Today's Quote: “History is the sum total of the things that could have been avoided.” Konrad Adenauer

There are several good books out there about trading that should be on every trader’s must read list. If you were forced to choose one and only one, the only possible pick would be “Tools and Tactics for the Master Day Trader”. We are going to run a series of excerpts from the best selling book for the next series of lessons. Now in the words of the master trader himself, Oliver L. Velez…

IS THE PAST IN YOUR WAY?

There is a very thought-provoking axiom, which states, 'If you do not know where you came from, you will not know where you are going." This rings true in my mind, and had I been aware of this wisdom when I was in junior high school, perhaps I would have paid more attention in history class. I'm sorry about that Mrs. Nardiello. She was my sixth-grade history teacher. But is the past always valuable? Is it something that should religiously be respected, adored, cherished, and carried with you? I am not so sure about that. In fact, I'm willing to say that the answer is no. At least not always. And especially if it pertains to trading. Now this is a tricky point, I know, because even in trading one learns from past errors, mistakes, and blunders. There are even those rare times when we learn from our past wins. But carrying over too much of the past can cause serious trouble for the trader. In fact, it can be detrimental. The main reason behind this lies in the fact that 85 percent of the game we call trading is psychological. We can have all the tactics, techniques, tips, and tricks we can handle, but if our mind-set is not right, if we do not possess the right equanimity, the proper and much-needed mental clarity, we will undo ourselves every time. Take the trader who has lost four times in a row, and is having a devil of a time finding balance in the market. This trader must be able to move into trade 5 as if none of the past four trades occurred. He or she cannot afford to allow "past" trading history to spill over into future trading. If the residue of trade 4 is carried over into trade 5, the trader is already working with a handicap. Trading successfully is hard enough without battling the trades from the past, in addition to the current ones. The present must be clean, pure, and innocent as a brand new baby. And in order for it to be so, prior losses must be like water under the bridge, like spilled milk. Signs that we are being contaminated by our prior losses are:

1. Chronic hesitation, which is really the hidden desire for certainty.

2. Fear of pulling the trigger, which is nothing more than the need to know more.

3. Grabbing at profits too quickly.

4. Failure to take a loss (stop).

So just remember, the past can be an enemy too.