We were sent an email recently from a part time investor which highlighted a problem many people experience.  Here is an extract from the email:

“I had a trade on the ftse and I was up £180 and the greed once again got on top of me and I lost £565.  And its been like that all my trading career.  I make my £100 a day and I say to myself, I can make a tad more and I lose it”

There is no worse trade than having a profitable trade, only to end up taking a loss on it.  So what can be done to avoid this?  Here are a few tips that every trader should follow:

Have a trading plan – know your risk and your reward before entering the trade.  By clearly identifying your profit target and your stop level before executing your trade you give yourself far more chance of actually sticking to it.  Many people enter trades without considering what they are looking to make or lose.  Have a realistic expectation and if a trade reaches the predetermined level then get out.

Book Profit – If a trade is in profit then consider getting out of some of it.  By securing some profit it will give you a buffer to fall back on should the trade begin to go against you.  This is known as “scaling out” of the position.

Conviction Level – There should be a reason for every trade you make.  Never enter a trade purely for the sake of it.  Before entering the trade ask yourself “on a scale of 1 to 10, how confident am I in this trade?”  If it is a high conviction trade you should adjust your target and your stop accordingly.  For low conviction trades keep a tight stop.  Too many people are prepared to lose the same amount on a low conviction trade as they are on a high conviction trade.  This makes no sense at all!!

Don’t be stubborn – If the market begins to show signs that it is going against you then get out!  Don’t get married to your position (i.e. blindly stick to your view).  Regardless of whether or not the fundamentals/technical indicate a specific direction, if the market chooses to ignore it then it will.  Remember, the market can remain irrational longer than you can remain solvent!  The earlier you accept that you’re wrong, the sooner you can go with the trend and start making money!  Don’t forget that stubbornly holding onto a position will come at an opportunity cost – by remaining in a position, you will inevitably end up missing other trades.

First loss is the best loss – In a similar vein to not being stubborn, if the market goes against you, get out!  Don’t hang around.  Taking a small loss will hurt a lot less than a big loss!  The quicker you can admit that you are wrong, the less it will hurt.  If you are still confident that the market will move in your direction, use the opportunity to get in at a better price.  Also, never forget that the second best trade you can make is a scratch (break even trade).

Keep a trading log and evaluate! – It is good to get into the habit of writing down all of your trades and objectively evaluating how they went.  Keeping a record of what was learnt will encourage you to continue doing that which works, and stop doing what is costing you money.  The ability to provide an honest evaluation is critical to the development process –taking a step back and considering all elements of a trade (the good and the bad) will encourage you to learn from your experiences.  Avoid evaluating in the heat of the moment (for example in the immediate aftermath of a bad trade), and avoid being too critical of yourself.  If you treat all trades as a learning experience as opposed to a judgment on your skills, your progression will be boosted.

And finally…

Be Disciplined – stick to your predefined strategy at all costs.  If a trade is in profit, under no circumstances should you ever take a loss on it.   If it looks like it is beginning to go against you then get out!  Likewise, if a trade has gone against you, don’t blindly hold on expecting it to come back.  When it reaches your predetermined stop level you must ensure you follow through with your plan and exit the trade.

Friday 9^th December saw the monthly release of the USDA crop report which documented an increase in the US ending stocks, which eased fears of tightening supplies.  This was along with the increase of global supplies in agricultural commodities, namely corn, wheat and soybeans.  This was beyond what analysts had expected also.

Learn The Edge’s own Erkut Ozer appeared on CNBC squawk box on this morning (December 12^th 2011) to discuss the outlook in the agricultural commodities in the near future and longer term.  He eluded to the seemingly bearish sentiments in the markets not being so cut-and-dried.

Click here to see his latest appearance on CNBC Sqawkbox.

Soybeans

Increases in soybean stocks were experienced in the US as well as globally.  In the US, ending stocks of soybeans were at 230 million bushels against the expected figure of 213 million bushels.  The world ending stock for December came in at 64.54 million tonnes, higher than the expected figure of 63.56 million tonnes.  The US is facing increased competition in exports from Brazil.  Typically, the US would be the main supplier of soybeans at this time but the early Brazilian harvest of soybeans changes the landscape in terms of US export sales, with Brazilian soybeans possibly proving more popular on the world market.

Wheat

The supply of wheat similarly increased in the US.  Wheat ending stocks for the US came in at 878 million bushels against the expected figure of 830 million bushels.  However, the same export fears harboured by the US about their corn exports is also existent in the wheat.  Australia, Argentina and also Canada saw their beginning stocks, rise.  World ending stocks came in at 208.52 million tonnes against he expected figure of 202.60 million tonnes. This could lead to a reduction in US wheat exports in the face of increased alternatives for wheat importing nations.

Corn

Corn experienced an increase in stocks.  The US corn ending stocks for December came in at 848 million bushels against the expected 838 million bushels and the 843 million bushels figure for November.  Lower demand in corn has really been a major factor in the increased ending stocks in corn, especially considering the lower production of corn, compared with last year.  Even in the face of an increase demand for corn in Asia, there is some intrigue about China.  As one of the largest importers of US corn, its suspected levels of corn stocks impacts the US export of the product.  The USDA figures released for the corn production hint towards China’s larger than expected corn ending stock.  China produced 184.5 million tonnes of corn last month.  This month, the China corn production figure expected was at around 187 million tonnes for this month, however this was exceeded by the actual figure of 191 million tonnes which came in this month.  Whilst the specific figure of China’s corn stock / inventory itself isn’t available, the production figure tells a story.  The US corn exports will likely fall as a result of this.

Weather concerns

Also, although it doesn’t seem to have created any major concerns or panic, the issue of the dry weather in South American should be kept in mind.  The plantings of crop in South American have had to be delayed due to dry ground.  If the situation continues to escalates, we could witness tightening in crops, resulting in some bearish sentiment on the supply side in the corn, wheat and soybeans. There is also the possibility of the El Niño / La Niña having a profound effect on next year’s crops.  Although the forecast at the moment is a weak El Niño/ El Niña they do have the ability to alter the rain patterns, including in parts of the US corn-belt.

All in all, the market outlook for all of these is some-what bearish.  However there is caution in the markets.  Erkut made important mention of other issues which underlie the prospective supply of corn, wheat and soybeans in the world.  He explained that US farmers who have favoured planning corn consecutively for two planting years in a row, may well take heed of the reduced yield some have experienced in corn, which in some cases has been around 50 million bushels less yielded this year against last year.  The possible result will be that they will opt to plant soybeans instead of corn the following year.  This would also make sense for the farmers.  The back to back corn planting would deplete the soil’s nitrates, which the soybeans plant would replenish.  With that said, we could be in store for re-tightening corn stocks during the following year and what could promote a more bullish outlook in the corn.  The next key figure to keep an eye out for is the quarterly USDA Grain Stocks Report, to be released in January 2012.

A Winning Attitude

Attitude is the most important element of a top performers make-up. All top performers have a positive winning attitude which is the foundation for their success. What is different about this attitude compared with the average person’s?

Well for a start they take 100% responsibility for their results. They only focus on what they can control and do not look to blame outside circumstances or events for poor performances. The difference is they take full ownership of their results and they respond to unexpected circumstances and events in the best possible manner. Top performers have what is known as an ‘internal locus of control’ which means they focus only on the things they can control such as their thoughts, their behaviours and their actions.

Discipline

Top performers also understand that in order to achieve the results they desire, it requires self discipline. Self discipline is the act of doing something whether you feel like it or not. Unsuccessful people will often only follow through when they feel right or the conditions are set up in their favour where as successful people have the discipline to follow through no matter what.

Self discipline is the binding ingredient that closes the gap between where you are and where you want to be. There will always be times when your motivation or your self-confidence will take a hit but with self-discipline you will respond positively and follow through on the actions needed to keep you moving forwards towards your goals.

Vision

Without an inspiring vision for what you want to achieve, it will be difficult to deliver your very best on a consistent basis. All top performers have a vision for their lives which inspires them to pay the price of success. Nothing worthwhile in life happens without a considerable amount of effort and top performers in every field have a compelling vision which drives them to keep applying themselves 100%. Understanding what drives you and what stirs up the emotions that get you to take action is key to delivering great performances on a consistent basis.

Support

All top performers have the necessary support in place which keeps them at the top of their game. Athletes have a specialist team of coaches and advisors in place which not only provides them with cutting edge strategies and skills to perform at the highest level but they also hold them accountable to high standards which cannot be discounted. It is the same in business with top entrepreneurs having the specialist support to help them keep growing, learning and following through in a consistent manner. It is human nature to become complacent and fall into a comfort zone so having the necessary support to help you moving forwards is crucial.

Mindset

Without a winning mindset you will not achieve what you are capable of. Understanding how your mind works for you and having the right set of belief systems that support you and your goals is critical for success. Top performers understand and utilise the right tools and strategies to master their mindsets because they know their success relies on it.

How would you rate yourself in the following 5 areas? Have you got them all covered? Are you maximising your chances of success?

If you would like to master the following ingredients along with a host of other strategies and tools that will help you to master the mindset of a successful trader then please call us today on 0845 555 8800 and lets discuss how we can help!