FinancialShot.com

No one likes to think about the worst-case scenario, or to make a detailed plan to recover should it happen. It’s just one strategy for learning how to trade in a relaxed but focused way so that, should you ever face a severe financial setback, you can recover from it. Trading requires intense concentration and focus, and it’s difficult to maintain this posture when the pressure is on you to perform. Therefore, you have to do whatever you can to minimize any expected or even unexpected psychological pressure.

The most obvious way to relieve such pressure is to think in terms of probabilities and carefully manage risk. By that I mean avoid overtrading, fast markets, exceptional tick size—be careful just ahead of reports that might drastically affect price movement. Avoid illiquid markets, avoid adding new risk when it appears a trend or swing may be nearing its end.
It’s useful to remember that you may not win on any single trade, but after a series of trades, you will have enough winners to make a profit in the long run. It’s also important to manage your risk. Determine your risk up-front and risk only a small amount of trading capital on a single trade. Doing that will ease a lot of the pressure, allowing you to be more open to see the opportunities that the market offers. Don’t break under the pressure of a potentially fatal loss. Think about the possibility, and be ready to recover from it.

These days planning for contingencies must of necessity include short-term planning. Because the markets have changed so considerably in recent years from what they were many years ago, contingency planning has to include trading simple methods and scalping-type setups. We are in an era of thousands of traders jumping in and out of markets using extremely short time frames. Such trading has introduced an incredible amount of noise into the marketplace. No longer can the industry claim that speculators are there primarily for the purpose of providing liquidity to the market. I have to wonder why it is not plainly stated that trading from a 1-minute chart is simply gambling? In what manner can it be said that jumping into the market one minute and out of the market 3 minutes later is in any way providing liquidity for the hedger, whose sole purpose is the long-term protection of his position?

Short-term noise is a contingency that must be planned for. Erratic, jerky moves caused by scalping must be planned for. This includes having your own plan for making scalping trades if those suit your personality and comfort level.

Plan for sudden drastic moves in the market caused by stop-running. Increasingly, and especially in the stock market, I am seeing more and more of the sudden and unexpected price melt-down, or equally sudden and unexpected price explosion. You have to learn how to protect yourself from such moves, and you might even learn how to profit from such moves.

Joe Ross
tradingeducators.com/?source=Ezinearticles/ Trading Educators Inc

Joe Ross has been trading for more than 47 years, and is a well known Master Trader. He has survived all the up and downs of the markets because of his adaptable trading style, using a low-risk approach that produces consistent profits.

Joe is the creator of the Ross hook, and has set new standards for low-risk trading with his concept of “The Law of Charts.” Joe was a private trader for most of his life. In the mid 80’s he shift his focus and decided to share his knowledge. After his recovery, he founded Trading Educators in 1988 to teach aspiring traders how to make profits using his trading approach. He has written 12 major books on trading. All of them have become classics and have been translated into many different languages.

Joe holds a Bachelor of Science degree in Business Administration from the University of California at Los Angeles. He did his Masters work in Computer Sciences at the George Washington University extension in Norfolk, VA. Joe still tutors, teaches, writes, and trades regularly. Joe is still an active and integral part of Trading Educators.