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Stabilize Your Trading By Staying True to Your Style

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...when one follows a set system or style of trading, with a fixed set of rules, if the system has been proven to work over the long term, the short term results should not at all alter your thoughts about that system.

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One of the most common mistakes most traders make is to determine the success of a trade based on the outcome rather than the decision-making that went into the trade from the onset.

I realize the actual thought of not correlating the success of a trade with the direct results of that trade sounds ridiculous, but when one follows a set system or style of trading, with a fixed set of rules, if the system has been proven to work over the long term, the short term results should not at all alter your thoughts about that system.

For example, say you have been watching Faro Technologies (FARO) for the past few weeks as it has consolidated recent gains between the $34 and $40. Each day the range has become tighter and tighter, while the volume has become less and less. One may conclude that this narrowing range may be signaling a coming break higher. Let's assume for a second that one day, the stock is showing a slight increase in volume and penetrates the $38.00 level, which would be the current trend line resistance. You start your position only to be stopped out a few days later when the stock reverses and falls back within the recent trading range, signaling a false break or bull trap.

At this point, you may conclude that the trade was unsuccessful because you lost money, however I propose that the trade was successful on the basis that you diligently followed your system. While it almost sounds ridiculous, you should be pleased you have become such a solid trader who follows their rules regardless of the environment.

Over time, even if one adheres to a style of trading that has been proven successful, there are inevitably times when trades will fail. In fact, more often than not they may fail but if you diligently adhere to your stop, you must take refuge in the fact that when a trade is successful, it will far exceed those that have been unsuccessful. Furthermore, a solid trader also knows that a period of poor trades often precludes a winning one and the winning trade, if let run, will far exceed the losses made after taking short stops on reversals.

When one does not adhere to this thought process they run the risk of becoming incredibly unstable in all their ways, constantly searching out a new method. This trader may experience a few losses adhering to a system and naturally begin to believe the system does not work at which time they may alter the system only to return to the same problem once again. This trader circles round and round attempting to find the magic formula and of course, never does.

After several years I am finally at the place where I feel very good about the trading style I have learned. Furthermore, I understand that this style will not work on every trade but I do know, without a doubt, that adhering to the style will work over the longer term with the winning trades far outpacing the losing trades.

I strongly encourage you first and foremost to refine your style. Write it down, know it cold and stick to it religiously. Evaluate your style over a longer period of time but count every trade you make under this style as a successful one and deviate from your style at your own risk.

Looking towards the tape, futures are relatively flat this morning with Target (TGT) earnings coming any moment. I suspect this could be a market mover as it will give us a better glimpse into consumer spending. Pessimism is running high and I am ready for anything.

Buckle those seat belts, I suspect it will be another wild ride.
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