Trading is a tough business. You need to have enough conviction in your methodology to realize gains while also managing your ego so you don’t get ahead of yourself. Personally, most of my biggest mistakes occurred when I was trying to force my method for big gains.

With the trend in social networking, it’s easy to get an idea of how other traders are performing in real-time. Joe Trader just made 30% on this trade, Jill Trader just doubled her account over the past month. With all these inputs coming at you, it’s easy to feel like you are under-performing. In this case, there are too many unknowns, what is their performance over the past year, five years, ten years, how much money are they actually trading with, are they even telling the truth?

Being the youngest of four brothers, I’ve been pretty much conditioned to compete in almost any activity. Yes, it does push you to try to go further, but with trading it can be a curse. Constantly trying to keep up or prove something is a recipe for a draw down.

To overcome “trader envy”, removing your ego entirely from the equation and coming at it from a neutral state of mind is ideal.

Boiled down to its most simple form, each day you are making a choice that your next trade will go up based on a set of variables you have defined as important. That’s it, we’re not curing cancer. Whether we make a thousand dollars or a million, we’re just making a bet that the stock will go up. Sometimes we’re wrong, and hopefully more often we are right.

We have to measure our progress to know whether our efforts are worth the precious time and energy we pour into them day in and out. This is where the indexes come into play. We know if we buy an index fund we can at least reproduce the gains or losses on that index. We’re dealing with fact, not the huffing and puffing of some stranger out on the social web. I like to use the S&P, which is currently up 5.05% YTD.

At this point, you need to define what would be a reasonable return compared to the S&P to make your efforts worthwhile. Would 1.5x, 2x the S&P be worth the time, possibly 3x the S&P? This is for you and only you to define. Using this, you can check in every quarter to gauge your performance. At the year’s end, lay out everything on the table and figure where you went wrong and where you went right.

If you’re just starting out, your expectations should reflect the fact that you are learning and will make some mistakes while mastering a methodology. Trading is a culmination of your efforts over time. By using a neutral benchmark such as an index, you will be able to gauge whether your methods are working and avoid the “trader envy” trap. From there, you can adjust and refine your method so you can consistently extract profits from the market.

When I moved out to Colorado, I quickly realized that fishing was just not the same. Back in Florida, the bigger the bait, and the bigger the catch. Here in Colorado, anything larger than a goldfish scares half the fish away. Even when I brought the size of the bait down to 'norm' the catch was under-whelming. A sixteen-inch trout is a 'trophy' to anglers out here, while back in Florida, this was the average size used for trolling for Dolphin fish (Mahi).

Obviously, I had to make some adjustments if I wanted to enjoy my life long hobby. This is where fly-fishing came in. Seemed simple, toss this little fly out on a river and wait for the trout to bite. The trout would have a fighting chance before meeting my frying pan.

After hooking my dog in the nose, I began to realize there's a lot more to this "fly fishing" thing than meets the eye.

Besides using the correct fly for the river and time of year, you also need to know how to fling a 9 foot pole back and forth, tossing this weightless fly into an area about 6 inches in diameter. And you think trading stocks is frustrating!

Over time, I began to get a feel for this fly fishing thing. Casts became easy; reading the hatch (picking the correct fly) became effortless. To the chagrin of other anglers on the river, I could step onto it and have a rod screaming in minutes.

Trading stocks is like fishing. You're on the hunt, trying to catch the biggest fish for any given day.

This is where process comes into play. If you're constantly casting in the wrong place, you will never catch any fish.

For trading stocks, the process is simple. We've had people pave the path for us. We need to fish in the area with the biggest fish. This is where our relative strength scan comes into play. Using Bluefin we can find the stocks with the highest relative strength in the strongest sectors. These are the best performing stocks and can offer the largest reward.

Once we've identified our pool to fish, we need to figure out how to cast to that pool. When I took some casting lessons, the instructor kept saying 11 o'clock and 1 o'clock. Every time we went out, over and over I would hear 11 O'clock and 1'Oclock referring to the position of my rod. Eventually, it became second nature. Now, I cast effortlessly to most spots.

If you're a StockBee member, you hear this same thing with trading setups. "It went up, sideways, then it breaks out" and this is where you want to buy. When you've traded this setup a thousand times, it becomes second nature. You do not have to think about it, you just react and WHAM, the next thing you know you just landed a keeper.

Another piece of the puzzle is actually landing the fish. How many times have you seen someone with a huge fish on their rod, but the drag was too tight and SNAP, off it goes into oblivion? You can think of your drag as how you mange that stock once you're in it. The tighter the stop the more likely the fish will get off. The looser you have that stop, the more likely the fish will never get in.

This is where process comes into play. By defining how you manage a stock from entry to exit is how you will make progress in trading. By logging this information, over time you can look back on your trading history and tweak and refine your trading process. Eventually, this process becomes second nature to you; it's not tedious but just part of your routine.

With trading you need to be able to read the water, make the cast, and then reel in the reward. This all involves defining a process and sticking to your plan. Then you can look back and refine this process so you can be successful in each new cast you make.

Below is a link to a Google spreadsheet that you can use as a template. Use it to log your trades for future reference. It calculates the number of shares you buy for any given stock on the fly. Check it out:

https://spreadsheets.google.com/ccc?key=0AvNNyuRQtpxIdDlfcjRWa2hReUpJZ19TZjNUM01uNHc&hl=en&authkey=CJvx1Dk%20

We all get caught up with trying to find the perfect scan, the perfect indicator, the perfect system. I'm guilty, every so often I see someone with a new fancy equation and I sink some time into it, back test, trade it a bit and find the results fall short of my expectations.

Why do we keep bouncing from one indicator to the next or one method to the next? Most likely our expectations for trading are out of whack with the reality of trading. While it is possible to knock a trade out of the park, most gains will come from grinding out profits on N trades over a period of time. Sorry, I'm sure I just crushed some hopes and dreams of a few people who thought they would be on the Caribbean island next year.

Honestly, when I first started trading, I had dreams of making millions that year. While this is possible during certain market phases, I've come to realize you need a longer term plan for profitability over the course of many years. The plan should be able to withstand market downturns like we had between '08 and '09.

You need to find a method that brings in more money than you lose on any single trade or group of trades. Sounds simple eh? Not so much, when you're bouncing from one method to the next, never honing in on whether the last method was profitable. Maybe it was profitable, but you were not executing properly?

There are a ton of profitable strategies out on the public domain. Following a trader's trades is not enough. You need to build a foundation of knowledge for your trading business. To do this, dissect how and why a method works and mold it to fit your time frame and style. I see so many people who just blindly follow trades without ever understanding the components that make that system profitable. What happens if this person decides to stop displaying their trades? Either way, you'll never be able to match their returns because you're always one step behind.

Stop chasing pipe dreams, define reasonable goals for your trading business, focus on a method that works for you and then refine it to maximize its profitability.

You can drive yourself nuts trying to figure out why doesn't this list match the IBD list exactly? Or why do these stocks not mach those stocks in that list.

If this is where you getting hung up, you need to let it go and focus on things like: does this stock fit the criteria of a stock that would move in the direction I am trying to trade? Does this stock have the potential for a 5%, 10% or 20% move from this point? IF so, why? Does this entry point offer me the lowest risk entry for the most reward in the past 10 days?

The biggest factor impacting your returns is how you manage a stock from the point of entry to the time you exit. What is your plan to do that?

Just like taking up a new sport, you first need to learn the basics before you can advance. So where do you start?

Books:
How To Make Money in Stocks - William O'Neil
How Charts Can Help You in the Stock Market - Jiler
Lessons From the Greatest Stock Traders of All - Boik

Research Papers:
Hwang, Chuan-Yang and George, Thomas J., The 52-Week High and Momentum Investing. Journal of Finance, Vol. 59, No. 5, pp. 2145-2176. Available at SSRN: http://ssrn.com/abstract=1104491

Chen, Hong-Yi, Chen, Sheng-Syan, Hsin, Chin-Wen and Lee, Cheng-Few, Price, Earnings, and Revenue Momentum Strategies (March 15, 2010). Available at SSRN: http://ssrn.com/abstract=1571883

Sites:
The Stockbee site offers trading templates and tons of detailed posts on all of the concepts above. There are detailed explanations on every method available along with access to the Telechart scripts to recreate every indicator and signal in the system. Also, the Market Monitor is provided; an invaluable tool to know when to be in and out of the market. The cost is minimal compared to what you would pay to take any online courses on the subject matter covered. Trading Bootcamps are offered monthly and take you into the nuances of each of the StockBee methods. I've been and still am a subscriber since 2007.

Investor's Business Daily provides the "CANSLIM' investing method, a proprietary system created by William O'neil. IBD provides stock picks and a general market timing mechanism through their Big Picture. They also offer educational articles and videos through their site. Great site, but I have to say most people that go through it have a hard time interpreting the proper buy point for their cup with a handle pattern. This is where the StockBee MDT breakout comes in to play. I am also a subscriber to IBD online version.

Once you've learned the basics, then you will be ready to use a tool like Bluefin.