Trading Problems - Maintaining Focus

get rid of the thought and think something else.? I once heard a statement by Rebecca Fine of www.scienceofgettingrich.net that says something along the lines of ?If what you?re thinking about isn?t something that you want to have happen in the next three minutes?

While that?s a great way to live your whole life, and I certainly try to do so, it equally applies to the process of trading, specifically ensuring that we maintain focus during the conduct of our analysis.

Maintaining focus can be difficult. Not only will you face distractions from external sources, such as the phone ringing right during a prime setup, or your partner asking for a lightbulb to be changed, or your children asking for help with their homework, but you also face internal distractions from your negative fear-based trading mindset. These internal distractions may be less obvious to the novice trader, but the results can be devastating for your profitability.

If you have not yet mastered your negative fear-based trading psychology, then you are going to face never ending distractions that divert your focus from the job at hand ? consistent implementation of your trading plan.

Regardless of how these fears manifest within your trading ? complacency, boredom, doubt, procrastination, denial ? they will lead only to inconsistent and unprofessional application of your trading plan. And that cannot lead to long term consistent profits.

How do we deal with this negative fear-based trading psychology? Well, that subject cannot be addressed in one article. I?m currently working on a complete home-study program on the mastery of trading psychology, which will provide you with the tools, strategies and techniques for overcoming these issues.

However in the meantime this statement from Ms Fine provides you with a really simple tool to add to your trading toolkit, to ensure you maintain focus during your analysis despite any internal or external distractions.

The process is similar for both long term traders and short term traders. But let?s talk short term first, because that?s primarily what I do.

As a day trader, your success comes from consistent application of your trading plan. Success comes from conducting analysis on a regular basis throughout the trading session, either on the close of each candle or on a price-alert as price reaches a certain preset level, and then acting appropriately to enter, manage or exit your trades.

What do you need to do to ensure that your focus remains on the process of trading?

Here?s what I do:

1.???Document the analysis and decision making process. Have clearly defined actionable steps that you need to carry out every candle to reach your decision to hold, enter, exit, or adjust your stop loss or profit targets.

2.???Set an alarm to go off prior to every candle. If I trade off 5 minute charts, I have an alarm go off 30 seconds before the close of each candle to allow me to pause and check my thoughts. If my thoughts are not related to the objective analysis of the market and the correct implementation of my plan, then they?re discarded. My focus is then returned to the documented trading process.

This works regardless of timeframe. If I was trading off one hour charts, I?d set an alarm to activate just prior to the close of each one hour candle. If I was trading off one minute charts, I?d still set an alarm to go off just before the close of each one minute candle. If I was just waiting for a price setup at a particular price level, and had no intentions of trading until price hit that level, then I?d just set an alarm for price hitting that target.

Setting an alarm for timeframes of 15 minutes upwards is certainly a great idea, as you won?t necessarily be sitting watching the screen the whole time in-between candles. However, you might ask whether it?s really necessary for very short timeframes, such as one minute charts. The fact is though, that it is necessary, and it does work. It is amazing how often I find my mind wandering elsewhere. More often than not, it?s thinking about something unrelated to my trading plan. The alarm interrupts this thought pattern, and allows a return of thought and focus to what?s important.

Try it, and if you find yourself suddenly wondering what the MACD shows, and it?s not part of your plan, discard that thought ? it?s irrelevant to this trade. If you find yourself suddenly thinking that you need to win this next trade to get back to breakeven, discard that thought ? it?s irrelevant to this trade. If you find yourself wondering where you should go next holidays, discard the thought. Once again, it?s irrelevant. Interrupt any unwanted thoughts, and think something else that will help you trade your plan in a consistent manner.

Oh, and so that you don?t burn out through having an alarm go off every minute for an eight hour trading session, let?s add a step 3:

3.???If you are trading a very short timeframe, program breaks into your session, to get away from the markets. Relax, recharge and refresh yourself, so that you can keep up this pace.

For longer term traders, let?s say someone trading off daily charts, the problems are the same. In your case, you have a process that needs to be followed to come up with your decisions to enter a trade, exit a trade, or modify target or stop levels.

In this case, you still need to implement step one, documented actionable steps that allow for consistent application of your plan. Consider something like a checklist, or flowchart.

You can probably dispense with the alarms, as you only need to complete the process once. However for longer term traders, I?d recommend including statements within your documented process to remind you to check your thoughts, and return them to the process of trading.

Perhaps prefix every step with a documented reminder such as, ?I am a professional trader, and a professional trader trades their plan in a consistent manner?. Then, the act of commencing each step of your nightly analysis, will serve as a regular interrupt to unwanted thoughts, and a return of your focus to the job at hand.

This way, there?s no need to be going and checking other indicators for further confirmation, when it?s not part of your plan. There?s no need to be checking other news sources for further justification of your decisions, when it?s not part of your plan. There?s no need to be emailing or phoning your friends to seek their thoughts on a particular stock or chart, when it?s not part of your documented process. These are actions of people who have lost focus, and whose trading destiny is being led by their fear and greed.

As a professional trader, you simply follow your steps. And use your alarms, or documented checklist steps, to interrupt any unwanted thoughts, and return your focus to the business of trading.

So, if you don?t already have a checklist or flowchart set up for all actions that must be carried out during your analysis, then create one. And place in it reminders to monitor your thoughts, and reject anything that is unrelated to the current task at hand.

And if you day trade, set up an alarm, either price based if you simply wait for price to hit certain levels before making trading decisions, or a countdown timer if your decisions are time-based. Then reject any thoughts that are unrelated to the process of trading. And follow your plan with consistency.

Wishing you happy, and focused, trading,

Lance Beggs.
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All Rights Reserved. www.yourtradingcoach.com. Lance Beggs. Copyright 2008.

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Financial Statements: Wealth Starts With Your Personal Financial Statements

Financial Statements Introduction:

A company?s financial records usually consist of: They provide information about the profitability and general financial health of the organisation. Financial statements generally take the form of records of the financial performance of a business.

* Income Statement
* Balance Sheet
* Cash Flow Statement

An income statement, also called a Profit and Loss Statement, shows how a company?s sales or revenue translate into profit (net income) over a specific period (normally one year). It?s a record of how much a company has earned, what expenses it has paid and the resulting profit or loss.

A balance sheet, also known as a statement of financial position, is a summary of what an entity is worth at a particular point in time. It summarizes what a business owns (its assets), what it owes (its liabilities) and its net worth (its equity or capital). While the income statement is a summary over a period of time (usually a year), the balance sheet is a summary at just one point in time. The balance sheet is a ?snapshot? of a company?s health

A cash flow statement is a summary of a company?s ingoing and outgoing money over a specific period (normally one year). It is such a valuable report because it shows the cashflow strength of a business unlike the income statement which contain non-cash items.

The Importance of Financial Statements:

Financial statements are crucial instruments used by a company?s management and investors for analysis and decision-making. They pore over the numbers and create every ratio imaginable in an effort to create the most accurate financial story possible. Without financial statements knowledgeable management and investment simply wouldn?t be possible.

The Importance of Personal Financial Statements:

Everybody knows that company?s product financial reports, but it is not as widely known that you can produce your own personal financial statements. Your own income statement and balance sheet which tells you your own financial performance, just like a company?s financial statements.

Company management know that it would be impossible to run a company without financial reports giving them information about their financial strength, productivity, goal setting and so on. Is it any less logical that you need your own personal financial reports to know how well you are performing financially, just like a company?s management?

Your financial statement will tell you your financial strength. They will tell you whether you fall into the poor, middle class or wealthy class. Current statements can be compared to prior statements to create a trend, a story, over time. You can also use your financial statements for scenario analysis, such as looking at he impact of an investment on your financial position or the impact of interest rates rising.

Your Personal Income Statement:

Income statements following the following structure: Income ? expenses ? taxes = net income (also called net profit).

Rather than simply listing your incomes and expenses by item it is useful to categorise them in a way that will help you know whether you have the income and expense profile of a poor, middle class or wealthy person. The Internal Revenue Service (IRS) in the U.S. classifies all income and loss items into three categories: active, passive and portfolio.

In brief, active income is income from your salary, wages, fees, commissions, and sole proprietorship business.

Passive income is income that?s received, usually regularly, by an individual who doesn?t materially participate such as rental from real estate, royalties from patents and license agreements, and businesses you own.

Portfolio income is investment income from paper investments such as stocks, bonds, mutual funds in the form of interest received or dividends or capital gains (or losses) from their sale.

Similarly, expenses that are associated with your active income are active expenses, and so forth for your passive and portfolio expenses against your passive and portfolio income. Your active income is generally not tax deductible while your passive and portfolio expenses are tax deductible. Thus we refer to active income as bad expenses and passive and portfolio expenses as good expenses.

Income Statement:

Income (Realised)

- Active
- Passive
- Portfolio

Expenses
Deductible expenses

- Passive
- Portfolio

Non-deductible expenses
Net Income

Your Personal Balance Sheets:
Balance sheets follow the following structure: Assets = Liabilities + Equity or Equity (or net worth) = Assets - Liabilities.

Just like your personal income statement it is useful to categorise your personal balance sheet in a way that will help you know if you have the assets and debt profile of the poor, middle class or wealthy person. Assets and liabilities can be split into good and bad assets or liabilities.

Good assets are investments. In short, they put money in your bank account. Good liabilities refer to debt that is used to buy good assets, which makes the debt expense (interest payments) tax deductible.

Bad assets refer to anything else. They take money out of your bank account. They cost you money to own them. Bad liabilities, is debt that is used to buy bad assets, which makes the debt expense not tax deductible.

Just like your personal income statement, your good assets and good liabilities can be categorised as passive or portfolio based. There is no active assets or liabilities because the income is from your wage and thus there is no asset or liability.

Balance Sheet:

Assets
Good assets

- Passive
- Portfolio

Bad assets

Liabilities
Good assets

- Passive
- Portfolio

Bad assets
Net Worth

Poor, middle class and wealthy:

The makeup of your income, expenses, assets and liabilities and how they interact tells a story?your financial story. By filling in your financial statement, you can tell which class you?re in and a great deal about where you are on your wealth journey.

The poor, middle class and wealthy each have a different story, a different financial makeup, which is reflected in their financial statements. Each class?s financial statement is unique. You won?t have a poor- or middle class-looking financial statement and be wealthy.

To become wealthy, you need to understand your financial statement and create a plan to change it so that it looks like that of a wealthy person.

The poor earn only limited active income and no passive or portfolio income. They have little or no good assets or bad assets.

The middle class earn primarily active income, and little in the way of passive or portfolio income. They have little in the way of good assets and loads of bad assets and thus have little good debt and loads of bad debt.

The wealthy have loads of good debt (at least while they?re accumulating their wealth) and little or no bad debt (compared to The wealthy have loads of good debt (at least while they?re accumulating their wealth) and little or no bad debt (compared to their wealth). They have loads of good debt (at least while they?re accumulating their wealth) and little or no bad debt (compared to their wealth). The wealthy have loads of good assets which provide the passive and portfolio income and little in the way if active income. The wealthy have loads of good debt (at least while they?re accumulating their wealth) and little or no bad debt (compared to their wealth).

The wealthy have loads of good debt (at least while they?re accumulating their wealth) and little or no bad debt (compared to their wealth). The wealthy have loads of good assets which provide the passive and portfolio income and few bad assets (compared to their wealth). The wealthy have loads of good debt (at least while they?re accumulating their wealth) and little or no bad debt (compared to their wealth). In contrast the wealthy earn primarily passive and portfolio income and few bad assets (compared to their wealth).

The poor, middle class, the wealthy or a combination? So what does your personal financial statement looks like?