Trading offers some huge potential for people looking to be their own boss and work from wherever they want.  However, trading isn’t like a typical job where you either make money or go home empty-handed.  You can actually walk away with less money than when you started.  And over the years I’ve learned some really valuable lessons about trading that not many people like to talk about:

A trader’s most valuable asset in trading is your confidence.  If you lose your confidence, then nothing else will matter.  That’s why it’s a good idea for traders to start trading on a simulator until they’ve proven they are consistent with their trading decisions and execution.  Notice the words “consistent trading decisions and execution”.  This is more than just making a few dollars on paper over the period of a few days.  It’s all about making sure you are making consistent analysis and decisions, then executing on them at the right time.

Don’t trade with “scared” money.  In order for someone to effectively follow their plan, they can’t be worrying about losing money.  A lot of people will pump up the idea of making easy money through trading, but to even have a chance of getting to that point requires that you have no attachment to the money.  After all, that’s why they call it “risk capital”.  If someone funds their trading account with money they need to pay the bills, then they’re asking for trouble.

All strategies have draw-downs.  Although we strive to be as consistent as possible, there will be periods of time that the market just doesn’t move in a way that fits a particular strategy.  It may be for an hour, day, or longer.  The idea is to learn to identify the market environments that don’t fit your strategy.  That’s the difference between blindly trading a system or setup, and understanding market dynamics.For example, we’ve found most intra-day strategies work best in highly volatile markets, when longer-term traders get chopped out of the market.  And when the market is slower and choppy, swing trades can perform better.  In the chart below you can see the last half of 2011 was extremely volatile with an ATR above 15, average daily volume above 2.5M contracts, and big swings in price action.  Contrast that with the first quarter of 2012 where we’ve been in a slow uptrend, with ATR below 15, average volume below 2M contracts, and contracted price action.

Trading goes against how we’re taught to behave as children.  In school we’re taught, “You must strive to be ‘right’ as much as possible.”  But in trading, someone could only win 45% of the time and still make money.  So, traders must reprogram themselves to get comfortable taking losses.  It’s just part of the game.

We’re also taught to move away from pain/fear and move toward comfort/security.  But traders have to get comfortable with going against popular belief.  For example, if you buy a stock after it just moved in a straight 50% gain, the odds of the stock continuing to move higher without a retracement are low.  But if you buy after price has dropped to a Fibonacci retracement level, your odds of ending up with a gain are much better.  Of course there’s much more to that equation, but the idea is to think about all the possible outcomes, and then determine what’s most likely/probable.

Day trading futures is highly competitive.  This means it’s difficult to just read a book on technical analysis, then compete with the market.  After all, price charts are just visual representations of other market participants actions, which means you need some kind of “edge” over other people.  A common mistake most new traders make is thinking they can “guess” where the market’s headed.  The problem with that is over half of the market’s trading volume is traded by algorithms that know how to consistently wipe out undisciplined traders.

So, if you decide to take the plunge into trading any markets, take these points to heart.  It all starts with a solid education, iron will, and the ability to be able to adapt to changing market conditions.

This week’s guest post is from David Rendall, an expert in leadership and stress management.

Most of us think we have too much stress. We talk about being stressed out and everyone we know is stressed out as well. This problem seems to have an obvious solution. If we have too much stress, the solution is to reduce our stress by avoiding stressful events or eliminating stressful activities. It seems simple.

But it’s not that simple because we have an incomplete understanding of what stress really is. We use the term “stress” to refer exclusively to negative events. However, there are two kinds of stress, distress and eustress.

Distress is what we’re usually talking about when we talk about stress and . . .

- it is harmful

- it breaks us down

- it makes us weaker

- it drains our energy

Eustress is a different kind of stress and . . .

- it is helpful

- it builds us up

- it makes us stronger

- it renews our energy

This new understanding of stress points us to different solutions. If we are broken down because we have too much distress (bad stress), then we need to build ourselves back up by seeking out eustress (good stress), instead of trying to simply avoid all types of stress.

Additionally, there are four different kinds of eustress . . .

- Mental

- Physical

- Psychological/Emotional

- Spiritual

Too much stress, even eustress, in any of these areas can cause problems.

Day trading involves a lot of mental and psychological stress, but not very much physical stress. The exhaustion you sometimes feel after work might lead you to believe that you need to relax, watch TV or take a nap. But what you actually need is more stress in a different area. For example, you probably need more physical stress. You would feel better if you went for a walk, lifted weights, ran a few miles or did some yard work.

When distress drains your energy, you need eustress to recharge.

We’ll discuss all these ideas in more detail at the bootcamp in November. I’m looking forward to meeting you all then.

If you want to learn more, the video clip below offers another strategy for dealing with stress.

David Rendall is a management professor, speaker, trainer and entrepreneur, specializing in personal and interpersonal effectiveness. He has served people throughout the United States, Canada, Australia, India and the United Kingdom. You can find him at www.drendall.com and on Twitter @daverendall.