The Forum is an important feature of The Disciplined Trader Training & Support Program. It is the place where our students can share training experiences with others and ask questions to our Expert Advisers. By limiting discussions to “all things trading discipline”, we can help our students stay focused on getting results.

In this section of the newsletter we’ll pull one student’s pertinent question from the forum and give you our expert’s response, so YOU can benefit from what our students are learning.

We are proud to announce that this week’s Expert is Paul King, an expert on “Risk/Money Management.”

Any experienced trader knows the value of “staying in the game”… meaning avoiding “blowout trades” and trades that result in unexpected losses due to lack of solid risk management and/or money management.

KNOWING that you have solid risk/money management techniques in place as part of your trading plan results in a much easier path to being The Disciplined Trader… let alone watching your account grow rather than continue to experience “boom and bust”.

Paul King is owner, head trader, trading coach, and financial consultant at PMKing Trading LLC.

Paul’s background is in Information Systems, but he moved from technology to the business-side as a consultant to Wall Street companies.  His last real job (some time ago) was as a business analyst at a leading Electronic Communications network (ECN) in Times Square, Manhattan, NY.  Paul is passionate about trading and helping traders improve their performance through his international mentoring program.  Paul has trained clients all over the world including USA, Canada, South America, and Australia.  Paul has written a book about what he has learned developing PMKing Trading called “The Complete Guide to Building a Successful Trading Business”.

As well as writing articles, mini-eBooks about trading and articles published in Futures Magazine, Paul is very interested in personal finance and helping his clients (both globally and locally in Vermont) become wealthier (i.e. closer to financial freedom by reducing fixed expenses and increasing passive income).

Paul enjoys poker, wine and beer (but not the night before a trading day!), vegetarian cooking, chess, backgammon, and organic gardening.

Paul’s philosophy on trading and life in general is summed up by the old Chinese proverb “Those who say a thing is impossible should not interrupt the people doing it”.

Paul does not like to be called a Guru or and Expert.  He’s a no-excuse trader whose passionate about helping other traders experience the success that he has had.

We’re lucky to have him as part of our team of forum administrators… I’m sure you’ll agree.

Now learn from our student’s question…

The Question:

Hi Paul,

Would you give any practical suggestions of how to balance time/effort commitment to “regular” stream of income ( in my case full-time day job) and to learning of trading, system development and self discovery? How to avoid or at least minimize the effect of “catch 22″?

Thank you,

Andrey

The Response:

Trading is like any other expert profession – it requires directed study, research and development, and significant practice and real-life experience to become proficient.  In fact, a common rule of thumb to become “expert” in anything is that it takes 10,000 hours (which would take about 5 years at a full-time 2000 hours per year on average assuming you have a mentor to guide you).  The only way to significantly reduce this time is by finding someone who can help you climb the steep learning curve more rapidly, and also help you avoid spending countless hours on futile efforts.  Knowing what doesn’t work can be very valuable in its own right.

In terms of how many hours you can dedicate to trading versus your “real” job, that depends on your overall financial situation and what percentage of your fixed expenses are covered by passive income streams that don’t take any of your time and effort.  For most people, the interest on their checking account balance is the only truly “passive” income they have, so it represents a teeny tiny fraction of a percentage of their fixed monthly expenses.  My advice would be to have a plan to replace x% of your “time for money” income with passive income each year until x gets to 100% – at that point you will be free to spend all the time you wish on trading activities (or anything else for that matter).

Passive income streams do not spontaneously come into existence normally – you have to have a plan to actively work on them and develop them.  This is not a thing that comes naturally to most people because they’ve generally been conditioned to become “time for money” employees since the day they were born.

One question you could ask yourself is “Why is all my income time-for-money and none of it is scalable, passive, recurring, or repeating?”  If the answer is “because that’s what I’ve chosen to do”, then all you need to do is make different choices to change things.

Hope this helps

Paul

Did Paul’s response help you?  What do you think of this post?  Just hit the comment link to share your thoughts!

It occupies a chapter in just about every trading book ever written. It’s been preached by every lecturing market guru since the Aden Sisters danced to the music of the gold market. Go ahead and hire a personal trading coach and likely the second thing he or she will utter will be these chosen words (right after “Futures trading is speculative and only risk capital should be used.”)… and those words are, “Limit your losses and let your winners run”.

OK. We’ve been told. But you didn’t have to tell us. It makes perfect sense. “On a roll”… “Go with the flow”… “Ride the wave”… “Get out while the getting’s good”… we’ve heard both sides of those golden words massaged in numerous different phrases.

We get it.

During my trading and coaching days, I would re-visit students that I trained weeks or months previously and low and behold I would discover that many of them were actually doing the opposite… letting their losses run and limiting their gains. After a while I wasn’t surprised… I would go into a refresher visit EXPECTING to see “limit/run rule” repeatedly ignored.

I would ask the students “Why?”… There were many different stories but one main theme… all the traders, in some way, had gotten out of emotional control.

During their trainings, I had made sure that they did extensive back-testing on their systems and I did that because I knew that the more they tested and saw that their system would have been successful, the more they would TRUST in the system and have the strength the follow its signals, especially through rough periods.

Apparently simply back-testing and seeing “would-have- been” results wasn’t enough to keep these traders in emotional control. What I had been missing was that these traders were taking the losing PERSONALLY!

These new traders had been seeing losing trades as reasons to let negative thoughts into their heads. A loss would mean that all the articles they read about “gambling” futures traders may be true. All the family accusations that they were crazy futures traders … well, that could have some merit!

This kind of negative thinking (as well as other forms of futures-related negative thinking) makes it so you don’t want to take a loss.  If you take a loss, maybe your that much closer to that idiot futures trader that you’ve been accused of.

So you enter a trade (after, say, coming off a losing trade)and it starts to go south.  As the market heads for your stop, you start looking around at the news, or a chart of a “sister” commodity that’s showing strength, searching for an excuse to make it OK to lift your stop. Found it. “Hello… Cancel Bean Ticket 4154.” Stop Canceled.

If the market comes back, you’ll be the smart guy or gal that made the right move and turned a loser into a winner.  What you really just did, however, is turn a potential winner into a potential loser.. YOU.  You may have had a winning trade, but you will lose in the end.

It’s not about YOU.  It’s about THE MARKET. If you don’t take your emotions out of it, you don’t have a shot. You must see yourself as a trader not someone who is becoming a trader.  There’s very little room for mistakes in your trading. Leverage makes sure of that. If you are going to play in the Big League, you have to do act and do what the Big Leaguers do… right from the beginning.

Do all you practicing on the paper-trading playing field. Once you put your money up, you either do what your tested system tell you to do or pick a different profession. If you’re not training mentally, you’re not giving yourself the best chance laughing in the face of your relatives!

You’ve done your homework. Countless hours of seeking out the right guru (or piecing together your own system). Weeks of monitoring your guru’s daily trade picks (or paper-trading and back-testing your homemade system). You’ve done it by the book.  No seat of the pants trading for you!

OK, now you’re confident. It’s time to put your money where your homework is.

You’ve had your coffee and your first trade signal is before you. Confidence high. Trade made. First loss. Not a problem. You understood before you started that successful traders both win and lose and “losing is part of the overall winning”.

You’ve also heard more then once that “successful traders don’t win on every trade.” Moving on, still confident. Next trade made. Another loss, but this one hurt your pride a little because you got stopped out early in the trade, and then the market rebounded and would have hit your profit target if you weren’t stopped out.

You double check. Yep, you placed the stop where your trading system told you to place it.  You kind of had a feeling that the early weakness in the market was just profit-taking from the previous day’s trading, but you’re trading a system and you must stick to it. Wounded, but resilient.

After a good night’s sleep and a few mouse clicks, your new daily trades are in front of you. Hey, this one looks good! It’s a little bit more risk than yesterday’s trades had, but look at that profit potential! With a smiling face, the trade is executed.

With a nice start to the trade, you’re feeling good and you’ve moved your stop to breakeven, just like your system said. Surprise piece of news – market reverses – blows through your stop – an “unexpected” loss. Is something wrong with the system? Has the overall market “personality” changed, affecting your system to the Core, rendering all your back-testing irrelevant? Your confidence turns to doubt.

You decide to “watch” the next trade… I mean, isn’t it wise to make sure the system gets back on track before you “throw good money after bad?”  Isn’t that what a conservative trader does? Trade watched.

It wins!

In your head, you beat yourself up a little because you know that when you started your “live” trading, you made an agreement with yourself to take the first 10 trades “no matter what”… and here you wimped-out and missed a big winner that would have gotten you even.

What’s happening?!!

What’s happening is that you are out of control. Your emotions are ruling your trading. The above scenario plays out in every trader from time to time.. newbee and veteran alike.

The winning trader senses what is happening and nips it in the bud. The winning trader spends time EVERY DAY, working on “the discipline of trading”. Reads a chapter in his favorite psychological trading book, scans the “ten commandments of trading” that hangs on the wall over his/her desk, listens to his/her mental training software for futures traders… Something… Every Day… before trading begins.

There are many more losing traders than winning traders… and it’s seldom about the trading system. In my career, I’ve come across at least 50 systems that I consider A+, yet I know for a fact that MOST traders that have traded on these systems have lost. Why? They were not in control of their emotions.

Are you?