Don't pay dollar to keep 2 cents when wrong. Cut your losses quickly. Trade what you see, not what you think.
Joined Oct 26, 2011
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Understanding discipline- Turtle trader approach (Part 2)

In part 1, I postulated that exercising discipline on our own is like exerting control over a chest-thumping gorilla inside us.  If you think about it visually, it is almost impossible if you don’t have a strong desire and motivation to make it happen.  Exercising discipline in the trading arena is no different than exercising discipline in the martial art or boxing arena. A lot of time is needed to devote to this endeavor.  Practice, practice, & practice are needed to ingrain the actions (cutting losses and taking profits as trigger points, etc) you wanted into your trading mind.  If you are not embarking on a journey to tame your chest-thumping gorilla inside you, the probability of you being part of the 97% traders who eventually lost their hard-won gain is very high.

Nevertheless, there may be a “way” to master discipline on your own.  I said “maybe” because it is still up to each individual to take this approach seriously.  Before I get into this; let me offer a real-life example of how discipline is being instilled in a group of turtle traders hand-picked by Richard Dennis, the legendary commodity trader who, based on what I read, turned $2,000 into hundred of millions.  I’m sure some of you already know the story of how Richard Dennis and his partner came to a decision (while debating the issue in a Singapore’s turtle farm) to do an experiment to prove Richard Dennis’ theory that traders can be trained to succeed instead of being born with the talent.

Based on the books by Michael Covel and Curtis Faith, some of these turtle traders went on to become some of the greatest hedge-fund and money managers out there.  How did Richard Dennis accomplished this feat?  How did he instill discipline in these traders in such a short-period of time?

It was devilishly simple, Richard Dennis came up with an elegant solution to remove the chest-thumping gorilla in each of the traders he was training by stating that if anyone deviated from the trading methodology he was teaching, he/she would be fired.  He also reminded the traders that they were trading his own money, not theirs.

First, Richard Dennis’ approach, while simple and elegant, is not an approach anyone would try.  If Richard Dennis hadn’t done the experiment, I don’t think we will ever hear any success stories about the former turtle traders.  Come on now, who would risk million of dollars on a group of trading newbies with no experience?  Richard Dennis did it because he could.  It was like making a million dollar bet he could easily afford to lose.

Without a doubt, the new turtle traders learned shortly that Richard Dennis’ long-term strategies worked brilliantly in a trend market.  Despite some difficult periods before the trend took hold, the turtle traders were able to witness and experience first hand that draw-down and cutting losses were very much a part of the trading business.  They also experienced the trials and tribulations of seeing a long-term trend play thru to the end.  This was no easy task since they were witnessing profits disappearing, reappearing, increasing and decreasing thru out the trending phase.  As you can see, if you have the opportunity to witness and experience the strength and weakness of a winning trading system as a participant, the action of executing the trades day in and day out would eventually become part of your daily trading discipline.  The turtle traders began to “believe and trust” the trading system they were taught. In other words, these turtle traders were extremely lucky to be able to “practice, practice, & practice” proper trading discipline using real (but someone else) money; and on top of that, coached by the best trader there was at the time.

Bottom line, if you can master yourself (meaning your own chest-thumping gorilla), you can become one of the 3% successful trader.  Richard Dennis proved it.  But here the caveat, it is all depended on your commitment to tackle the gorilla inside you.  Without an effective coach and free money to practice, mastering discipline can be as difficult as preparing yourself to climb Mt. Everest.  Not every turtle traders in the group became successful, but those who did also possessed the desire and motivation to succeed.  Do you have that desire and motivation?

In human, the chest-thumping gorilla inside us is what make us stand tall among all species, it is actually our greatest asset, from business to artist, unfortunately, it is lethal in the trading arena if not cultivated correctly.

To be continued.

Good Hunting!




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