilities, never certainties. The objective of all market analysis and trading plans is to put the probabilities of success on our side. This includes eliminating those activities with a low probability of success and only engaging in those activities with a high probability of success.” Print out and put near mouse before entering an order

If there is a key word associated with trading and investing, it must be probability. All consistently successful investors and traders know that every trading and investing decision only has a probability of success, never a certainty. Losses are inevitable and are just as much a part of a successful trading plan as profits. If a trader has a successful trading plan, he or she should have no more emotional response to a loss than to a win. Each will be inevitable. While it may be difficult to maintain a completely non-emotional relationship to trading and investing, an understanding that trading is a business of probabilities will go a long way towards developing a stable attitude toward the business. All successful traders have a defined, written trading plan. The trading plan can take many forms. At the very least, it will provide the minimum guidelines that must be satisfied before a trade will be considered. It may be as complex as a long set of very restrictive rules that must be satisfied before a trade is considered. Each has its strengths and weaknesses. Neither method, whether guidelines or rules will ensure success, but the lack of either will ensure failure. There will be much more on developing a trading plan later in the book. * A trader who does not consistently abide by his or her trading plan is doomed to failure. Why have a plan and not follow it? Each guideline and rule must be included with reason and purpose. All successful traders and investors consistently follow their trading plan and know that if they violate their trading plan it will always be costly in the long run. The above discussion is as or more important than learning any method of technical analysis or trading strategies. Even a trading plan that included analytical procedures and trading strategies that were 100% accurate of the time would not result in profits if the trader or investor implementing that plan did not know and act in accordance with the qualities discussed above.” ‘Dynamic Trading’, by Robert Miner

What are Activities Associated with Low Probabilities? Not entering a trade setup – if you are not in it you have zero chance of making money Random trading – defined as trades taken outside of the traders trading plan Trading against a trend If you think of more write them down and see if you can identify them during the trading day. Come into each trading day knowing what your Achilles heel is

What are conditions that trigger actions that lead to low probability trading? Emotion based Triggers Fear of losing Fear of missing out Boredom “Thinking” you know where price will go Wanting to be right Peer pressure Listening and being influenced by outside sources; news, other traders, etc. 7 Typical Trading Errors 1. Hesitate, get in too late 2. Jump the gun, get in too soon 3. Define your risk but don’t take your loss and it turns into larger loser 4. Don’t define your risk in advance of putting on a trade 5. Get out of a winning trade too soon and leave money on the table 6. Let a winning trade turn into a losing trade without having taken profits when available 7. Move a stop closer to your entry point and are stopped out then market moves in your favor

What are Some Solutions? Create a well defined trading plan Follow a well defined trading plan Turn off news and other outside distractions Think of yourself as a professional trader/investor in your business, if you had to be accountable to an investor would you do random trades? If you hired “you” to manage your money would you fire “you”? Ask yourself before each trade if setup is present and if you are willing to take the risk For every challenge and issue create a solution. Keep focused

What are Activities Associated with High Probabilities Using your trading plan Entering your trade setups Trading in the direction of a trend If a range, trading against good support and resistance Doing preparation for the next days trading; be prepared for the next day. Come into each trading day as a professional trader If you think of more write them down, use them to help you visualize yourself as a professional trader who deals in probabilities Preparation is a key

Do you have a Successful Trading Plan? Some things to evaluate; Is the plan/setups successful but the execution is causing less than a desirable outcome Which area of execution needs work? Break it down Pattern/Setup Identification Market conditions such as range versus trend Entries; hesitation, too late, stretching and missing setups or no entry at all Early entries Early exits Stop losses; initial placement and moving Letting winners turn to losers Not taking losses If others write them down You can not fix what you don’t acknowledge. Many are fear of losing money based, and that is far end of spectrum from thinking in probabilities

Other Areas to Evaluate Profit Targets; Not using profit targets to exit or no exit strategy Decide to not take the exit and the trade turns into a loser Stretch for another tick or two and miss the profit Not using stop losses – Do not want to be wrong Pattern of being stopped out before taking a profit Moving a stop loss to avoid a loss Moving a stop too close too soon, pattern of this is related to fear of losing, not wanting to take the risk Execution skill - Patience to wait for the setup

“Our greatest glory is not in never falling but in rising every time we fall” - Confucius Each action you take from the preparation to random decisions will have an impact on your bottom line Create your trading plan in a well thought out and studied manner; written and executed based in probabilities. Develop strong trading habits, one action at a time Take the time to study, observe, track and practice, practice, practice! Use the worksheets as tools If you need help, ask for it!