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com Characteristics Of A Losing Trader
1. 2. 3. 4. 5. 6. 7. 8.
Undiscplined No money management Unprepared Overtrading habits Easily tilted Does not trade with probabilities Trades emotionally without controlling: greed, hope, fear, and euphoria Does not have a trading plan and strategy
Separate your ego from your trading. The market does not care what college you went to or how many kids you have to feed. Take profits when you have them and NEVER think you are smarter than the market. As they say, “humble yourself or you will be humbled.”
10 Secrets To Success
1) How You Think Is Everything – Always be positive. Think success, not failure. Beware of a negative environment. 2) Decide Upon Your True Dreams & Goals – Write down your specific goals and develop a plan to reach them. 3) Take Action – Goals are nothing without action. Don’t be afraid to get started. Just do it. 4) Never Stop Learning – Go back to school or read books. Get training and acquire skills. 5) Be Persistent & Work Hard – Success is a marathon, not a sprint. Never give up. 6) Learn To Analyze Details – Get all the facts, all the input. Learn from your mistakes.
Skill versus Hardwork
Is trading success dependent on innate skills? Or is hard work suffi-cient? There is no question in my mmd that many of the supertraders have a special talent for trading. Marathon running provides an appro-priate analogy. Virtually anyone can run a marathon, given sufficient commitment and hard work. Yet, regardless of the effort and desire, only a small fraction of the population will ever be able to run a 2:12 marathon. Similarly, anyone can learn to play a musical instrument. But again, regardless of work and dedication, only a handful of individuals possess the natural talent to become concert soloists. The general rule is that exceptional performance requires both natural talent and hard work to realize its potential. If the innate skill is lacking, hard work may pro-vide proficiency, but not excellence. In my opinion, the same principles apply to trading. Virtually any-one can become a net profitable trader, but only a few have the inborn talent to become supertraders. For this reason, it may be possible to teach trading success, but only up to a point. Be realistic in your goals.
The Virtue of Patience
Waiting for the right opportunity increases the probability of success. You don’t always have to be in the market. As Edwin Lefevre put it in his classic Reminiscences of a Stock Operator, “There is the plain fool who does the wrong thing at all times anywhere, but there is the Wall Street fool who thinks he must trade all the time.” One of the more colorful descriptions of patience in trading was offered by Jim Rogers in Market Wizards: “I just wait until there
is money lying in the comer, and all I have to do is go over there and pick it up.” In other words, until he is so sure of a trade that it seems as easy as picking money off the floor, he does nothing.
What is the Purpose of Trading?
What is the purpose of trading? It seems clear, doesn’t it? The purpose of trading is to make money. The trade is planned, entered, and exited with the goal of increasing the size of one’s trading account
. What other purpose would there be? The dictionary says this about purpose: “something set up as an object or end to be attained : intention b: resolution, determination” What about: The purpose of trading is to not lose money. The purpose of trading is to practice discipline. The purpose of trading is to use my talents. The purpose of trading is to grow. Or how about: The purpose of trading is to express my true nature. I was meant to be a trader. Maybe the purpose of trading is simply to trade. Because that is what you have been called to do, or what you are meant to do, or it’s the highest expression of your nature as a producer rather than a consumer. When you trade successfully, you are disciplined, you are growing, you are using and developing your talents, you are making money, and you are creating wealth from scratch. But most of all, you are trading because it’s the right thing to do for you.
Why Trading Is A Performance Sport
Learn about various trading software Learn how to interpret candlestick charts and patterns Learn Fib extensions and retracements Try-out various time frames Learn trade executions Learn how to manage trades Learn about emotional control and psychology Learn about risk control Devise a precise trading method Learn about money management Backtest set-up for several months Internalize set-ups by paper trading Have to be adequately capitalized Specialize in gap trading Learn about creating a daily watch list Learn how to prioritize a daily hit list Set up blog for recording daily diary of ideas and thoughts Devise a system to analyze trading results – daily and monthly Develop a daily precise routine
1. Markets tend to return to the mean over time. 2. Excesses in one direction will lead to an opposite excess in the other direction. 3. There are no new eras – excesses are never permanent. 4. Exponential rising and falling markets usually go further than you think. 5. The public buys the most at the top and the least at the bottom. 6. Fear and greed are stronger than long-term resolve. 7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chips. 8. Bear markets have three stages. 9. When all the experts and forecasts agree – something else is going to happen. 10. Bull markets are more fun than bear markets.
The problem with “evolutionary trading” is the constant adjusting to the ever changing wind, and, thus, loosing sight of your original port of call. By the time you get to your final destination, you have carved out a new routine. Knowing exactly, precisley, what your set-ups can deliver, will prevent you from manipulating your original system. This internalization of singular vision, can only come from tirelessly backtesting
Great Traders: Five Distinguishing Features
* Everyone is wrong in the markets at times. The difference between the great traders and the unsuccessful ones is in how long they stay wrong. * Addictive traders get high from action; great traders get high from mastering markets–and mastering themselves. * Great traders do their best work when they are not trading; unsuccessful traders do not work when they are not trading. * Every loss of discipline is a self-betrayal; great traders are true to themselves and stay disciplined as a result. * Great traders focus on the two things they can always control: when they play and how much they bet. You will never achieve greatness by minimizing your weaknesses. At best that will bring you to average. The path to greatness lies in maximizing strengths: becoming more of who you are when you are at your best.
What’s the secret of successful traders and how did they make the transition from clueless learner to consistent pro?When the same tools are available to anyone, why do some people out perform others? The successful traders have discovered The Secret.It is not the latest indicator, program or hot tipster. It is something that everyone has inside them already.
The Secret is believing in your method and trading it. Believing to the point of having it ingrained into your brain so that it becomes as automatic as breathing. If the charts do this, then I will do that. Trading your plan means cutting losers, riding winners, managing money and risk well. When you arrive at the point of realizing that your self-discipline can only get you so far and that the next step should be reflex trading then you will have found The Secret. Having to exercise self- discipline to me means that there is still something inside you that you must fight to control. If emotions are still in control of your trading then you must find a way to turn that fear and greed into a move productive energy. Trading your method as a reflex means that there is no struggle to control wayward thoughts. Realizing that your success has much more to do with psychology than a software program or indicator means that you need to spend much more time on this aspect then looking at charts wondering if they are going to go up or down. The market is going to do whatever. No one can predict it. When you prepare yourself to think that anything can happen and prepare yourself for the probabilities instead of expecting them then you will be closer to becoming a consistent winner. Preparing your mind may be a difficult process for some people to do. Maybe you will think it’s ridiculous to put your trust is your brain instead of your mechanical system. Well, if you think about the subject for any length of time, you’ll have to admit that every little command in your life originates from your brain. Your mental power can either be contained and harnessed to achieve your goals or be let to run wild and destroy you. Training mentally can be accomplished by getting plugged into your consciousness and having true belief in your ability to follow your trading method. When I wake up every morning I go over in my mind all the various scenarios that will play out during the day. Shorting weak stocks, buying up trends, waiting for a pop to short or pullback to buy, selling a loser when my decision is proven wrong, riding a winner until it stops, adding size to a trade, taking profits when the market offers them up, watching the clock so I know what time it is and when new candlesticks will start, looking at the price ticker and spread. When I replay all these things in my mind I see the same things over and over again. I trust that these are the images I will see during the trading day but I don’t know when they will show up, only that they will. I can visualize what my trading edge looks like in either direction and am thus prepared to act on it without hesitation. Trading becomes a reflex action. If the charts do this, then I will do that. I don’t need to think about it. Doing anything that differs does not happen because it is inconsistent from these ingrained beliefs. You must train your brain to achieve this. Start by spending the time that you would normally be looking at charts and reading news and watching CNBC, and look inside yourself instead to see what you can improve. Write down your goals first to make them something real. Find a quiet place free from distractions. Turn off your phone. Close your eyes, open your mind. Work on them on by one in your mind. Visualize the set ups that you have been successful with and the setups that were losers. Commit them to vivid memory so that you can act on them in the appropriate way in real time during the trading day. Could you spend 1 hour a night to work on this? If it’s more important than charts, will you? When I review my trades here, I see the same chart patterns every day. I don’t change my methods. I know these have a high probability of working and they suit my personality. I have total confidence in my system and in myself. If the market does this, then I will do that. Reflex trading. It’s no secret after all. Believe you can do it.
Find Yoursellf A Chair!
Trading is a job. Treat it as such. Traders put themselves in a chair and wait, like fishing. They just sit and wait, even though it looks like the market is miles away from any kind of setup. They do nothing else. No reading, No chatting, No distractions. It’s just being able to sit in that chair everyday and not do anything else!
Excellence Is A Drive From “Inside”
A gentleman was once visiting a temple under construction. In the temple premises, he saw a sculptor making an idol of God. Suddenly he saw, just a few meters away, another identical idol was lying. Surprised he asked the sculptor, “Do you need two statutes of the same idol”. “No” said the sculptor. “We need only one, but the first one got damaged at the last stage”. The gentleman examined the sculptor. No apparent damage was visible. “Where is the damage” asked the gentleman. “There is a scratch on the nose of the idol. Where are you going to keep the idol”. “The sculptor replied that it will be installed on a pillar 20 feet high. When the idol will be 20 feet away from the eyes of the beholder, who is going to know that there is scratch on the nose?” The gentleman asked. “The sculptor looked at the gentleman, smiled and said “God knows it and I know it “. The desire to excel should be exclusive of the fact whether someone appreciates it or not. Excellence is a drive from “Inside” not “Outside“.
Eyes Wide Shut
Why does it take so long for a trader to learn?
Like I’ve said before, I’ve seen as much so-called wisdom over the years that I’ve eventually learned to hold as inviolate truth, as that which should be thrown out with yesterday’s garbage. Yet why does the eventual accumulation of pertinent knowledge translate so slowly into one’s trading results? If we are capable of weeding out the good stuff from the bad, why doesn’t the good stuff just take over and guide us directly towards success? Aside from the fact that I might just be a dumbass, one thing I’ve figured out is that the distance between the brain and the finger might not be so close as you’d think — if you’re not careful. I know I’m not the only trader who has a tendency to repeat the usual mistakes, or variations of same, despite having berated myself 10 times in the previous week to make an effort not to do it again. My contention is that old habits die hard. Real hard. And only if you go out of your way to kill them outright. Case in point: my stance towards major market moving news is that you have no reason to trade unless either a) you know what the report will be beforehand, and can accurately gauge the market reaction; or b)
the risk/reward ratio is so skewed towards one direction that it’s worth taking a chance. None of my setups are explicitly tailored for exploiting that generic spike in volatility. Yet why do I always find myself pumped up with adrenalin, finger on the trigger at 8:29 each and every first Friday morning of the month? Why am I always psyching myself up to do something — anything — just because I know there will a big move upcoming one way or another? I came to realize that this was a holdover from my stock trading days, when chasing volatility was the name of the game. But even as that game became extinct, I continued to instinctively adopt that “fight or flight” stance whenever potentially market moving events were impending, despite the fact that there was no justification for getting involved. By winding myself up into a mental and physical posture for spontaneous reaction in situations where nothing actually should be done, I was just begging to get myself into some sort of trouble. But until I took a step back (literally, way back) and saw how I was unconsciously placing myself in harms way for no good reason, that same bugaboo of “impulsive” trading just kept recurring with me none the wiser, nor richer.
Useful Thoughts To Counter Fear
Losses are a simple cost of doing business - Since you always limit your lose to an amount of your account can withstand, there is nothing to fear. - You have the courage to do whatever it takes to succeed at trading
- Each Trade is but one of many - You keep your focus in the present because this is where the action is - The potential profits are worth the risk - Trading is about money, it’s not about your survival. - Trading is only one way in which you can make money. - You learn and grow stronger with each trading experience - The future of your trading is bright.
What characterizes great and successful traders
• Great traders graciously accept mistakes. They don’t need to be right all the time. Great traders focus on proper execution not on the outcome of a single trade. Great traders concentrate on good risk management. They constantly manage their open positions.
Great traders are emotionally detached. Single trades do not affect their mood. Great traders don’t compare themselves to others. They isolate themselves from the opinions of others. Great traders are not afraid to buy high and sell low. As you probably know by now the single biggest mistake a trader can make is to hold on to a losing position. Failing to cut losses quickly and letting them develop into huge losses is mentally and financially devastating. The underlying psychology which is responsible for this behavior is the ‘need to be right’ and the fear to sell at a loss. What aggravates the situation is adding to a losing position. “Do more of the things that work and less of the things that don’t.“ Conclusion:Isolate yourself from the opinions of other people. Make trading decisions your own. Focus on proper execution. Have the courage to do the right thing because it is right.
Market is like an Ocean
The market is like an ocean – it moves up and down regardless of what you want. You may feel joy when you buy a stock and it explodes in a rally. You may feel drenched with fear when you go short but the market rises and your equity melts with every uptick. These feelings have nothing to do with the market – they exist only inside you. The market does not know you exist. You can do nothing to influence it. You can only control your behavior. The ocean does not care about your welfare, but it has no wish to hurt you either. You may feel joy on a sunny day, when a gentle wind pushes your sailboat where you want it to go. You may feel panic on a stormy day when the ocean pushes your boat toward the rocks. Your feelings about the ocean exist only in your mind. They threaten your survival when you let your feelings rather than intellect control your behavior. A sailor cannot control the ocean, but he can control himself. He studies currents and weather patterns. He learns safe sailing techniques and gains experience. He knows when to sail and when to stay in the harbor. A successful sailor uses his intelligence. An ocean can be useful – you can fish in it and use its surface to get to other islands. An ocean can be dangerous – you can drown in it. The more rational your approach, the more likely you are to get what you want. When you act out your emotions, you cannot focus on the reality of the ocean. A trader has to study trends and reversals in the market the way a sailor studies the ocean. He must trade on a small scale while learning to handle himself in the market. You can never control the market but you can learn to control yourself. A beginner who has a string of profitable trades often feels he can walk on water. He starts taking wild risks and blows up his account. On the other hand, an amateur who takes several losses in a row often feels so demoralized that he cannot place an order even when his system gives him a strong signal to buy or sell. If
trading makes you feel elated or frightened, you cannot fully use your intellect. When joy sweeps you off your feet, you will make irrational trades and lose. When fear grips you, you’ll miss profitable trades. A professional trader uses his head and stays calm. Only amateurs become excited or depressed because of their trades. Emotional reactions are a luxury that you cannot afford in the markets.
The trend is your friend” - perhaps the best
known trading adage of all time, it is meant to remind traders to always identify the prevailing trend, and never to trade against it, but rather wait for retracements and then enter trades in the direction of the trend.
“The market can stay irrational longer than you can stay solvent” – The way the
market reacts to certain news or events may not seem rational at times, but there is no sense in trying to fight the market – it moves where it moves and does not care one bit about your opinion.
“A fool and his money are soon parted” – If you are not smart about where you put your money,
you will most likely lose it.
“The trading rules I live by are: (a) Cut losses, (b) Ride Winners, (c) Keep bets small, (d) Follow the rules without question, and (e) Know when to break the rules.” - Rules are important, but following them blindly does not necessarily lead to success. Know
which conditions produced those rules in the first place, so that when the conditions change, the rules can too.
“Amateurs Focus On Rewards. Professionals Focus on Risk.” - Experienced traders think
first about how much they can lose on a trade, base their calculations on that, and then see if they are happy with the potential reward the trade offers. Novices usually do the opposite, blinded by the allure of quick riches.
God’s Time And Money
A preacher went into his church and he was praying to God. While he was praying, he asked God, “How long is 10 million years to you?” God replied, “1 second.” The next day the preacher asked God, “God, how much is 10 million dollars to you?” And God replied, “A penny.” Then finally the next day the preacher asked God, “God, can I have one of your pennies?” And God replied, “Just wait a sec.”
A stockbroker was filling out a job application when he came to the question: “Have you ever been arrested?” He answered no to the question. The next question, intended for those who answered the preceding question with a yes, was “why?” Nevertheless, the stockbroker answered it “Never got caught.”
A dollar per point
A professor was giving a big test one day to his students. He handed out all of the tests and went back to his desk to wait. Once the test was over the students all handed the tests back in. The professor noticed that one of the students had attached a $100 bill to his test with a note saying “A dollar per point.” The next class the professor handed the graded tests back out. This student got back his test, his test grade, and $64 change.
Why Warren Buffett should be your role model
Some people have claimed that Warren Buffett made all his money from the 80’s and 90’s bull market. He happened to be at the right place at the right time, they say.
If so, how come nobody came close? There were lots of people at the right place and right time like Buffett. They are what we call baby boomers! It really isn’t about bull markets that Buffett made his money. He started out in the early 70’s. (The secular bull market started over 10 years after that). The first few years, he was making 50-100% returns per year. So if he were to do a redo, his results wouldn’t be that much different 40 years later.
1.) Respect the price action but never defer to it. Our eyes are valuable tools when That’s backward logic. 2.) Discipline trumps conviction. No matter how strongly you feel on a given position, you must defer to the principles of discipline when trading. Always try to define your risk and never believe you’re smarter than the market. 3.) Opportunities are made up easier than losses. It’s not necessary to play every day; it’s only necessary to have a high winning percentage on the trades you choose to make. Sometimes the ability not to trade is as important as trading ability. 4.) Emotion is the enemy when trading. Emotional decisions have a way of coming back to haunt you. If you’re personally attached to a position, your decision-making process will be flawed. Take a deep breath before risking your hard-earned coin. See related link. 5.) Zig when others zag. Sell hope, buy despair and take the other side of emotional disconnects. If you can’t find the sheep in the herd, chances are you’re it. 6.) Adapt your style to the market. Different investment approaches are warranted at different junctures, and applying the right methodology is half the battle. Map a plan before stepping on the field so your time horizon and risk profile are in sync. 7.) Maximize your reward relative to your risk. If you’re patient and pick your spots, edges will emerge that provide an advantageous risk/reward. There is usually one easy trade per session if you let it show itself. 8.) Perception is reality in the marketplace. Identifying the prevalent psychology is necessary when assimilating the trading dynamic. It’s not what is, it’s what’s perceived to be that dictates the price action. 9.) When unsure, trade “in between.” When in doubt, sit it out. Your risk profile should always be an extension of your thought process and when unsure, trade smaller until you establish a rhythm. 10.) Don’t let your bad trades turn into investments.
but if we deferred to the flickering ticks,
would be “better” up and “worse” down.
Essentials of a Winning Psychology
Four fears that block a winning psychology: 1. Fear of Loss
2. Fear of being wrong 3. Fear of missing out 4. Fear of leaving money on the table. Realize that trading is based on probabilities, as such, every trade is unique. In other words, the past does not equal the future. Probability thinking manifest other states and beliefs:
Because we know that we will succeed in the long run and because we know we will protect ourselves no matter what the market does, we acquire the state of “self trust” and the state of being “carefree”. Focused, confident and carefree when we are experiencing the inevitable prolonged drawdown. Because at the micro level we know that the market is random, we will not allow euphoria to set in and lead us to reckless trades. Each trade will only be one in a series of probabilities. We will view market information not as a source of pleasure or pain but merely as data providing us with opportunities. Personal Attributes Essential to a Winning Mentality Awareness – the ability to step outside ourselves and observe. The more effectively we can do this, the easier our progress to “Acceptance”. Honesty - the ability to seek to perceive reality in spite of our filters. Courage - the willingness to bear the pain brought about by our awareness and honesty. Commitment - the willingness to do whatever is necessary to achieve our goals
In turn these states allow us to remain…. • • •
• • • •
To succeed, a trader must have a vision about where he is heading, and must internalise that a winning attitude is total submission to the trading outcome. This means managing Fear and Euphoria. To do this, we need to ACCEPT, with every fibre of our body, the belief that at the micro level the market is uncertain and unpredictable and at the macro level it is relatively certain and predictable.
Three Pieces of Trading Wisdom
1) Before you put your capital at risk, have a well-formed trade idea; 2) When your idea pays you out quickly, take some profits; 3) Don’t get caught up in individual trades; focus on profitability over a series of trades and days.
How To Win At Day Trading
Exit any trade that doesn’t go your way immediately
Forget about the commission, forget about how many hours you waited for the setup, forget everything except this rule. I know it’s radical, but just do it.Then YOU will be in control of the one factor that most traders don’t believe can be controlled – the downside outcome of the current trade you’re in.
Every trade starts out as a scalp until proven otherwise. This means that if you get 2 or 3 ticks gain and the market pauses and moves a tick in the wrong direction, you get out immediately with 1 or 2 ticks gain…. No questions asked.
Get Out When You’re Wrong
Successful traders know that discipline is what allows them to enter their trades when the odds are in their favor and, more importantly, to get out when they’re wrong. Being right is not the problem. What you do when you’re wrong is the crucial issue. There are a lot of traders who buy then pray while the market goes against them, because they think that it will eventually go their way. Most traders average down and wait for the market to turn their way. Trading my way, I always have defined amount of money that I am willing to lose. I let the market decide how much money I’m going to make.
Gems of Jesse Livermore
What beat me was not having brains enough to stick to my own game — that is, to play the market only when I was satisfied that precedents favored my play. There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in Wall Street
who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. No man can always have adequate reasons for buying or selling stocks daily — or sufficient knowledge to make his play an intelligent play. The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages. It takes a man a long time to learn all the lessons of all his mistakes. They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side. It took me longer to get that general principle fixed firmly in my mind than it did most of the more technical phases of the game of stock speculation. Nobody offered to point out the essential differences or set me right. If somebody had told me my method would not work I nevertheless would have tried it out to make sure for myself, for when I am wrong only one thing convinces me of it, and that is, to lose money. And I am only right when I make money. That is speculating.
Don’t Lose the Lesson!
Losing trades can have the same affect – if you let them. However, if you look at each trade as just one of your next 100 or even one of the next 1000 trades you’ll make in the next year, you’ll begin to attach far less emotion to the outcome of each trade. Detaching emotion from individual trades is one of the best ways to build confidence in yourself and your long-term success as a trader.
Losses are inevitable; they simply are a part of trading. How you handle losses is what can ultimately determine your level of success moving forward. Even a losing trade can be beneficial if you take what you can from it. Ask yourself, “Why did this trade fail? Is it a function of a market reversal, or a miscalculation on my part? Was my stop-loss set too close as a result of too large a position? Did I micromanage this trade and adjust my numbers on the fly? Did I completely abandon my trading plan?” A loss means you’ve already paid the tuition, so you might as well stick around for the lesson. Ask the right questions when a trade doesn’t work out or when you hit a rough patch with your trading. The answers you find can help you greatly as you progress as a trader. Whether those answers allow you to avoid making the same mistake again or if they just give you some closure following a bad experience, take what positives you can find and move forward. Bottom line: cut the loss but keep the lesson!
Risk – Your only managable variable
The underlying concept is, that, if we cannot accurately predict our own performance, and as we cannot influence how the markets will behave, we should at least exercise control over those variables that we have actually control of. And that is the risk that we as traders take when entering a position.
Do more of what is working for you, and less of what’s not. Each day, look at the various positions you are holding, and try to add to the trade that has the most profit while subtracting from that trade that is either unprofitable or is showing the smallest profit. This is the basis of the old adage, “let your profits run.” Don’t trade until the technicals and the fundamentals both agree. This rule makes pure technicians cringe. I don’t care! I will not trade until I am sure that the simple technical rules I follow, and my fundamental analyses, are running in tandem. Then I can act with authority, and with certainty, and patiently sit tight. When sharp losses in equity are experienced, take time off. Close all trades and stop trading for several days. The mind can play games with itself following sharp, quick losses. The urge “to get the money back” is extreme, and should not be given in to.
Be patient. If a trade is missed, wait for a correction to occur before putting the trade on. Be patient. Once a trade is put on, allow it time to develop and give it time to create the profits you expected. Be patient. The old adage that “you never go broke taking a profit” is maybe the most worthless piece of advice ever given. Taking small profits is the surest way to ultimate loss I can think of, for small profits are never allowed to develop into enormous profits. The real money in trading is made from the one, two or three large trades that develop each year. You must develop the ability to patiently stay with winning trades to allow them to develop into that sort of trade. Be patient. Once a trade is put on, give it time to work; give it time to insulate itself from random noise; give it time for others to see the merit of what you saw earlier than they.
Plan You’re Way to Profit
When you enter a trade you should have a figured a game plan for both the entry and exit of the trade. The plan should be definite and not subject to changes to your psychology during market hours. You should have a stop in the market at all times, because you never know when a time cycle might turn against you. You should also have a profit objective in the market. So many traders today lose because they are using computer oscillators to trade with and they never know where they are going. They usually end up on trading
with rumors and tips and use hope and fear to try to make a success of the markets.
Dump The Loser!
I tend to lose patience very quickly whenever one of my trades stops trending. As soon as I get the signal, I will not hesitate to dump the loser. I don’t take it personally, it doesn’t affect me as long as I keep in mind that my money can be put to better use if I position it to take advantage of stocks
that are trending. To me, it’s the fastest way that I know of to compound my capital.
A general principle in trading for me is that without thorough investigation, comprehension, and experimentation leading to full acceptance, no trading rule or system can be properly executed. If one cannot completely understand and embrace the reasoning behind some method or axiom, whether internally discovered or externally given, the reflex necessary to act without further thinking or doubt is fatally compromised — the circuit between the eyes watching the screen and the finger on the trigger cannot afford even the slightest impedence. One area in my trading which I’ve been struggling over has been the disparity between the success of my entries versus the failure of my exits on profitable trades. If I had the ability to accurately anticipate and identify the origins of a move, why were my attempts in capturing and keeping the bulk of the profits so horribly inept? Why was my timing in closing trades so blatantly pathetic in comparison with their openings, to the point where I would either consistently stop-out on the lows of retracements, or conversely wind up giving back the entire move if I tried to avoid getting shaken out. To deal with this I began devising systematic approaches to my exits to serve as patchwork fixes, but I knew such arbitrary remedies that had nothing to do with my entry methods could only be temporary at best. What I needed to answer for myself was the following question: shouldn’t one’s edge in reading and timing a market apply to both entry and exit equally by default? How could the gap between the two be so wide? Sometimes it’s the most obvious things that are easiest to overlook; although it did not take long to find the answer after committing some thought, many good profits had needed to be sacrificed before the right question had been asked. In any case, what I should have realized long ago was that there was a built-in asymmetry in the way that I traded that naturally skewed my perception of my entries versus my exits. First off, since I use extremely tight stops relative to my time frame in opening a position, any trade that survives that stop to reach a certain level of unrealized profitability would necessarily have a well-timed entry, as the typical volatility or “noise level” in any of the markets I trade would stop me out 95% of the time if I do not catch an immediate move in my favor. But more importantly, on a methodological level, the use of tight stops has forced me to become extremely selective in my trading setups, to the point where a number of coinciding events (technical, temporal, psychological) are required for me to pull the trigger. These syzygistic ($.50!) occasions are relatively rare, and a resulting trade that yields a significant open profit rarer still. What I failed to realize while holding on to those open positions was the fact that I was wrongly expecting the same alignment of stars (in mirror-image) to provide the perfect exit signal; whereas with entries I could wait patiently flat on the sidelines for optimal setups to materialize, I could not afford such a degree of exactitude while still holding a position. It’s a given that I overlook or miss out on countless number of market moves in my time frame; therefore I should not expect to catch the perfect exit point at the conclusion of a move just because I happen to have nabbed a decent entry at its beginning. In fact, I believe I can make that leap to say that virtually 100% of my edge as it exists now applies to entries only, while on exits I probably can count on doing little better than random on any given trade until further investiation. To say the least, I think this realization counts as an important step in understanding my edge, as a heretofore unseen profile of my method has finally revealed itself to me (as I type these very words — three cheers for blogging!), and a cloud of uncertainty lifted. So what are the implications of what I have learned? The most immediate that comes to mind with coming to terms with asymmetry is an acceptance that my exit methodology may necessarily differ from my entry. I will most likely continue trying to align my philosophy for ending a trade as closely as possible with its opening impetus, but I will no longer have qualms in implementing
“arbitrary” devices in the interim. Ironic as it seems, I’ve also discovered that having greater faith in one’s fallibility may actually result in a diminishment of doubt in one’s actions — bonus.
The Ultimate Guide to 2010:Investment Predictions and Outlooks
We’ve compiled many of the very best outlooks from various analysts, gurus, hedge funds and investors. We hope you find the list helpful in mapping your successful 2010:
Wall Street Banks
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Goldman Sachs 2010 Investment Outlook Deutsche Bank 2010 Outlook Credit Suisse Is Cautious Morgan Stanley’s 2010 Outlook UBS 2010 Outlook RBC’s 2010 Outlook Saxo Bank’s Coming Black Swans 2010 Outlook From Northern Trust Bank Of America/Merrill Lynch Is Bullish On 2010 Prudential’s 2010 Investment Outlook PIMCO’s 2010 Outlook PFG Best’s Look Back And Ahead Wall Street Is Very Bullish About 2010 Marc Faber’s 2010 Investment Outlook Jim Rogers Is Still Skeptical Hussman: 80% Chance Of A Market Plunge Boeckh Investments Sprott Asset Management: The Rally Is Fake ECRI: The Recovery Will Continue In 2010 Comstock Is Still Bearish Jeff Saut Debates Todd Harrison TCW’s 2010 Outlook
Hedge Funds & Investment Gurus
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Cumberland Advisors 2010 Outlook Biriyni’s 2010 Outlook Sam Stovall Is Cautiously Optimistic Steve Keen’s 2010 Investment Predictions Leuthold Turns More Cautious On 2010 Robert Prechter: Stocks Will Fall In 2010 David Tepper’s 2010 Outlook Richard Bernstein’s 10 for 2010 20 for 2010 By Doug Kass 2010 Outlook From ISI Group RBC’s top trades for 2010 How To Prep For An Uncertain 2010 Goldman’s Top Trades For 2010 Morgan Stanley’s Favorite Stocks JP Morgan’s Top Trades For 2010 More Cost Cuts Could Help These 8 Firms 10 Stocks For 2010 Will 2010 Be 2004 All Over Again? Where To Invest In 2010 What Does History Tell Us? The 5 biggest risks to 2010 10 Themes For 2010 The 10 Best ETF’s For 2010 Gold Will “Super Spike” In 2010 Gold Is In A Bubble And Could Crash The Housing Market Is Still In Trouble The Lumber Market Is Picking Up The U.S. Remains A Low Beta Investment Dividends Could Play A More Important Role In 2010 Goldman’s 2010 Commodity Outlook JP Morgan Expects Emerging Markets To Rise 30% Nomura On China’s Positive Outlook Morgan Stanley Says Chinese Stocks Are Poised To Rally 30% Bank Of Canada Says Stocks Are Overvalued Ignore Brazil At Your Own Peril The 4 Reasons Emerging Markets Will Outperform
Actionable Ideas, Alternative Assets & Potential Potholes
The Outlook Abroad
Profits resulting from the violation of one’s own system or methodology constitute the most treacherous mirage of success. We’ve all been tempted at one time or another to suspend our collection of pre-defined rules (so painstakingly accumulated, yet so easily put aside) for the possibility that for this one particular moment, distinguished from all others, things might be different. And perhaps we were right — this time — and the register rung. Yet for those of us who have chosen the way of the System, the momentary suspension of discipline is a transgression beyond profit or loss. For no matter the what the outcome of the trade executed, the damage has already been done — any gains secured in such a manner will only serve as future tuition until that particular lesson is learned. This must be understood before forward progress can
occur, for unless process takes precedence over result, the cycle repeats ad infinitum.
Pull out partial Profits
Pull a portion of winnings out of the market to prevent trading disci-pline from deteriorating into complacency. It is far too easy to rational-ize overtrading and procrastination in liquidating losing trades by say-ing, “It’s only profits.” Profits withdrawn from an account are much more likely to be viewed as real money.
Recipe for catching a reversal:
Ingredients: For this recipe you will need one (1) well-known or “classic” technical chart pattern on a daily time frame, preferably near the high or low of the mid-term price range. When your pattern of choice has been observed, you will then need to collect at least two (2) or more instances of public expressions of sentiment which confirm the prognostication of said pattern: pre- or postmarket media bytes, business news website headlines, confident/fearful declarations on your favorite trading forum, or any other variety of before-the-fact assumption. Preparation: When the above ingredients have been secured, wait for a daily close which would confirm “ripeness” of the pattern. Next morning, enter a stop order at the confirmation price in the opposite direction
of pattern breakout to initiate position. If stop is triggered, immediately enter protective stop at prior low/high. Parboiling: If market moves quickly in your favor, take profits on at least a partial portion; mentally “set aside” closed profit for re-entry if market pulls back towards initial entry price with next few days. If pullback manages to hold above prior high/low, re-enter full position at your discretion. Cooking: Set protective stop for entire position at breakeven and let sit undisturbed for a few days or more if possible. Presentation: Dish is ready when “failure” point of pattern is breached; serve at market or with trailing stop, whichever you prefer.
Consistent And Discipline
In order to realize the full potential of your trading systems it is critical that you take every trading entry, adjust every stop, and close out every trade as and when your system says you should do. This takes extreme confidence in your trading systems, good robust reliable technology, and the mental discipline to stick to your trading plan whatever happens. An underlying assumption about being consistent and disciplined is that you have a pre-defined plan for every situation you may face in your trading, so that you know how you are defining what being consistent is. Your plan needs to include at least the following items:
All your trading rules for entering, adding to, and exiting positions What you will do if your trading computer, internet connection, broker, power, telephone etc. fails What you will do if you are unable to trade What you will do if you lose X% of your account What you will do if all the markets are closed and you cant exit your positions Unless you write the answers down to all these issues, you cannot be consistent and disciplined in your approach to trading and if you lose money you will not know whether it is because you didnt follow your plan, because your plan is incomplete, because your systems do not work, or simply because you are going through a losing period.
Thoughts that affect Traders
-”I need to make more Money.” -”I’m so stupid ;how could I have done that ? “ -”I ‘ve got this market licked.” -”I can’t afford to lose money.”
-”The market is out to get me.” -”I’ve got to get my money back.” -”Nothing I do is right.”
Doubt everything.Find your own light
These were the last words of Buddha ,in the Theravada tradition.The title Buddha means ‘Enlightened one ‘ or ‘Awakened One’.In Buddhism ,the Buddha refers to Siddhartha Gautama,born in Lumbini in modern Nepal.According to most traditions ,he lived many lives before coming to our present world era.Born a prince ,at the age of 13 he was escorted out of the palace.Buddha came across the ‘four sights ‘ :an old crippled man ,a diseased man ,a decaying corpse and finally an ascetic.Gautama realized that age ,disease ,death and pain were inescapable ,and that the poor would always outnumber the rich.However ,even if one was wealthy ,everyone shared age ,disease ,death and pain.Neither money nor peace can relieve people from fear and anxiety ,or lead them to ultimate happiness. Departing from the palace and wearing rags ,Gautama studied meditation ,becoming an ascetic in his search for enlightenment.He found that the true liberation from worry could be attained only by reaching a state of absolute tranquillity and enlightenment.Buddhism had evolved into three major schools of teaching ,and its peaceful and forgiving tenets have influenced later religions. After 45 years of teaching ,the Buddha passed into Parinirvana ,the state of Nirvana attained at death.in his last sermon ,he encouraged his disciples to diligently ‘doubt everything ‘and seek the truth ,not holding on to that which is impermanent.
The Art of Trading
A GOOD Trader WILL: 1. Always wait for the setup: No Setup-NO Trade. 2. Knows that winning trades work almost right away. 3. Never takes a big loss. Sell it and start over. 4. Takes small loses regularly. Winners will come. 5. Lets the stock keep working until it does NOT! 6. Is eager to sell a loser, NOT a winner! 7. Buys pullbacks/patterns on the strongest stocks. 8. Will always trade small so he is not emotional. 9. Takes responsibility for his own trades.
The need to be Right
Good trading is not about being right, it is about making money. If you trade to be right you are most likely trading too often in order to 1) impress someone other than yourself, and 2) feed your ego. If this is your problem it mostly stems from a failure to focus on your trading plan, if you have one. If you don’t then you are really heading for disaster. Sticking to a well thought out plan of action based on a high probability trading edge will keep you from making frequent, unnecessary trades. This is where the professionals pull way ahead of the masses. The professionals wait for the market to come to them instead
Give thanks to your self, and to whatever power of the universe that you respect for the opportunity to trade – which is nothing more than an opportunity to master yourself.
The state of gratitude is a great inner state to approach the day. It buoys your optimism and invites to you the circumstances for success. As the French say “Bon courage” – and have a safe and profitable day!
10 Trading Mistakes
1. Refusing to define a loss. 2. Not liquidating a losing trade, even after you have acknowledged the trade’s potential is greatly diminished. 3. Getting locked into a specific opinion or belief about market direction. From a psychological perspective this is equivalent to trying to control the market with your expectation of what it will do: “I’m right, the market is wrong.” 4. Focusing on price and the monetary value of a trade, instead of the potential for the market to move based on its behavior and structure. 5. Revenge-trading as if you were trying get back at the market for what it took away from you. 6. Not reversing your position even when you clearly sense a change in market direction. 7. Not following the rules of the trading system. 8. Planning for a move or feeling one building, but then finding yourself immobilized to hit the bid or offer, and therefore denying yourself the opportunity to profit. 9. Not acting on your instincts or intuition. 10. Establishing a consistent pattern of trading success over a period of time, and then giving your winnings back to the market in one or two trades and starting the cycle over again.
otion is the enemy when trading”: Trading is ruled by fear and greed. Those two sinners thrive on a lack of enough information or trade expectations. The Odds Maker readout collars these guys by revealing a strategy’s odds of success (%) as well as average winners and losers and net gains or losses.
The Personality of the Trader
A recent pilot study addresses the interesting topic of how a trader’s personality affects his or her trading performance. The researchers focused on six personality traits and their impact upon trading: * Locus of control – The degree to which a trader believes that the ability to be successful is within his or her control; * Maximizing tendency – The degree to which individuals seek optimum outcomes from their decisions, not just outcomes that meet or exceed expectations; * Regret susceptibility – The tendency to look back on outcomes of decisions and focus on negative aspects, creating regret; * Self-monitoring – People’s tendency to track and control their own thoughts, feelings, and behaviors; * Sensation seeking – The degree to which people seek varied and stimulating experience; * Type A behavior – The degree to which individuals are driven to achieve. The researchers set up a simulated trading exercise with real money payouts. Because data from only 32 subjects were collected, results must be considered preliminary. Examining the personality profiles of the participants, the researchers found that the first two traits–locus of control and maximizing tendency–were not related to trading performance. Among the remaining traits, three clusters or personality types emerged: 1) Relaxed, risk-averse traders who avoid regret, dislike sensation-seeking, and show type-B (non achievement oriented) behavior; 2) Traders who were controlled risk takers: high in both self-monitoring and sensation seeking; 3) Achievement-driven traders who showed high Type-A personality traits. Of the three groups, number three performed the worst. These highly competitive traders were also the most impatient in their decision making, reducing their effectiveness. The first two groups performed similarly– no significant difference. What this suggests is that a relaxed attitude toward performance may be more helpful than a driven one: the highly achievement-driven trader may create his or her own internal noise, interfering with sound decision-making.
A Lesson on the “As if ” Principle
In the 1880s, the psychologist William James developed and began teaching his “As If” principle of life. This might not make any sense to some of you, but it works. For example, if you want to be courageous, try to act courageously. If you want
to be a nice guy, start putting a smile on your face and be friendly. If you want to be a great trader, then think like the great traders before us. You cannot be a great trader without first thinking that you are one. You get it? A person that constantly thinks that he or she will fail in trading, cannot learn how to trade, or just simply has feelings that he or she will “never make it”, will inevitably fail. Think, act, and be like Jesse Livermore, Bernard Baruch, Nicolas Darvas, Gerald Loeb, Richard Wyckoff, William O’Neil, Jim Roppel, Steve Cohen, and many, many others. They play (played) to win and that’s how you should play: play to win. Soon, you’ll find that your mental and spiritual faculties are like damn fine bartenders. They always give you exactly what you ask for and never ask questions. If you act as though you expect to be a bad trader, your mind and spirit assumes the demeanor of a nobody with little prospect of success. After all, being a nobody doesn’t require much skill at all. None, in fact. In As You Like It, Shakespeare wrote, “All the word’s a stage, and all the men and women merely players…And one man in his time plays many parts”. William James would tell you to pick out any part in life that you want to play and then play it with all your heart. If you are good at it, that is what you will become. If you pick trading as one of your life’s primary goals, then play it with all your heart. It’s as simple as that, because the “As If” concept works. Suppose a play has been written for you in which you portray a person who is in the process of making a fortune in trading. The part requires a person of great psychological control, have a burning desire to learn, be able to make quick and informed decisions, possess strong self-discipline, develop and master a winning strategy, be willing to take risks and accept losses, adapt to the ever-changing conditions in the market, have tremendous confidence in his or her’s own abilities. Could you play that role? You could if you practiced enough, that is, if you worked on your abilities enough. You can do this successfully when you get the focus of your mind to support you and reinforce your efforts. However, suppose you were assigned a part like this and you chose to play it by dressing up as a bum, slouchy, shiftless, and irresponsible. How about in a lazy, irresolute manner, acting as if you had no ambition, no determination, no confidence, no plan, and no faith in yourself that you could ever accomplish being who you want to be. Combine this with telling yourself, “I can’t do this” or “I’m too afraid” or “I wasn’t cut out to do this“, then you’re really in trouble. This would make a terrible performance and no one would attend! Consider something: How long would it take a person to become a successful trader if he or she continually depreciated themselves, thinking and talking failure, dressing like failures, and always in an environment that breeds failure? The answer to this question is all too obvious, yet millions of people are trying to achieve a level that never dreamed of ever achieving but still play the part of failures. They do nothing about it, or if they are, they aren’t trying hard enough. Have you heard of the “poorhouse atmosphere”? Sometimes, you can gauge the quality of a person’s outlook on life by simply looking at them. You can tell how big the streaks of pessimism are in their lives and how much they have been soured by bad experiences. That’s how powerful the effects of their negative thinking have become — it manifests itself in their outwardly appearance. This is truly a powerful force. When people believe the worst about everyone and everything, this is called the “poorhouse atmosphere”. Avoid it at all costs. The “As If” principle is a tool to get you from where you are right now to where you want to be. So how do you bring about such an extraordinary change? The laws are many, but none are difficult. One of the more important ones is to put yourself apart, letting your energy, determination, eagerness, and faith take you in one direction and one direction only. Focus your efforts through the power of this principle. Whatever you want can be yours. The end result will amaze you.
Trade what you Observe – Not what you Believe
One of the hardest lessons to learn in your quest to become a true trader is to suspend your beliefs and to trade that which you have learned through hours of observation. How many times have you stated that company x is overvalued only to watch it go higher? Or undervalued only to watch it continue lower? How many times have you thought that the “market” can’t go any higher and yet it did day after day? Or lower? How many times have you been scratching your head because the “market” is rising on such low volume? When is the last time you were in disbelief because company y has closed higher for 10 days in a row (after shorting it on the third day)? And have you ever acted on a recommendation from Blue Channels/Pink Papers/Website Analysts to watch in disbelief because as soon as you entered it reversed course? Bottom line – trading what “you” believe is a recipe for disaster. Eventually most folks figure out that the market is so chaotic that they are lost and admit they don’t know how to trade. Many quit in disgust. A few of you press on and begin a journey of real study. Along the way you start to recognize when stocks are about to “break out” or “break down”. You learn how to spot when an industry or a group of stocks are “on the move”. You learn to when it is “safe” or “risky” to be in the market. You learn to enter a trade when the time is “right” and accept the fact that you have “no” clue as to what will happen next but are willing to “accept” what ever the outcome is and more importantly you “know” prior to the trade at what points you will exit (”initial stop”, “profit target”, “trailing stop”). You also learn that you are not your last trade whether it was a winner or a loser, you quietly move on and get prepared for your next trade. This is what I mean by “Trade what you Observe”! You have spent time observing the market and have found ways to profit from it’s movements and you have no use for those old beliefs.
Psychology and Gaining Confidence
There has been a lot of talk on the psychology of trading and getting rid of fear etc. I think that one way to help is to understand the performance parameters of your trading system and this means extensive backtesting and changing the way you think when entering a trade. Now whenever I have placed a trade I have assumed that I was wrong and so if the market did not immediately prove my position correct I would be taking measures to reduce my position and, if necessary, get out. This kept my losses small and when correct I
was able to do nothing and just move my stop up. This is contrary to the way most people trade in that they place a trade assuming they are right and wait for the market to prove them wrong. IAlso if you have backtested a system thoroughly you will know what percentage of profitable trades you can expect. From this you can also determine the number of consecutive losing trades that you can expect for a given number of trades. The formula is quite straight forward and is: Consecutive losses = LN(N)/-LN(S) where N = Number of expected trades S = (100-strike rate %)/100 Now if you place say 30 trades a month and you have a 50% success rate, you can expect to have 5 consecutive losing trades. But the more trades you place the bigger the chance of consecutive losing runs. So if our trader has 12 x 30 trades a year = 360 they can expect to have nearly 9 consecutive losing trades. Of course the opposite is also true in that you could expect to get 9 consecutive winning trades as well. The problem is that I have seen many systems that have only a 40% success rate and in the same example above this would result in 12 consecutive losing trades. Psychologically this is very difficult to handle yet if you had backtested your system thoroughly it is easily seen that this is to be expected and means that your system is operating within normal parameters. Food for thought I hope
Which type of trader?
Which type of trader?
Please which one of the following belong to you? there are many type of traders, an awareness of the varieties allows you to avoid the pitfalls. THE DISCIPLINED TRADER. This is the ideal type of trader, you take your profits and loses with ease, you focus on your system and follow it with discipline.Trading is usually a relax activity,you appreciate that a loss does not make you a looser. THE DOUBTER. you find it difficult to execute at signals, you doubt your won abilities.You need to develop confidence.Perhaps you should paper trade. BLAMER
All losses are someones else ’s fault, you blame bad fills, your broker for picking the phone up to slowly , our system for not being perfect, you need to regain your objectivity and self-responsibility. VICTIM You blame yourself, you feel the market is out to get you, you start becoming superstitious in your trading. OPTIMIST. You start thinking it’s only money , ill make it back later. you think all losses will bounce back to profits, or that you will start trading properly tomorrow. GAMBLER. You are in for the trill, Money is a side issue. Risk and reward analysis hardly figure in your trade, You want to be a player, want the buzz and excitement. TIMID. You enter a trade, but panic at the sight of a profit and take it far to soon, Fear rules your trading.
Internatonal rules of manhood
1) under no circumstances may two men share an umbrella; unless at rugby, and your beer is getting wet, then, for the drinking period only, it is permissible 2) it is ok for a man to cry under the following circumstances a) when a heroic dog dies to save its master b) after wrecking your boss’s car c) one hour, 12 minutes, 37 seconds into “The Crying Game” 3) 4) 5) any man who brings a camera to a stag night may be legally killed and eaten by his mates unless he murdered someone in your family, you must bail a friend out of jail within 12 hours if you’ve known a bloke for more than 24 hours, his sister is off limits forever, unless you marry her
6) Moaning about the brand of free beer in the fridge is forbidden. However you can complain at will if the temperature is unsuitable 7) No man shall ever be required to buy a birthday present for another man
Game Theory And The Markets
When you take a position in the market, you are really playing a game against the market. Profitability doesn’t lie in your actions alone, it lies in the interaction between your position and the market’s price fluctuations…The goal of the individual is obvious. It is to make money. But what is the goal of the market? Simply put, the market wants you to lose money. This may be a provocative thought, but it is quite reasonable in the context of game theory.
are like a lamppost to a drunken man – more for leaning on than illumination
When You’re Wrong, Get Out
Don’t fight the market! It sounds simple, but one of the hardest things for traders to do is to stop trying to impose their wills on the market. Virtually every successful trader ever interviewed has said that learning how to take losses (and keep them small) was one of the most important accomplishments in his career.
Trading advice for preparing for your best trading day
1. Harness the power of intention As you become more and more focused as a trader and as you learn to clear your emotions the power of your intention will become stronger and stronger. Begin the day by setting the intention that you will be successful, that you will be profitable, and that you will be safe. If possible visualize it, or feel that it will happen. If any feelings or thoughts come up contrary to that intention (e.g. I lost yesterday perhaps I’ll lose today) go straight to the next point and clear that thought/feeling. 2. Clear limiting thoughts and emotions Did anything happen yesterday or on previous trading days that is bothering you? Anything happening in your personal life that may be affecting your state of mind? Any recurring thoughts or feelings that come up during the trading day? 3. Brain power Make sure that you have exercised and eaten properly so that your mind is clear and fresh. Have the right snacks at hand so that you can keep your blood sugar balanced, so that you mind stays fresh and optimally focused. Timing 4. Know when you are going to trade You may say “How do I know when I am going to trade ahead of time?”. In response I’d say, “if your trading system doesn’t tell you when you are going to be trading ahead of time, then you are missing out on a huge advantage”. As you’ll see from the various posts on cycle trading I am convinced that time is as important a factor in determining entries as price. This is why I use a combination of cycles and harmonics in addition to regular technical analysis to determine entries. Adopting this trading methodology was the single biggest contributing factor for me in becoming a consistently profitable trader, because I can calmly prepare for the times that I am going to trade and I can relax my focus during the times when I know I should be on the sidelines.
Change Of Market Character
As a trend develops, the reactions, or pullbacks, tend to become smaller. Traders looking to enter the trend wait for reactions to place their orders; as the move becomes more obvious, these reactions will get smaller and the increments of trend movement will become larger. When the reaction suddenly is larger, the move is ending; the change in the character of the move signals a prudent exit, even if prices continue erratically in the direction of the trend.
The goal of a good trader, paradoxically, is not to make money. His goal is to trade well. If he trades right, money follows almost as an afterthought. Successful traders keep honing their skills. Trying to reach their personal best is more important to them than making money.”
Google Suggestions for ‘The Stock Market is’
Check-out what Google search suggestions have to say about the stock market.
What is 710….?
This doesn’t mean all women are stupid when it comes to cars….But there always are (a lot of) exceptions!!Yesterday I was having some work done at the Ford dealer. A woman came in and asked for a seven-hundred- ten. We all looked at each other, and the mechanic asked,”What is a seven-hundred- ten?”She replied, “You know, the little piece in the middle of the engine.I lost it and need a new one. It had always been there.”
The mechanic gave the woman a piece of paper and a pen and asked her to draw what the piece looked like. She drew a circle and in the middle of it wrote 710 !!He then took her over to another car which had the hood up and asked, “Is there a 710 on this car?”She pointed and said, “Of course, it’s right there.”Now go to the photo below to learn what a 710 is…….
Development of trading expertise
1) Much of performance learning is the cultivation of positive habit patterns – If you have to make efforts to follow trading rules, that is effort not devoted to tracking markets. The key to success is turning rules into habits, so that they can be followed without effort, preserving mental capital for analysis and decision-making.this excellent New Yorker article on Toyota and the notion of kaizen . The path of kaizen is difficult to follow, but it’s a sure path to excellence. 2) The development of new habits opens the door to fresh ways of thinking and behaving – I’ve long noticed that successful traders periodically remake themselves and their trading, adapting to changing market conditions. They cultivate new habits, which aids them in developing new skills and ways of making money. 3) We will learn and perform best by making maximum use of our learning strengths – This is an extension of the notion of operating within a trading niche. If we’re engaged in a concerted program of learning and development, it makes sense to ground our efforts in learning competencies. 4) Performance improvement often occurs in small, continuous steps forward – This is an idea central to quality and performance improvement among manufacturing firms. The successful trader may set a single goal each trading session and track progress faithfully. Over the course of a year, that is hundreds of opportunities missed by the trader who lacks such goals. Take a look at
As a trader – or an investor – you will not be right all of the time. If you can accept your imperfection, and work within it, you will be much more successful:
If you have a perfectionist mentality when trading, you are setting yourself up for failure, because it is a “given” that you will experience losses along the way. You must begin to think of trading as a game of probability. Your losses ( that you hope will return to breakeven) will kill you. If you cannot take a loss when it is small ( because of the need to be perfect), then you will watch that small loss grow into a larger loss and so on into a vicious cycle of more and more pain for the perfectionist. Trading on hope does not work. The markets can remain irrational for a lot longer than you can remain solvent. The object should be excellence in trading, not perfection. Moreover, it is essential to strive for excellence over a sustained period, as opposed to judging that each trade must be excellent. This is a marathon…not a sprint. The greatest traders know how to take cut losses and let winning positions run. Perfectionists often do exactly the opposite. They get in at the wrong time, stay in too long and then get out the wrong time. Perfectionists are always striving and never arriving. The market will find the flaw in a perfectionistic trader and exploit it day after day.
Why do most traders lose money?
Because they would rather lose money than admit they’re wrong. What is the ultimate rationalization of a trader in a losing position? “I’ll get out when I’m even.” Why is getting out even so important? Because it protects the ego. I became a winning trader when I was able to say, “To hell with my ego, making money is more important.”
What’s The Real Purpose of Trading?
The real purpose of trading is not to make money. If that’s your goal you probably struggle with it a lot. But all of the following tend to work. If you goal is to be a great trader, then you probably will do well. If you goal is to use trading as a way to measure your self-development, then you will probably do well. If you just love trading and that’s why you do it, then as long as you are willing to work on yourself you will probably do well. Those, in my experience, are the key motivations that bring success in trading
Global warming -Joke Time
A Georgia Congressman was seated next to a little girl on the airplane leaving from Atlanta when he turned to her and said, ‘Let’s talk. I’ve heard that flights go quicker if you strike up a conversation with your fellow passenger.’ The little girl, who had just opened her book, closed it slowly and said to the total stranger, ‘What would you like to talk about?’ ‘Oh, I don’t know,’ said the southern congressman. ‘How about global warming or universal health care’, and he smiles smugly. OK, ‘ she said. ‘Those could be interesting topics. But let me ask you a question first. A horse, a cow, and a deer all eat the same stuff -grass. Yet a deer excretes little pellets, while a cow turns out a flat patty, and a horse produces clumps of dried grass. Why do you suppose that is?’ The southern legislator, visibly surprised by the little girl’s intelligence, thinks about it and says, ‘Hmmm, I have no idea.’ To which the little girl replies, ‘Do you really feel qualified to discuss global warming or universal health care when you don’t know shit?
Linda Bradford Raschke – 50 Time Tested Classic Stock Trading Rules
1. Plan your trades. Trade your plan. 2. Keep records of your trading results. 3. Keep a positive attitude, no matter how much you lose. 4. Don’t take the market home. 5. Continually set higher trading goals. 6. Successful traders buy into bad news and sell into good news. 7. Successful traders are not afraid to buy high and sell low. 8. Successful traders have a well-scheduled planned time for studying the markets. 9. Successful traders isolate themselves from the opinions of others. 10. Continually strive for patience, perseverance, determination, and rational action. 11. Limit your losses – use stops! 12. Never cancel a stop loss order after you have placed it! 13. Place the stop at the time you make your trade. 14. Never get into the market because you are anxious because of waiting. 15. Avoid getting in or out of the market too often. 16. Losses make the trader studious – not profits. Take advantage of every loss to improve your knowledge of market action. 17. The most difficult task in speculation is not prediction but self-control. Successful trading is difficult and frustrating. You are the most important element in the equation for success. 18. Always discipline yourself by following a pre-determined set of rules. 19. Remember that a bear market will give back in one month what a bull market has taken three months to build. 20. Don’t ever allow a big winning trade to turn into a loser. Stop yourself out if the market moves against you 20% from your peak profit point. 21. You must have a program, you must know your program, and you must follow your program. 22. Expect and accept losses gracefully. Those who brood over losses always miss the next opportunity, which more than likely will be profitable. 23. Split your profits right down the middle and never risk more than 50% of them again in the market. 24. The key to successful trading is knowing yourself and your stress point. 25. The difference between winners and losers isn’t so much native ability as it is discipline exercised in avoiding mistakes. 26. In trading as in fencing there are the quick and the dead. 27. Speech may be silver but silence is golden. Traders with the golden touch do not talk about their success. 28. Dream big dreams and think tall. Very few people set goals too high. A man becomes what he thinks about all day long. 29. Accept failure as a step towards victory. 30. Have you taken a loss? Forget it quickly. Have you taken a profit? Forget it even quicker! Don’t let ego and greed inhibit clear thinking and hard work. 31. One cannot do anything about yesterday. When one door closes, another door opens. The greater opportunity always lies through the open door. 32. The deepest secret for the trader is to subordinate his will to the will of the market. The market is truth as it reflects all forces that bear upon it. As long as he recognizes this he is safe. When he ignores this, he is lost and doomed. 33. It’s much easier to put on a trade than to take it off. 34. If a market doesn’t do what you think it should do, get out. 35. Beware of large positions that can control your emotions. Don’t be overly aggressive with the market. Treat it gently by allowing your equity to grow steadily rather than in bursts. 36. Never add to a losing position. 37. Beware of trying to pick tops or bottoms. 38. You must believe in yourself and your judgement if you expect to make a living at this game. 39. In a narrow market there is no sense in trying to anticipate what the next big movement is going to be – up or down. 40. A loss never bothers me after I take it. I forget it overnight. But being wrong and not taking the loss – that is what does the damage to the pocket book and to the soul. 41. Never volunteer advice and never brag of your winnings. 42. Of all speculative blunders, there are few greater than selling what shows a profit and keeping what shows a loss.
43. Standing aside is a position. 44. It is better to be more interested in the market’s reaction to new information than in the piece of news itself. 45. If you don’t know who you are, the markets are an expensive place to find out. 46. In the world of money, which is a world shaped by human behavior, nobody has the foggiest notion of what will happen in the future. Mark that word – Nobody! Thus the successful trader does not base moves on what supposedly will happen but reacts instead to what does happen. 47. Except in unusual circumstances, get in the habit of taking your profit too soon. Don’t torment yourself if a trade continues winning without you. Chances are it won’t continue long. If it does, console yourself by thinking of all the times when liquidating early reserved gains that you would have otherwise lost. 48. When the ship starts to sink, don’t pray – jump! 49. Lose your opinion – not your money. 50. Assimilate into your very bones a set of trading rules that works for you.
Stop trying to outsmart the market. NO ONE knows exactly where it will go. With each decision you make comes stress: ○ ○ The more decisions you make, the more likely you are to be wrong. The more decisions you are used to making, the more pressure you’ll put on yourself to make even more decisions. No one can be that right.
Forget about the “whys’ of the market. After all is said and done, the reasons will be known. Don’t apply logic. Markets move on emotions — period!
Plan your trade and trade your plan. Reduce the amount of decisions you make. Make decisions and live with them (also a life lesson!). ○ ○ Good decisions come from experience. Experience comes from bad decisions.
There is a Korean martial art called Kum Do. This is a brutal game that involves a fight to the death with very sharp swords. The way it is practiced today is with bamboo sticks, but the moves are the same. Kum Do teaches the student warriors to avoid what are called “The Four Poisons of the Mind.” These are: fear, confusion, hesitation and surprise. In Kum Do, the student must be constantly on guard to never anticipate the next move of the opponent. Likewise, the student must never allow his natural tendencies for prediction to get the better of him. Having a preconceived bias of what the markets or the opponents will do can lead to momentary confusion and—in the case of Kum Do—to death. A single blow in Kum Do can be lethal, and is the final cut, since the object is to kill the opponent. One blow—>death—>game over. Instead of predicting, anticipating, and being in fear and confusion, you must do exactly the opposite if you are to survive a death blow from the market movements. You must watch with a calm, clear and collected attitude and strike at the right time. A few seconds of anticipation, hesitation or confusion can mean the difference between life and death in Kum Do—and wins or losses in the stock markets. If you are not in tune with the four poisons of fear, confusion, hesitation or surprise in the markets, you are at risk for ruin. Ruin means that your money is gone and the game is over. How can you avoid the four poisons of the trading mind: fear, confusion, hesitation and surprise? Replace fear with faith—faith in your trading model and trading plan Replace confusion with the attitude of being comfortable with uncertainty Replace hesitation with decisive action Replace surprise with taking nothing for granted and preparing yourself for anything.
Take Your Time
“Take your time. There are moments in time where you walk into the market and you open up the chest, and there’s a ton of treasure in there. Then there are times you open up the chest, and you get skeletons. And then there are times you open up the chest and it looks good — and then the next day it doesn’t. Do not ‘over take‘ what the market is giving — or it’s going to carve you up like there’s no tomorrow. And that’s what this market has been about.”
Respect the Trend
One of my favorite trading tales involves a very wise, veteran trader who, when asked his thoughts on the market, would simply respond by saying “It’s a bull market,” or “It’s a bear market.” Younger traders simply seeking out a hot tip from the seasoned pro would often leave discouraged – or even annoyed, believing they were being fed a line. JL himself didn’t understand until years later the wisdom that was actually being dispensed with those words: The veteran was simply relaying the path of least resistance, or the trend for the general market, and therefore giving the trader an incredible edge in determining one of the many variables that makes up stock trading
Traders should equate the general market to that of a big river with individuals stocks as floating logs. If ones objective was to ride in the general direction of the current, they would not stand on the bank looking for a log that was bucking that trend? Furthermore, even if they found one that temporarily headed in the wrong direction, more than likely it would only be a matter of time before the log reversed course and also headed in the way of all the other logs. Traders would be wise to understand there are 3 directions a market can travel; up, down or sideways. As long as we this will be true – and just as valuable as Livermore’s seasoned trading friend’s advice was then it would be today.
Markets, like rivers, don’t change courses overnight – or even in a few days. It often takes many months if not years to properly establish a trend. Simply pull back any weekly chart over the past couple years and assess where the trend is going. If you aren’t quite sure, then more than likely cash remains the place for you. Understand this basic, yet key, principle of trading, and you will already be well ahead of most.
Does Failure Motivate you ?
I’ve been reading a wondeful book by Jerry Stocking titled Laighing with God.In that book the following dilemma is broght up ,and I’m going to rewrite the conversation a little to make it pertinent to trading/investing. God o you want to win without losing ?
God :If you win ,you must lose as well.But you weren’t honest with me.Your saud that you’d like to just win.If that were the case ,you’d win much more often. The possibility of failure motivates you much more than the possibility of success.your whole society thrices on failure or at least the fear of lossing.If there were not the possibility of losing you could not take any credit for success.Making money in the markets would seen meaningless for you. Think about it.What if you recorded a sporting event and someone told you the final score ?Would you still watch it ? Probably not because it’s the uncertainty of the outcome that keeps your attention. Your could make money on every trade ,but that wouldn’t be fun.You’d lose the uncertainty you love and yet ptretend to eliminate. The Last statement may get to some of you.But what if it’s true ?Ed Seykota said in The New Market Wizards that people get what they want out of the market : excitement ,punishment and justification for their emotions.I’ve
certainly seen plenty of evidence to suggest that his observation is true.But the conversation gets even more interesting. God :Your know what will happen in the market because the future is an illusion you invent.Ignoring what you know at the sould level proces how much you love uncertainty.You use the illusion of the future to keep yourself locked in time. To make this conversation more meaningful ,imagine that you are 100% accurate on every trade.You know every top and every bottom on every stock.You are never wrong about a trade.Suppose you just entered the market and made 1 crore in a year.Would you keep going if it were that easy ?Would 1 crore be enough ?Would you keep trading ? Perhaps your response is ,”sure I would !I ‘d get all the money in the world.”Would that be intersting ?I tend to doubt.Trading is interesting only because of the possibility of losing.You are now in position where you can buy anything or do anything because you will never lose money on a trade.Would you still trade ?Why or why not ? Everything in this section may be made up.Nothing may be true ,But I ‘d like you to assume (act as if ) it is true.Just pretend that it’s true.When you do so ,what happens to you insider ?How do you feel about trading ?Would you keep on trading ?If so ,how often ?If no ,why not ?What does that tell you about yourself ?Is it the uncertainty that keeps you in the game ?Would you keep trading if you had all the money in the world ?Why ?What do your answers tell you about yourself ? I encourage you to do this exercise and notice what comes up for you.How much trades would your take if you had not uncertanty about the outcome ?What do your answers tell you about yourself ?
7 rules for dealing with risk
1. Overcome Fear. Fear clouds judgment. 2. Remain Flexible. Surprise outcomes may require a change of plan. 3. Take reasoned risks. Risk can be good if the odds are in your favour. 4. Prepare to be wrong. Plan in advance how to deal with unfavourable outcomes. 5. Actively seek reality. See the world as it is rather than as you want it to be. 6. Respond quickly to change. If your plan calls for some action in the face of unfavourable outcomes, don’t delay. 7. Focus on decisions, not outcomes. In the face of risk, good choices can have bad outcomes, and bad choices can have good outcomes. From :Inside the Mind of the Turtles :Curtis M Faith
Three Reasons Why Most Trading Strategies Fail
I wonder how would you rank order market selection, setup/entry timing, protective stop, trailing stops/exit and position sizing in terms of overall importance to the success of a trading system ? A: Each are important, but in analyzing numerous strategies I have not seen a tried-and-true ranking system that fits everything. The reason I think (and my research proves out) that why strategies fail are directly related to three main things: 1) user error (i.e. failure to act on the signals provided by your system in a consistent manner without trying to outsmart the system, 2) over optimization and use of extensive leverage, and 3) the most important of all – little to no risk management through proper position sizing and stops. All in all, if you really are focused on improving yourself in 2010, the first place to look is risk management as it has more of an impact over your eventual success or failure than anything else.
Five Principles of Growth and Development for Traders
1) The Bodybuilding Principle – You only grow and develop when you work against significant resistance, lifting more than you can comfortably handle. Hard workouts, then rest: a formula followed by all fine athletes. 2) The Process Principle – Work on doing things well and the outcomes take care of themselves. Focus on outcomes and you interfere with doing things well. Process goals spur improvement; outcome goals create pressure. 3) The Feedback Principle – Turning feedback about how you’re doing into concrete goals for further work channels your development. Work without goals is like exploring without a map: you spend much time wandering aimlessly. 4) The Strengths Principle – You reach your greatest potential by making the most of your distinctive strengths, not by incrementally improving your weaknesses. What you’re good at will fuel your greatest passion and stimulate your highest efforts. 5) Maslow’s Principle – You cannot meet your higher level needs for success and fulfillment if your more basic needs go unmet. Achievement at work cannot substitute for love, security, and well-being, but the absence of these can interfere with achievement.
Implicit learning manifests itself as a “feel” for a performance activity. Research tells us that implicit learning only occurs after we have undergone thousands of learning trials. Without such immersive exposure, traders never truly internalize the patterns in their markets and time frames.
Is Venting Emotion Good for Trading?
Does venting emotion help a trader regain focus or does it exacerbate emotional and physical arousal and interfere with concentration and decision making? Research actually suggests that venting emotion after a traumatic event can lead to worse psychological outcomes. The key seems to be whether the venting allows for a reprocessing of the stressful events. If the venting leads to new ways to interpret what has happened–new perspectives–it can be helpful. If there is no such transformation of the stressful event, venting can simply amplify stress responses and reinforce them. Venting in a social manner to gain control can constitute good coping. But losing emotional control simply reinforces a sense of lost control.
How do *your* coping efforts work for you?
Take a look at how well you trade after a position has gone against you. Do you trade better after a drawdown or worse?
How about after you have a few winning trades, days, or weeks in a row? Do you trade better or worse? Breaking down your performance as a function of recent performance will tell you a great deal about how effective you are in coping with risk and reward. The other excellent indicator of whether your coping is working for you is your emotional experience during trading. If you find that anxiety, overconfidence, frustration, and stress are pushing you into poor decisions, you know that you’re not coping well with the uncertainties of markets. Finally, it is helpful to identify the sequences of coping behaviors that you utilize when you’re making good decisions and the sequences when you’re trading poorly. Knowing how your individual coping responses come together to form coping strategies can help you cultivate your coping strengths. Tracking how you deal with challenges when you are at your most effective enables you to create a mental model of that coping that you can call upon during periods of high stress. We cannot avoid the stresses of trading, but those do not have to generate distress and biased decisions.
Today I want to consider the subject of over-trading. This can take two forms: • • Frequency of trading: we over trade when we take trades in breach of our strategy. The amount at risk relative to our capital: we over trade when the size of our position threatens risk of ruin.
Frequency of trading assumes that firstly we have some sort of strategy and that you have have developed some rules to implement that strategy. And, secondly, we execute trades in breach of those rules – we take trades not within our rules. In my experience, newbies generally over trade as a response to a larger than expected loss or when faced with a series of consecutive losses even though they have been following their rules. The desire to recover a loss quickly usually drives the first error; the second tends to be driven by a sense of ‘justice’: “why am I not being rewarded if I have been so good”? To deal with this problem, we first need to develop a set of trading rules and risk management rules. Then we need to recognise that trading is a probability game and as such, there will be times when the rules and the market environment don’t fit (what I call the Ebb State). Under those conditions, we need to reduce our ‘normal’ position size, risk per trade and frequency of trading (the latter by using only the most robust of our setups). There will be times when our methodology and market conditions fit perfectly (what I call the Flow State). Under those conditions we can do no wrong; and in the Flow State, I increase my ‘normal’ position size and risk per trade.
Five qualities for Successful Traders
1. Capacity for Prudent Risk-taking.The young successful trader is not afraid to go after markets
aggressively when the opportunity presents itself. 2. Capacity for Rule Governance. The young successful trader has the self-control to follow rules in the heat of battle, such as rules of position sizing and risk management.
3. Capacity for Sustained Effort.The trader uses productive time to do research, preparation, work on
himself, outside of market hours. 4. Capacity for Emotional Resilience. All young traders will lose money early in their development and experience multiple frustrations. The successful ones will not lose self-confidence and motivation in the face of loss and frustrations. 5. Capacity for Sound reasoning. The successful young trader exhibits an ability to synthesize data and generate market and trading scenarios.
To Make HUGE Profits, You Have To Think SMALL
The more i trade, the more i realize that trading with big size is just stupid. Sure, you will have your occasional huge win. Sure, there are a rare times when trading with size is good to capitalize on ‘easy’ trading setups but i believe that 95% of the time trading with size will surely lead to over trading, micro managing, flinching at the smallest wiggles, lead to emotional decision making, stressful trading and burnout.Trade small positions and you will see how you will think more clearly, you will stay objective, you will stay calm under pressure, you will trade less and ride out bigger
trends for more ‘profits’. Small positions will not bank you the thrilling homerun but they will accumulate into your account at the end of the month/year. Large positions will give you a homerun from time to time and they will eat your lunch from time to time too and at the of the day, you are left wondering ‘what happened’??So, trade small positions and stay unemotional!
Trading is all about YOURSELF
Trading has to do a lot with yourself. Trading is not about the market. You have to get your emotion and psychology right before you go to trade. Without the good emotion or feeling of the day, you will be most likely be losing during that day. Do Not Trade, If … - You cannot afford to lose the money. (Prepare to lose) - You have a Bad day (quarrel with wife/child/boss). - You are Sleepy - You are Not comfortable in trading - Technology failed You Do not be afraid that you will lose the opportunity for the ride up or down. There are plenty of opportunity out there in the market everyday. Remember: If you trade, you will lose money. If you don’t trade, at least you wont lose money. The funny thing that i found out … People will lose money if they care about their money but people will make money if they don’t care about the money. Get yourself right first and the money will come to you.
Coach Yourself as a Trader
What are the three things (i.e. courses of action, strategies, resources) that you’ve found most helpful in mentoring/coaching yourself as a trader?
And here is how I answered:
1. Understand me. The most powerful tool I have found in life and in this specific case, the market, is what I, as a person, am capable of doing as a trader. I finally understand that personal characteristics that are engrained in my DNA will only allow me to trade successfully under specific circumstances. For example, I am much more consistent and profitable as a medium term and longer term trend trader than as a day trader (even more so on the long side). I don’t need to be everything, all the time as long as I continue to focus on the areas that bring me the greatest success. Understanding “me” has been my holy grail of understanding how to trade the market with some type of consistency and profitability. 2. Learning to cut losses. It’s almost cliché but not many people can do it (in any aspect of life). I have learned to cut losses in my trading, my career, my hobby of competitive poker and everything else in life where the rule applies. Without this rule, there wouldn’t be a third rule. 3. Study and work hard. Sounds so simple but we live in a very lazy society. It is extremely important to my success for me to continuously study the markets on a fundamental and technical level and learn from my successes and mistakes. If you think about it, we would all start at square one on every trade if we didn’t learn from past situations where we succeeded or failed. Applying the knowledge gained from past experiences allows me to properly analyze similar situations in the future with slightly greater odds of success (or at least I would like to think). Never stop learning is a phrase that I will never stop saying as it proves to be truer the older I get.
Stocks rise when they are being bought up. Stocks fall when they are being sold off. I always ask myself “Who is in control. The buyers or sellers.” Control changes often and in different time frames you can argue that one party or the other were merely taking a rest. I generally buy stocks that are going up and short sell stocks that are falling. But I also play the sharp reversals that happen if there is a huge gain or drop as I know gravity will take effect and profit taking will occur. The smart way to day trade is to be on the winning side be it buyers or sellers. As a small fish in a big ocean I can only ride on the coattails of the big boys who actually move
the market. My job as a trader is to recognize when trend or momentum is starting to kick in and climb aboard. Short term trends or momentum are the only thing that I trade. The old cliche’ “the trend is your friend” is so very true. I only trade in the direction the chart is telling me to. Maybe you can watch the talking heads on TV blathering on or read about how great some stock is without forming an opinion on it. I can’t, so it’s safer to insulate myself from any and all information. I actually don’t care what, where, why, how or when a company does what it does. Who am I to be able to process all this information? I do know that when a stock is rising, more people are buying it than selling it and vice versa. Seems easier to me to only look at and believe the chart and trade accordingly. If I have preconceived notions about what the stock may do, I will not be able to cut my losses when the chart tells me to. I will hold on to the dream all the way to the poor house. Always trade with the trend. Cutting your losers is one of the most important aspects of trading.Unless you have an unlimited pile of money to fritter away you must admit you’re wrong and exit the trade. If you don’t you will not have enough to remain in the game. End of story. Letting the winners run is also important. They are winners after all and that is all that counts. Adding size (buying more shares) can turn little winners into big winners. If you disregard any or all of these 3 simple rules you won’t be around trading very long.
When we follow a standardized process for trade execution, we help negate the impact that emotions can have on that process. And when we create a set of rules within which is a subset of rules that allow for less mechanical, more intuitive management of our trades, we can potentially realize additional profits from those intangible insights into market direction without over-exposing our account to risk. Here is how it works: S – Scan your charts . Create a “Watch List” to help manage your inventory of trading opportunities. I – Identify a high probability set up. M – Map out the trade’s entry point, stop-loss exit point, and profit exit point. P – Pull the trigger. By systematizing the process as we are talking about here, the anxiety associated with executing a trade is greatly reduced. Instead of focusing on whatever issues keep you from pulling the trigger, your focus is on following a procedure, a set of instructions. Mapping out and understanding exactly what our risk is also reduces the anxiety of entering a trade. L – Let the market do its thing. It’s not very often that you won’t have to take some heat on a trade. It’s a great feeling when a trade goes in your favor immediately and stays that way. But that’s the exception and not the rule. As a good friend of mine would say, “Let it breathe!” I – Isolate your feelings, emotions, and inclinations to tinker with the trade. The best way to do this is let go of the mouse and pick up a pen. Journal your thoughts to explore and understand why you are wrestling with the urge to adjust your pre-established parameters for the trade. F – Focus on your rules for managing the trade both mechanically and intuitively. I have established strict rules for when I will allow myself to manage a trade intuitively. First, one-half of my position must meet my first profit target and be filled. If I feel the position has continued potential beyond that point, I allow myself to be risk no more than the profit banked from the first half of the trade. This is very important: when allowing myself to trade less mechanically, my risk never exceeds break-even on the entire trade. Y – You. That’s right. You. No matter how mechanical we try to make it, each trade carries with it some level of stress. So take some time for you. Walk away from your trading station after you’ve exited your trade, even if it’s only for a minute. Take a few deep breaths and allow the last trade to get put behind you and begin to prepare for the next.
6 Trading Rules
1.IF YOU DON’T LIKE THE TRADE YOU’RE HOLDING, GET OUT. 2.AFTER TWO HOURS OF TRADING, ASK YOURSELF: “DO I FEEL GOOD ABOUT MYTRADING TODAY?” Once two hours have passed, A day trader should have made at least two, or perhaps more, trades, “but enough to evaluate what you have done.” If the trader feels good about the day’s trading, continue. If not, stop trading that day. 3.ALL CYLINDERS OF THE ENGINE MUST BE RUNNING EFFICIENTLY. “Day-trading is a job, and your paycheck is determined by your ability. You can only maximize your ability if you have all the information you need to make trading decisions. “If a piece of equipment that one uses for trading is not working, stop trading. 4.HAVE COMPLETE FAITH IN YOUR INDICATORS.This is a must for success.Many times your indicators give you a buy or sell signal, and you don’t follow it because you don’t have the confidence the signal is right this time. Successful day traders believe in their indicators, but also are aware that nothing is 100% foolproof. 5. TO ANYONE WHO ASPIRES TO BECOME A DAY TRADER, OBSERVE THOSE WHO ARE SUCCESSFUL. “Any information you can procure on the trading philosophies, mechanics and techniques is well worth your while.” 6.DAY-TRADING IS A LONG-TERM COMMITMENT. “I fervently believe it takes several years to become a true professional”
“Don’t think that trading is fun. The trading game should be boring the vast majority of the time, just like the real-life job you have right now.” Don’t try to get even. This isn’t a game of catch-up. Every action you make has to stand on its own merits. Take your losses with detachment and make your next trade with absolute discipline. Don’t ignore the warning signs. Big losses rarely come without warning. Don’t wait for a lifeboat before you abandon a sinking ship. Don’t ignore your intuition. Listen to that calm little voice that tells you what to do and what to avoid. That’s the voice of the winner trying to get into your thick head. Don’t project your personal life onto your trading. Trading gives you the perfect opportunity to find out just how messed up your life really is. Get your own house in order before you play the financial markets
Trading Psychology Quotes
Assumption 1: We have not learned everything there is to know. Assumption 2: What we have learned, unwittingly or by choice, may not be very useful with respect to fulfilling ourselves in some satisfying manner. Assumption 3: What we have learned that is useful and works to our satisfaction is still subject to change because of changing environmental conditions.
“If you operate out of the foregoing assumptions, you will begin to recognize how every moment becomes a perfect indication of your state of development and what you need to do to improve yourself. “When we refuse to acknowledge or accept the perfection of each moment in our lives, we deny ourselves access to the infomation that we need to expand ourselves. Any skill that we need to learn to express ourselves more effectively has a true starting point. To find that true starting point requires our acceptance of each outcome as a reflection of the sum total of who we are so that we can first indentify what skill needs to be learned and how we might go about the task of learning it. Without this true starting point, we will operate from a base of illusion.
Characteristics Of A Losing Trader
1.Undiscplined 2. No money management 3. Unprepared 4. Overtrading habits 5. Easily tilted 6. Does not trade with probabilities 7. Trades emotionally without controlling: greed, hope, fear, and euphoria 8. Does not have a trading plan and strategy
If you are having trouble achieving your trading goals, take time out to examine the real causes of your problems. Working towards improvement will take a dedicated approach on your part. Identification of the problems are the first step. Attacking the problems one at a time is the first part of the solution. Doing the right thing at the right time based on the information you have should be your goal. Sit down and have an in depth talk with yourself and ask yourself some hard questions. For example: – do I have the emotional makeup necessary for this business? – do I have the financial reserves so that I am not relying on trading to pay the bills while I learn? – do I really enjoy doing this? Coming up with honest answers will be the only way to ultimately overcome issues that keep getting in your way. If you keep doing the same things, you will keep getting the same results, so you’ll need to change. Plain and simple. Best not to delay in sorting things out.
Waiting for the right moment to enter and exit definitely comes with experience. Correct order execution, taking profits when they are offered and cutting losers are also vital to your success.
My mind is not bogged down by indicators, rumours, conjecture or analyst’ reports. It is much easier for me then to concentrate on what really matters – recognizing what the charts are telling me and acting on this information. Concentrate on the problems you might have. Hesitation, taking big losers, selling winners to soon, screwing up order entry, racing heart and sweaty palms. Getting to the root of these may be like a journey of self-discovery. I would bet that most come from being afraid to make wrong decisions and lose money. I make wrong decisions and lose money many times a day. But I am quick to realize my wrong decisions and quick to cut my losers. This is a key ingredient of my trading plan. Really think about why your problems are occurring. Delve deeply into them so that you can explore the way forward. Take hesitation for example. Do you hesitate when you see a trading set up that meets all the requirements of your edge? Is it fear of being wrong? Fear of losing money? Fear of being right? Fear of making money? Get right down into it. Speak out loud and admit to yourself what it is. Accept it. Only then after acceptance can you work on improving your lot. Maybe you view it as an overwhelming amount of work to do. Small steps, day by day can bring positive action to your trading and make it seem that the task is not so big after all. Strive for a state of mind of ambivalence. The market is going to do whatever it’s going to do with or without your participation. It’s up to you to appreciate the known risk, unknown factors that can happen and just go with the ebb and flow of the markets. Simplify your trading style down to just candlesticks on your monitors. Turn off the TV. Think about one thing to change today that can bring you a positive improvement.
Successful trader needs five essentials
1. A Method You must have a method that is objectively definable. This method should be thought out to the extent that if someone asks how you make decisions to trade, you can quickly and easily explain. Possibly even more important, if the same question is asked again in six months, your answer will be the same. This is not to say that the method cannot be altered or improved; it must, however, be developed as a totality before implementing it. 2. The Discipline to Follow Your Method ‘Discipline to follow the method’ is so widely understood by true professionals that among them it almost sounds like a cliché. Nevertheless, it is such an important cliché that it cannot be ignored. Without discipline, you really have no method in the first place. And this is precisely why many consistently successful traders have military experience – the epitome of discipline. 3. Experience It takes experience to succeed. Now, some people advocate “paper trading” as a learning tool. Paper trading is useful for testing methodologies, but it has no real value in learning about trading. In fact, it can be detrimental, because it imbues the novice with a false sense of security. “Knowing” that he has successfully paper-traded during the past six months, he believes that the next six months trading with real money will be no different. In fact, nothing could be farther from the truth. Why? Because the markets are not merely an intellectual exercise, they are an emotional one as well. Think about it, just because you are mechanically inclined and like to drive fast doesn’t mean you have the necessary skills to win the Daytona 500. 4. The Mental Fortitude to Accept that Losses Are Part of the Game The biggest obstacle to successful trading is failing to recognize that losses are part of the game, and, further, that they must be accommodated. The perfect trading system that allows for only gains does not exist. Expecting, or even hoping for, perfection is a guarantee of failure. Trading is akin to batting in baseball. A player hitting .300 is good. A player hitting .400 is great. But even the great player fails to hit 60% of the time! Remember, you don’t have to be perfect to win in the markets. Practically speaking, this is why you also need an objective money management system. 5. The Mental Fortitude to Accept Huge Gains To win the game, make sure that you understand why you’re in it. The big moves in markets come only once or twice a year. Those are the ones that will pay you for all the work, fear, sweat and aggravation of the previous 11 months or even 11 years. Don’t miss them for reasons other than those required by your objectively defined method. Don’t let yourself unconsciously define your normal range of profit and loss. If you do, when the big trade finally comes along, you will lack the self-esteem to take all it promises. By doing so, you abandon both method and discipline.
fun with words
The Washington Post’s Mensa Invitational once again invited readers to take any word from the dictionary, alter it by adding, subtracting, or changing one letter, and supply a new definition. Here are the winners: 1. Cashtration (n.): The act of buying a house, which renders the subject financially impotent for an indefinite period of time. 2. Ignoranus : A person who’s both stupid and an asshole. 3. Intaxicaton : Euphoria at getting a tax refund, which lasts until you realize it was your money
to start with. 4. Reintarnation : Coming back to life as a hillbilly. 5. Bozone ( n.): The substance surrounding stupid people that stops bright ideas from penetrating. The bozone layer, unfortunately, shows little sign of breaking down in the near future. 6. Foreploy : Any misrepresentation about yourself for the purpose of getting laid. 7. Giraffiti : Vandalism spray-painted very, very high 8. Sarchasm : The gulf between the author of sarcastic wit and the person who doesn’t get it. 9. Inoculatte : To take coffee intravenously when you are running late. 10. Osteopornosis : A degenerate disease. (This one got extra credit.) 11. Karmageddon : It’s like, when everybody is sending off all these really bad vibes, right? And then, like, the Earth explodes and it’s like, a serious bummer. 12. Decafalon (n.): The grueling event of getting through the day consuming only things that are good for you. 13. Glibido : All talk and no action. 14. Dopeler Effect: The tendency of stupid ideas to seem smarter when they come at you rapidly. 15. Arachnoleptic Fit (n.): The frantic dance performed just after you’ve accidentally walked through a spider web. 16. Beelzebug (n.): Satan in the form of a mosquito, that gets into your bedroom at three in the morning and cannot be cast out. 17. Caterpallor ( n.): The color you turn after finding half a worm in the fruit you’re eating.
Life and Markets
Respect is the first casualty in lost love. Four industries dominate the economy: hope, escape, protection, and convenience. Success is the point at which talent and skill meet opportunity. The aim of all trading education: to encourage trading. The printing press democratized the acquisition of knowledge; the computer has democratized its dissemination.
Date markets before deciding to marry them.
Anatomy of a bad trade: Hope, then despair. Love, once present, never dies. It must be killed. Many a trader fears boredom more than loss, thereby experiencing the two in sequence. Work without talent is drudgery; talent without work is self-betrayal. Goodness of character is measured in loyalty to others; greatness of character is measured in loyalty to principle. One encounters losing traders as often as one encounters losing golfers–and for much the same reason. Show me what a man loathes, and I will show you what he cannot accept in himself. Trading is the only sport in which the rules governing the players change constantly—and without notice. Two traders: one increases size after a loss; the other gets smaller. Both continue to lose. The absence of self-acceptance too often masquerades as the quest for self-improvement. Fidelity to purpose: the mark of good investments and great investors.
Talent is the better part of trading psychology. The foolhardy trade is the courageous trade held a few minutes longer. In all fields, performance belongs not just to the talented, but to the prepared. Self esteem is treating ourselves with justice, not kindness. Addiction: when the desire to trade exceeds the desire to make money.
Winning Is the Objective
Larry Hite described his conversation with a friend who couldn’t understand his absolute adherence to a mechanical trading system. His friend asked, Larry, how can you trade the way you do? Isn’t it boring? Larry replied, “I don’t trade for excitement; I trade to win.”
Great Traders: Five Distinguishing Features
* Everyone is wrong in the markets at times. The difference between the great traders and the unsuccessful ones is in how long they stay wrong. * Addictive traders get high from action; great traders get high from mastering markets–and mastering themselves. * Great traders do their best work when they are not trading; unsuccessful traders do not work when they are not trading. * Every loss of discipline is a self-betrayal; great traders are true to themselves and stay disciplined as a result. * Great traders focus on the two things they can always control: when they play and how much they bet.
Zero Sum Game
When people trade the common misconception is that they are trading the market or taking money out of the market. They are not. They are trading OTHER TRADERS and taking money from OTHER TRADERS. In order for one trader to make money another trader or group of traders needs to lose money. This is how the market works and that is why it is a zero sum game. If you are losing money in the market the market is not taking your money, other traders are taking your money.
You are watching a stock that has all the signals you look for in an opportunity. The proper point to enter comes, but you wait. You second guess the opportunity and don’t buy the stock. Or, you bid for the stock at a price that is not likely to get filled if the opportunity does pan out the way you anticipate it will. As a result, you get left behind while the market pushes the stock higher. A short while after the initial entry signal, when the stock has made a decent gain, you decide to finally enter the trade. After all, the market has proven your analysis correct, so you must be smart, and right! Not long after you enter, the stock turns south and you end up with a losing trade. If only you had bought when you first thought about it.
This is really just a confidence issue. You are either not confident in your ability to analyze stocks, or you are not confident in the methodology that you are using to pick trades. Therefore, you have to research your method so that you have the confidence that it works. Then, you have to start small, making trades that have a potential loss that you are comfortable with. As you gain confidence in your method and your ability, increase the trade size. With your new found confidence, stand in a crowded room and scream, “I am great!” Well, maybe don’t carry it that far.
Five market scenarios that place you at the most risk.
1.Bad Markets – A good pattern won’t bail you out of a bad market, so move to the sidelines when conflict and indecision take hold of the tape. Your long-term survival depends on effective trade management. The bottom line: don’t trade when you can’t measure your risk, and stand aside when you can’t find your edge. 2.Bad Timing – It’s easy to be right but still lose money. Financial instruments are forced to negotiate a minefield of conflicting trends, each dependent on different time frames. Your positions need to align with the majority of these cycles in order to capture the profits visualized in your trade analysis.
3.Bad Trades – There are a lot of stinkers out there, vying for your attention, so look for perfect convergence before risking capital on a questionable play, and then get out at the first sign of danger. It’s easy to go brain dead and step into a weak-handed position that makes absolutely no sense, whether it moves in your favor or not. The bottom line: it’s never too late to get out of a stupid trade. 4.Bad Stops – Poor stops will shake you out of good positions. Stops do their best work when placed outside the market noise, while keeping risk to a minimum. Many traders believe professionals hit their stops because they have inside knowledge, but the truth is less mysterious. Most of us stick them in the same old places. 5.Bad Action – Modern markets try to burn everyone before they launch definable trends. These shakeouts occur because most traders play popular strategies that have been deconstructed by market professionals. In a sense, the buy and sell signals found in TA books are turned against the naïve folks using them
Evaluating Yourself as a Trader
1) What is the quality of your self-talk while trading? 2) What work do you do on yourself and your trading while the market is closed? 3) How would your trading profit/loss profile change if you eliminated a few days where you lacked proper risk control? 4) Does the size of your positions reflect the opportunity you see in the market? 5) Are trading losses often followed by further trading losses due to frustration? 6) Do you cut winning trades short because, deep inside, you don’t think you’ll be able to achieve large profits? 7) Is trading making you happy, proud, fulfilled, and content, or does it more often leave you feeling unhappy, guilty, frustrated, and dissatisfied? Are you making trades because the market is giving you opportunity, or are you placing trades to fulfill needs–for excitement, self-esteem, recognition–that aren’t being met in the rest of your life? 9) Are you seeking returns that are realistic given your level of experience and development? 10) Can you identify the specific edges you possess over the many other motivated, interested traders that fail to achieve success in the markets? Many answers to trading problems begin by asking the right questions.
Clear your mind
Someone asked a surfer what he does when a big surf comes along, and he goes underwater. The surfer said it was simple. “If I panic, I only have 3-5 seconds of air to breathe. If I stay calm, I have 45-60 seconds of air.“ Trading Lesson: If you let your emotions get the better of you, you could lose all of your capital. However, if you take a moment and think about your trades, you can have much better results.
Goldman Sachs (GS) is robbing the cradle for top trading talent
Must Read…… Goldman Sachs is like the military: It gets people while they’re young and malleable, breaks them, and remakes them in the firm’s own mold. Eric Mindich, for instance, started working at Goldman Sachs in high school, made partner at 27, packed it in for alleged retirement at the ripe old age of 36, and then went on to start a giant hedge fund
. Unfortunately, the world of finance, and Goldman Sachs in particular, has been too busy apologizing and schmoozing to trot out their financial Doogie Howsers recently.
Enter Jan Sramek, a 22-year-old (!) Czech Republic–born, London-based trader for Goldman Sachs. At an age when most people in finance are futzing with Excel spreadsheets, and most other people his age are sitting around watching Days and taking bong hits, Sramek is entrusted to run millions of dollars in trades. This week, he was named in the Financial News list of 100 Rising Stars, a kind of 40-under-40 list for the continental financier set. He’s the youngest-ever person to make the the list (and that’s counting his nomination last year, when he was still at the London School of Economics), and his résumé is already exhausting. Here’s a portion of FN’s writeup: He achieved 10 A-grades at A-level, played handball for the Czech Republic and won £100,000 worth of scholarships to fund his studies. While at university, he worked as an intern at Goldman Sachs, Marshall Wace, AKO Capital, BarCap, Deutsche and UBS, founded a social network and a careers website, co-wrote a motivational book entitled Racing Towards Excellence, and still managed a high first-class degree from the London School of Economics. Also, it should be mentioned, Sramek runs marathons, doesn’t smoke or drink much alcohol, and wants to get married and have six kids. He counts mega-hedgie Peter Thiel as a role model. Sramek isn’t unaware of his Pinky and the Brain credentials; he’s one of those geniuses who has no trouble admitting it: His Twitter profile, for instance, describes him as a “visionary,” and much of his book Racing Towards Excellence, a section of which was obtained by Daily Intel, is a chronicle of his overachievement. In a chapter titled “A Leveraged Life,” Sramek describes growing up in a one-room house in Moravia in a village of 1,000 people. His father, a mechanic, and his mother, a schoolteacher, encouraged him to study at an early age, and Sramek started his first company, a jobs site for IT professionals, at 13. In 2003, he won a scholarship from George Soros’s Open Society foundation to Cambridge. Later, he transferred to the London School of Economics to focus on finance. In truth, however, Sramek has little regard for the plodding benchmarks of financial achievement: “3 hrs [sic] of classes today were an utter and complete waste of my time,” he tweeted recently. “Academic finance is largely nothing more than intellectual masturbation.” Sramek would rather focus on his long-term goal: getting rich. He’s already planning out his future in philanthropy; he told an interviewer he wants to focus on education, which would require him to amass a significant amount of wealth: “I would like to once be in a position where I can do something about it, and do it from a position of power,” he said, adding that wealth was necessary “to get the required leverage or to try and do things differently.” At 22, Sramek has a world-weariness beyond his years, and a penchant for aphorisms. In his book, he says he would send this Ayn Rand quote to his “younger self”: “The question isn̻t who is going to let me; it’s who is going to stop me.”. When asked by The Gateway, a website that bills itself as “The Financial Times for students,” for advice to up-and-comers, Sramek said, “See everything in terms of risk-reward, almost like a trade. Determine your entry, exit and stop loss. Know when to get out.” Such cocksure arrogance combined with youth has already caught the attention of the media: Back in March, CNN invited him to talk about the G20 conference on air. Afterward, Sramek tweeted:
“Just spent 45mins defending capitalism against 4 leftish postgrads. CNN’s editing may make me look like a son of Ayn Rand and Gordon Gekko.” We can expect to see more of Sramek. As he puts it in his memoir, his “own sprint towards excellence [is] barely out of the starting blocks.” That is, unless Goldman Sachs, whose executives shun publicity, puts the kibosh on the formation of his personal brand. But then again, he may not let them stop him.
12 Habits of Highly Successful Traders
- Preparedness - Detachment - Willingness to Accept Loss - Taking Controlled Risk - Thinking in Probabilities - Being Comfortable with Uncertainty - Consciousness of Abundance - Optimism - Open Mindedness and larity of Thought and Perception - Courage - Discipline
The Greatest Trading Loss
The Greatest Trading Loss
What is the greatest risk you face in trading? Is it loss of money? Certainly, that’s what most traders believe. I tend to disagree though. In my opinion we have something much greater at risk, that very few of us consider during the ‘learning phase’.
The American political journalist and author, Norman Cousins, is quoted as saying, ‘Death is not the greatest loss in life. The greatest loss is what dies inside us while we live.’ Along similar lines, I would argue that loss of capital is not the greatest loss in trading. The greatest loss is what we lose from within. Loss of funds is recoverable. Losses of self-esteem, self-belief, or passion for the process of trading, are not so easy to recover. So, think about that next time you feel tempted to widen your stop, or remove your stop. Think about it before you enter your next impulsive, emotion based trade. Think about it if you’re trading without a clearly defined trading plan. If you suffer financial losses at these times, how will it affect your mindset? Will the losses that result from your amateur and undisciplined actions allow you to move forward to the next trade with greater confidence, or will they feed the forces of frustration, anger, depression and fear, further damaging your chances at consistent, confident and disciplined application of your trading plan. Drawdown in your psychological capital is much harder to recover, than is drawdown in your equity balance. So, manage your risk! Not so much to protect your finances, but in order to protect your much more valuable psychological capital. Your whole trading future depends on it.
“Success is not to be pursued; it is to be attracted by the person you become.”
Trading success requires confidence. But confidence does not just come from knowing how to identify and act on good trading opportunities. It also comes from learning how to deal with adversity. It comes from facing a slump and working through the challenge to overcome it.
So, when you find yourself in a slump, embrace the opportunity. This is your chance for personal growth. It’s an opportunity to become a better trader. It’s an opportunity to establish a winning feeling, not a false one based on hope, but one with substance in which you know that whatever comes in the future, you’re ready for it and you can deal with it. Enjoy the challenge.
Managing the fear of making a loss
Before entering a trade I know what type of loss I am happy to accept and I set my stop loss at about that level. Making a loss is part of trading. So long as the losses are small and the wins are large, life is great. Sometimes I have taken several losses in a row, which makes placing that next trade a bit harder because I think about the prior loss. I have overcome this by telling myself that the next trade “is just one of many thousands of trades that I will do in the future” and then I look forward to the next entry. Cut your losses quickly, let your winning trades run, and allow trades to take their course. Be happy to make small losses, since the next trade may be the big one. Congratulate yourself when you have stuck to your plan, even if you have made a loss.
Concept of Risk
Successful trading has absolutely nothing to do with making money and everything to do with trading successfully. Making money will only ever be a by-product of successful trading. Successful trading is not a by-product of making money. When you attach trading to money and money to emotions and emotions to money you’ll have taken your first loss but you won’t know it yet. Trading has everything to do with personal psychology, rules, systems, discipline, focus and skill. Like anything else that’s skill based, once you start it takes time and practice to become skilful. Ultimately trading is about making decisions between two choices, to buy or sell. As simple as these two choices are the variables that effect the decisions surrounding them can be as complex as the human mind can make them.
‘A simple Idea to improve your trading’
I feel certain that my discipline in executing each and every trade according to my trading methodology is the secret to my success. If you want to improve your trading, what you need to do is very simple. Before you enter any trade, imagine that you will have to explain this trade to a panel of your peers, by explaining to them the reason for your entry, your money, trade, and risk management guidelines, and why you exited the trade. Imagine having to explain why you chose this particular market and this particular time frame, along with how you set objectives for the trade, and how you determined where your initial protection would be. If you can truly do this, I strongly believe that you can be successful.
Fear and Greed in Financial Markets: A Clinical Study of DayTraders
Contrary to common folk wisdom that financial traders share a certain set of personality traits, e.g., aggressiveness or extraversion, we found little correlation between measured traits and trading performance. The study finds that subjects whose emotional reaction to monetary gains and losses was more intense on both the positive and negative side exhibited significantly worse trading performance. Psychological traits derived from a standardized personality inventory survey do not reveal any specific \trader personality profile”, raising the possibility that trading skills may not necessarily be innate, and that di erent personality types may be able to perform trading functions equally well after proper instruction and practice.
What does it mean to be emotionally intelligent?
In the book Emotion, Disclosure, and Health edited by James W. Pennebaker, a chapter on emotional intelligence research yields some valuable insights–and ways of assessing emotional intelligence. The chapter, written by Peter Salovey and colleagues, describes the Trait Meta-Mood Scale and its development as a research tool. The authors report that emotional intelligence is composed of several interrelated capacities: 1) Attention – The degree to which people pay attention to their feelings and value them as sources of information; 2) Clarity – The degree to which people accurately identify and understand their feelings; 3) Mood Repair – The degree to which people can control and shift their emotional experience. In their research, they found that subjects exposed to a stressful event were more likely to maintain a positive mood when they not only attended to their feelings, but had a high degree of clarity about those feelings. When these individuals attended to their feelings but had little clarity about those feelings, they were more likely to ruminate about the stressful event. Clarity about feelings enabled them to move beyond stress and return to a positive emotional state. Moreover, those with the ability to repair mood tended to experience negative mood less intensely than those without the capacity for repair. The ability to shift mood states appears to have value as a coping mechanism. This research suggests that it is not enough to pay attention to feelings. Understanding those emotions is important to moving beyond them. Ironically, attempts to dampen and minimize emotions in trading is apt to lead to less clarity, and thus less ability to move beyond the stresses of the moment. It’s the ability to think about one’s experience–and not get lost within it–that enables people to transcend stressful situations. In my next, and last, post in this series, we’ll take a look at how emotional intelligence manifests itself in successful trading.
Murphy’s Lesser Known Laws.
1. Light travels faster than sound. This is why some people appear bright until you hear them speak. 2. He who laughs last, thinks slowest. 3. Change is inevitable, except from a vending machine. 4. Those who live by the sword, get shot by those who don’t. 5. Nothing is foolproof to a sufficiently talented fool. 6. The 50-50-90 rule: Anytime you have a 50-50 chance of getting something right, there’s a 90% probability you’ll get it wrong.
7. If you lined up all the cars in the world end to end, someone would be stupid enough to try to pass them, five or six at a time, on a hill, in the fog. 8. If the shoe fits, get another one just like it. 9. The things that come to those who wait will be the things left by those who got there first. 10. Give a man a fish and he will eat for a day. Teach a man to fish and he will sit in a boat all day, drinking beer. 11. Flashlight: A metal tube used to store dead batteries. 12. The shin bone is a device for finding furniture in a dark room. 13. A fine is a tax for doing wrong. A tax is a fine for doing well. 14. When you go into court, you are putting yourself in the hands of 12 people who weren’t smart enough to get out of jury duty.
Examine your assumptions
Everyone knows we need a good plan to succeed, but what the heck does a good plan entail? In the course of studying how to trade, we begin building assumptions that govern our outlook of what the market is, and how the market should operate.These assumptions are stitched together by general concepts of technical analysis and stuffed in a little box like a holiday turkey left to bake, the finished product we label a “plan”. Logically following, if your underlying assumptions are incorrect, your plan will fail no matter how well your analysis. The irony, of course, is that the more disciplined you are in following a bad plan the more money you will lose. Game Theory: Majority of traders are taught what trading should entail, but in the market the majority is wrong. It is often said that the market is set up to frustrate the most traders. As a matter of fact, in the demand and supply auction processes, in order for prices to move one way or the other, the market needs to shed itself of weak holders. For instance, if the market wants to move higher, it has to soak up supply. To soak up supply, they shake out weak holders (in this case those willing to sell) until there is no one left to sell. The market moves up. It’s about psychology, not technicals: Having a basic understanding of demand and supply, economics and game theory will help much more than learning about signals or setups. A general mistake traders (including myself) take in trading is we place too much emphasis on technical analysis when in reality analysis is the smallest part of the equation to success. Some basic tenants to consider: 1) The most obvious trade is always the wrong trade. By nature of the shakeout process, the most obvious action is used to entice the weakest links. 2) Always ask yourself where the big money is positioned. Never mind volume or market internals, these can all be churned. Truly ask yourself if you were in control, where would you want to take the market given certain technicals like price action. Remember, big money is not in the business of buying high and selling low. They accumulate low, and distribute high. This is key. 3) When facing profit decisions and deciding to hold, realize you are making the decision to buy at that new level. Always step away and examine whether or not you would buy again at this level. This will be your answer whether or not to take money off.
4/5) Trading is not a game of profits, it is a game of losses. Amateurs place emphasis on their profits. They analyze whether it’s big or small enough. They have profit goals. They force trades. Pros don’t care about profits. They control their losses and let the market decide how much they make. They stay in a trade as long as they can, and they place stops underneath them. This keeps them from being “weak” and take small profits.
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