By Paul Pertusi

Trading involves commitment.  I don’t just mean a time commitment, but a commitment to your plan.  If my plan is to buy AAPL above 525 on above average volume, then I’d better do it.  If I think that same AAPL long is over below 523, I’d better sell.  If I don’t execute my plan, I chip away at my trading self-esteem.  In my experience, damage to your trading psyche is worse than damage to your capital.  It takes much longer to reclaim a positive, resourceful frame of mind than it does to earn back your capital after a trading_psychologydrawdown.  It is imperative to protect both your trading capital and your emotional capital if you’re going to succeed.  This business requires one to be extremely resourceful, open-minded, and flexible.  The only way to achieve such a state of mind, is to first properly adhere to the rules that we set and the plans that we make.

It is very easy for me to show you perfect looking charts and setups.  It is much harder to properly deal with the price action nuances that will ensue, and the challenges that so often occur with getting into a stock.  I have a pretty easy time getting out of my positions, as I have seen both personally and from others how vicious the market can be.  I just draw a big red line on my E-signal charts and have a short little conversation with myself.  “When the price hits here, I am out or when the price hits there I am selling half”.  I don’t mess with the downside, as the surest way to put your trading career on hold is to let a stock go beyond a stop level.  This may be the single biggest reason that traders fail.  My trading hero is Paul Tudor Jones, who states very clearly in the 60 Minutes episode “Trader” from 1987,

“If people spent 90% of the time protecting their ass instead of 90% of the time having pie in the sky thoughts about how they will become rich from trading, they would make money”.

I will share my “method” over time, and the tools that I use to run my trading business.  I thought it best, however, to begin with psychology.  Ultimately, if you do this long enough you will see the vital importance of what goes on in between the ears.  Along these lines, make sure you build your trading network and get trading partners to guide you through this process.  In my humble opinion, there are very few lone wolves out there.  I cherish the comradery I have with the people I communicate with throughout the day.  For me, it is essential.  The surest way to lose your capital, and your mind, is to sit in front of your screen by yourself with exclusively your own thoughts.  This makes things almost impossible, as we are social beings who naturally seek the help and perspective of others.  To deny this for ourselves in the markets is trading suicide.  Seek people out, many are more than willing to help.

Paul’s trading edge is a combination of my ability to read price action on daily stock charts and my risk management technique. You can find him on twitter @thoughtfulbull and his focus list which is public and updates in real time at Stockcharts.

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