The following write up is nothing but a reproduction of Dr. Alexander Elder’s work. Many of us have at some time or the other experienced a feeling when nothing seems to be working for us in the markets. A feeling that the dark forces of the Market, are always conspiring against us. A feeling of dejection that makes us wonder whether trading is really for us??? There comes a time when every trader has to answer some serious questions regarding his being as a trader. This is where Dr. Alexander Elder’s advocates a trader’s rehab program. Please read on what he suggests;
My first advice to a fearful trader who got beaten up in the market is to stop trading for a while.
Give yourself a reasonable break, stay away from the market for at least two or three months. You cannot make money while feeling hurt and panicky. You need to put some distance between yourself and your loss. It is hard to look at the markets objectively when a loss hurts like an open wound. Taking time off will lower the emotional heat and allow the healing to begin.
Once you’ve become calmer, you’ll need to make several important choices. First of all, you’ll have o decide whether you want to continue trading.
If you decide that you love trading and want to do it right, your rehab can continue. You notice I said ‘love trading’. Everyone loves the rewards, but do you love research, studying the markets, testing ideas, placing orders? A successful trader loves the process of trading and the rewards flow in pretty much as an afterthought.
If you love trading, you have a tremendously interesting journey ahead of you. You damaged your account but now you can turn those losses to your advantage, use your experience to become a more focused, disciplined and successful trader. In order to come back, you’ll need to establish and follow several strict rules. Use your past weakness as a source of future strength, a foundation of trading discipline.
I will recommend several steps for your rehab;
- Set up and keep good records. The two main values of record keeping are accountability and self-education. Only by looking back and learning from your experience can you go forward. Before you even think of placing your next trade, set up a record keeping system. All serious pros keep good records. At a minimum, you’ll need a spreadsheet for tracking your homework; one or two lines for each index or stock, a column for each day. You will need another spreadsheet for measuring available risk in your trading account. You will need to set up a dairy for your trades.
- Set up and follow money management rules. It was poor money management that landed you in rehab. Most trading account get damaged either by a shark bite – a single disastrous loss- or by piranha bites- a series of losses that together strip the account to the bone even though none is deadly by itself. You are in rehab because you’re already had an encounter with either a shark or a pack of piranhas, or both. It was painful experience, and unless you set up good money management rules, you’re guaranteed to have another one, which will feel even worse.
The 2% and the 6% Rules, repeatedly described in this book and Come into My Trading Room, are designed to protect you from the sharks and piranhas. You must apply them to every trade.
- Find a method or methods that appeal to you. You can look at many methods, but select the one that makes emotional and intellectual sense to you.
- Make a time commitment. Decide how many hours a week you can invest in trading. Do your homework everyday, including weekends.
- Start trading a very small size. You are likely to feel a little shaky coming out of your abstinence period. The pain of your losses is still fresh, your self-confidence a little uncertain. You may set p a record-keeping system and money management rules, find a method that appeals to you, and do your homework. Still when it comes to putting on a trade, you may be afraid to pull the trigger.
I have been impressed by Dr Alexander’s work and hope this little article will also have the desired effect on my fellow readers.
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