Systems Trading (part 5) By: Jake Bernstein www.trade-futures.com

A Few Good Ways to Lose Money Trading the Futures Markets

E.L. Thorndike, the “father” of American learing psychology, noted that there are literally thousands of “wrong” behaviors and only relatively few “right” behaviors.  His point was made in reference to the use of punishment as an aid to learning.  While punishment has been used by parents, teachers and educators for many years, it is highly effective under specific circumstances but virtually ineffective in teaching new behaviors.  If I punish you every time you do a something I don’t like, you’ll stop doing it;  however, you may still do many other things that I do not like.  I can punish you for each undesirable behavior, but my battle may be a liflong one akin to picking dandelions from a lawn without removing the roots.  While some new behaviors may be thaught with punishment, the use of rewards for appropriate behaviors gets faster, better and longer-lasting results.

Consider the ramifications for education, effective child rearing, personal development and positive interpersonal relationships. And consider the ramifications for the trader and investor.  There are literally hundreds of investor behaviors and their variation that can lead to losses.  However, there are few behaviors and their variations that can facilitate trading success.  Unfortunately, most traders are prisioners of their faulty early childhood education and are, therefore, also prisoners of their ineffective trading behaviors.

Although there are many ways to lose money in the markets, there are only a few ways to make it.  And there are even fewer ways to keep it.  While traders collectively spend millions of dollars every year attending seminars, buyiing books, tapes and trading systems, they focus little energy on learning behaviors that will fascilitate success.  Why? Because the rules of trading systems, methods and indicators are very specific, often objective, and frequently require nothing more than rote memorization.  In other words, they’re easy to learn but difficult to apply.

Behaviors that contribute to success, on the other hand, are often intangible, somewhat subjective, situation relevant and individual dependent.  No hard and fast rules apply to every traders.   Frequently, traders are not in touch with the problems that require remediation.  Not knowing what to change, they will surely be at a loss for techniques to help them make changes.

Perhaps my back-door approach will be sufficiently unorthodox to get you started.  Before discussing WT, I ‘ll tell you what you may be doing wrong.  In so doing, I hope to break the monotony of do this and do that rules; rules that, although often heard, somehow fail to find their way to the cerebral cortex.  Here, then, are some good ways to lose money in the futures (and stock) markets.

Part One, Part Two, Part Three, Part Four, Part Six, Part Seven, Part Eight, Part Nine