As of 03/27/2020
  Indus: 21,637 -915.39 -4.1%  
  Trans: 7,699 -346.29 -4.3%  
  Utils: 759 +1.01 +0.1%  
  Nasdaq: 7,502 -295.16 -3.8%  
  S&P 500: 2,541 -88.60 -3.4%  
YTD
-24.2%  
-29.4%  
-13.7%  
-16.4%  
-21.3%  
  Targets    Overview: 03/15/2020  
  Down arrow19,000 or 25,600 by 04/15/2020
  Down arrow6,700 or 9,000 by 04/15/2020
  Down arrow600 or 800 by 04/15/2020
  Down arrow7,000 or 8,400 by 04/15/2020
  Down arrow2,300 or 2,900 by 04/15/2020
CPI (updated daily): Arrows on 3/27/20
As of 03/27/2020
  Indus: 21,637 -915.39 -4.1%  
  Trans: 7,699 -346.29 -4.3%  
  Utils: 759 +1.01 +0.1%  
  Nasdaq: 7,502 -295.16 -3.8%  
  S&P 500: 2,541 -88.60 -3.4%  
YTD
-24.2%  
-29.4%  
-13.7%  
-16.4%  
-21.3%  
  Targets    Overview: 03/15/2020  
  Down arrow19,000 or 25,600 by 04/15/2020
  Down arrow6,700 or 9,000 by 04/15/2020
  Down arrow600 or 800 by 04/15/2020
  Down arrow7,000 or 8,400 by 04/15/2020
  Down arrow2,300 or 2,900 by 04/15/2020
CPI (updated daily): Arrows on 3/27/20

Bulkowski on Trading Commitment

 

One Secret to Trading Success: Commitment

Consider the following three trading situations for Basket Case Bob.

  1. He places a trade which results in a small profit, but he did not follow the rules of his trading system.
  2. He follows his trading system, but expects a reversal which could lead to a loss.
  3. He follows the advice of a trading advisor with an excellent record, but doesn't trust him.

Now consider the following similar three situations.

  1. Basket Case Bob makes a small profit by following the rules of his trading system.
  2. He sticks to his trading system because, over time, he knows it will make money.
  3. He follows the advice of a trading advisor with an excellent record because he trusts him.

What is the difference between situations 1-3 and 4-6? In situations 1-3, Basket Case Bob ignores his system, does not trust it, and doesn't trust his mentor. He lacks a commitment to his trading and the system he uses. In situations 4-6, there is no conflict. He is confident, in control, and committed to trading well. Which type of trader would you rather be?

One way you can tell if you are committed to trading is consistency of profit, making money year after year. But how long will that commitment last? Will you tire of the stress after a string of losses and just give up?

Trading Obstacles

Good traders know that there are many trades out there that will inflict serious losses or even bankrupt them. Their job is to avoid those trades. What are some of the obstacles to trading commitment, problems that if not fixed, chip away and distract from greater success?

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Trading Commitment: Solutions

What is the solution to lack of trading commitment? It often depends on the problem. I told one trader that was having problems selling by imagining that his mother was in the trade instead of him. What would he advise her to do? Some may find it helpful to think of the ideal trader. What would they do? Would they hesitate selling a position, or would they sell it and move on to the next one?

Make a list of your problems. If you do not know what your problems are, then track your trades. Are you entering too early or too late? Are you selling well before you should or holding on past the peak? Are you trading when you are upset or unduly happy? Are you trading for the excitement instead of the profit? Is there a common element or flaw shared between your trades? Do you hesitate when entering a trade, suspecting that this will be the one that knocks you out of the ball game? Do you know that this trade is a "no brainer," a sure win, so you double your bet and then lose three times as much when you know that the trade will work out but doesn't (so you hold on too long)?

Deal with the mental issues that are causing these behaviors. Make peace with the obstacles to commitment and put them behind you, rendering them impotent and unimportant. For example, if you fear taking a loss, then imagine taking a series of huge losses. How would you feel if that were to happen? Make the thought of these devastating losses so real, so alarming that taking a small loss is insignificant by comparison. Make taking a loss in a timely manner seem routine. Over time, those losses will diminish in importance such that taking a loss in a timely manner becomes easy.

Whether you are trading full or part time, trading commitment is measured by how serious you are about trading well. It is not about profit. It is about execution. If you execute each trade to the best of your ability, the profits will follow.

This article was based on an idea from Tharp's "The Secret of Trading Success: Commitment" article in the 1994 Bonus issue of Technical Analysis of Stocks & Commodities magazine.

-- Thomas Bulkowski

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See Also

  • Trading hesitation. Why do traders hesitate when entering a trade or exiting one? Read this to find out why and what you can do to prevent losses from growing out of control.
  • Trading stress. Learn how to deal with trading stress and anxiety to expand your comfort zone.
  • Trading barriers. Here are 11 barriers to trading success and how to fix them.
  • Trade decisively. Time to trade decisively, or is it?
  • Fear of success. Is the fear of success holding you back?

 

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