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Commodity Trading Lesson Index

Lesson 23: Mrs. B's Operations Manual

Mrs. B has a book she calls an operations manual. She refers to this book from time to time making changes, adjustments and comments where appropriate. This operations manual of Mrs. B is not the same as her trading plan. You might visualize this book as similar to the manual that an airplane mechanic might have for servicing an airplane and getting it ready for flight. The pilot has the flight plan. The mechanic has the service manual. Mrs. B has both. The first principle that is enumerated in Mrs. B's operations manual is this:

No market should ever be superior to a well-defined trading plan.

Simply put, this principle means that a trader should be able to come up with a trading plan that will defeat any given market. An intelligent trader should aim to develop a plan that will be profitable over the long run. The second principle in Mrs. B's operations manual is as follows:

The lack of sound money management policies will, over the long run, defeat even a well-defined trading plan.

Mrs. B knows that just as no airplane can fly far without oil in its engine, no trading plan can last long which does not incorporate sound money management policies as the fundamental lubricant on which the trading plan is based. The third principle in her operations manual is this:

The greatest opponent any futures, options, or equity trader faces will often be himself or herself.

Wars have been fought, kingdoms lost and chances taken simply because as humans we often cannot stand to suffer loss, embarrassment or insult. Purchasing a futures contract at $1.40 and watching it decline to $1.30 is often viewed as greater than a loss; it is an embarrassment. It might even be considered an insult. Whenever a trader views a decline in prices in such terms, the trader will have compounded his or her difficulty in achieving success in the futures, options or equity markets. Finally, in today's lesson, for her fourth principle, Mrs. B lists the following:

In futures, options, or equities, a trader may have a plan which focuses primarily on using a "markets approach" or a "methods approach" when analyzing potential trades. It is not always clear which approach is the better and sometimes a combination of the two proves to be the most satisfactory.

In lessons eighteen and nineteen, we saw that Mrs. B was considered a method trader. If Mrs. B were to buy and sell shares of stock in corporation 101 and no other company then she might also have been a market trader.

These are the early principles of Mrs. B's operations manual. To continue reading, simply click on the link below. Before you do that, however, if you have any comments that you would like to send to Mrs. B concerning this introductory material, or suggestions you might have for her, you may send those comments along in the form of an e-mail by directing your mouse arrow to this e-mail button below.

To send Mrs. B your thoughts by e-mail, click here or on her mailbox.

  Mrs. B's Mailbox

After sending Mrs. B your thoughts, suggestions, or observations, you may then proceed by clicking here.

Bruce Gould

Always remember that stock, options, and futures trading may involve substantial risks and that past performance is no guarantee of future performance.