Archives of “January 1, 2019” day
rssThree Keys to Trading Success
The successful trader is creative. I think it’s fair to say that his approach is a short-term trend-following method. His way of evaluating the market trend, however, is unique. He is definitely not just looking at the same old 14-period oscillator that comes pre-programmed in most charting applications. Similarly, he has clear stop points and price targets, but these are defined in a unique way, based upon the market conditions he’s observing. This “out-of-the-box” thinking style is common to successful traders, I’ve found. They look at markets in unique ways that help them capture shifts in supply and demand. to find a way of trading that you can make your own. You’re more likely to stick with a method that fits with how you think (and that fits with your skills) than if it’s something you’ve blindly copied from others. Our trader believes in his method, and that gives him the brass ones to hang in there during relatively lean periods.
2) The successful trader is always seeking improvement. If our trader is already successful, why does he need to talk with Henry? He knew that, by sharing his ideas, he would learn a great deal about the strengths and weaknesses of his trading. Sure enough, Henry found that the average size of the trader’s losers was larger than it needed to be. A simple modification of stop-loss rules improved the system’s performance meaningfully. Similarly, by putting a filter on the system–only taking trades if certain conditions were met–the average profit per trade went up significantly. That could aid position sizing. The trader knew he had something good, but good wasn’t good enough. He wanted better.
3) The successful trader is persistent. One thing I want to stress: the trader’s methods were very sound–and Henry found ways to make them better–but they were not perfect. Out of about sixty months analyzed, fourteen were losers. The drawdowns were not hellacious, but there were periods of flat performance and drawdown. What that means is that a successful trader needs to have the confidence to ride out these periods of poorer performance to get to the periods of success. That is one reason why it’s so important
Use losers to learn a lesson and strengthen your trade execution
Losing trades can be the best ‘teacher’ you’ll ever have. However, just as with winning trades, it’s important to note that there will be a normal statistical variance of losing trades within any trading edge. So, you should not fall into the mental trap of thinking that EVERY losing trade you have was a major failure or that it means something is ‘wrong’ with your trading method or trading ability. Sometimes, perfectly good trade setups will fail, as that is just part of the game we call trading, so you just have to accept these trades and move on…assuming that you stuck to your trading strategy and the trade wasn’t taken out of greed, revenge or fear (over-trading).
The losing trades that you NEED to learn from and that you can learn a lot from, are those ‘stupid’ losing trades that you unfortunately did take out of greed, revenge or fear…and I know you know what I’m talking about here. After the trade is finished, you can record in your trading journal what you did wrong and why the trade was a failure; use these types of losing trades as a lesson and dissect what went wrong, you can then use this information to strengthen commitment to sticking to your trading strategy and plan.
The aim here, is to hopefully not make the same ‘stupid’ trading mistake twice, after all, your hard-earned money IS on the line every time you enter a trade. As you learn from ‘stupid trades’ it should help build your confidence because you will begin to see the power of remaining disciplined and consistent in trading, and you will start to see that you CAN trade successfully if you just stop making stupid trades.
Decoding the Brain’s Cacophony
Michael Gazzaniga: An interview with the neuroscientist and professor of psychology
John C Bogle classics- Two Books
Two of John C. Bogle’s books on investing have now been designated classics. They have been added to the Wiley Investing Classics series, joining such titles as Lombard Street, The Go-Go Years, Reminiscences of a Stock Operator, and The Alchemy of Finance.
Bogle on Mutual Funds: New Perspectives for the Intelligent Investor was originally published in 1993. Since then, investments in mutual funds as a whole have surged eight-fold, and Vanguard’s fund assets have grown 25-fold. They are now 50% larger than the entire industry was when Bogle wrote this book.
To readers who are familiar with Vanguard’s philosophy, this book may seem, as Bogle himself admits, “old hat.” That is only natural. A book isn’t designated a classic if only a handful of people ever read it. Or, in the case of investing books, if its message never resonated.
Bogle on Mutual Funds had two missions: to steer the individual investor in the right direction and to cajole the mutual fund industry into adopting more investor-friendly policies. On both fronts Bogle has had considerable success, even he would like to see even more reform.
His advice to the investor is pretty straightforward, but his arguments are definitely worth rereading, or reading for the first time. People have the bad habit of throwing money at the market without knowing anything about the basics of investing. So they invest in the wrong things, or at the wrong time, and curse their bad luck. No investor can be called “intelligent” who doesn’t understand the principles Bogle articulates in this book. The investor may still decide to try his hand at outperforming the market, but he should know what he’s up against.
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7 Deadly Sins of Trading
Perfectionism: There is no perfection in trading as far as making money on every trade or having a perfect system. All you can hope to be perfect at, is following your system, rules, and trading plan. A winning trade should be measured as one in which you followed all your preset guidelines. Even the best traders only average about a 50%-60% win rate at best over long periods of time. The key is having bigger winners than losers, not being perfect. Like in baseball where a .300 hitter can get into the hall of fame. A .500 trader in the market can become wealthy if his wins are much bigger than his losses.
Fear: Faith in your system is the only way to overcome your fear of trading. You must complete enough back testing on your system until you know that you have a valid edge over the market in the long term. You must see opportunity in trading and just accept that there will be possible losses. You must take your systems trade signals each time and if you can’t overcome your fear of loss and failure then perhaps trading is just not for you. Traders are entrepreneurs not employes they get paid only when successful there is no guaranteed paycheck.
Pride: We are not our trading account and staring at our profit and loss too much is a major detriment in one’s trading. Traders must cut losses at their predetermined stop, not pridefully hang on trying to prove they are right. We must separate ourselves from the trading. A person’s value is not tied to a trade or performance record. If we followed our system then we can’t view that as a personal loss. The market was just not conducive to our system that we followed with discipline. (more…)
10 Elements of Successful Trading
Traders that have the right mind set, money management, and winning method make money, those that are missing even one of the three, will eventually ‘blow up’ their account. This applies to both professionals and amateurs.
Whether you are a swing trader just trading the market with the $SPY ETF, a growth investor up to your eyeballs in Google and Apple, or even a day trader, these principles still apply to you. I believe these are universal principles for all traders, many professionals have proven they are not bigger than these laws of trading, by destroying the capital in hedge funds and even entire banks.
Trading Methodology:
- Winning system-Only trade tested systems with a positive expectancy in the long term.
- Faith– Your system has to allow you to trade your beliefs about the market.
- Risk/Reward-Never trade unless your profit expectations are greater than your capital at risk.
Trader Psychology:
- Discipline-You have to keep trading your method even when it doesn’t work for a given time period.
- Ego-Admit when you are wrong.
- Emotions-Trade the math not your emotions.
3 Biases That Affect Your Trading
1) Gambler’s fallacy bias
People tend to believe that after a string of losses, a win is going to come next. Take for example that you are playing a game of coin tossing with a capital of $1000. You lost 3 bets in a row on heads and cost you $100 each bet. What will you bet next and how much would you stake?
It is likely you will continue to bet on heads and with a higher stake, say $300. You do not ‘believe’ that it can be tails consistently. People fail to realize coin tossing is random and past results do not affect future outcomes.
Traders must treat each trade independently and not be affected by past results. It is important that your trading system tells you how much to stake your capital which is also known as position sizing, so that the risk-reward ratio will be optimal.
2) Limit profits and enlarge losses bias
People tend to limit their profits and give more room to losses. Nobody likes the feeling of losing. Most investors tend to hold on to losses and hope their investments will turn around soon, and they will be happy if their holdings break even. However, chances are that they will amount to greater losses. On the other hand, if they are winning, most investors tend to take profits early as they fear their profits will be wiped out soon. Thereafter, they regretted that they didn’t hold a little longer (sounds familiar?).
One of the most important principle in trading is contrary to what most investors do – Traders have to LIMIT LOSSES and let PROFITS RUN. Losses are part and parcel of trading and hence, it is crucial to protect the capital from depleting too much – live to fight another day is the mantra for all traders. Large profits are thus required to cover the small losses – so do not limit profit runs.
3) I am right bias
Humans are egoistic in nature and we want to prove that we are right. High accuracy is not important in trading but making more money when you are right is. Remember what George Soros said, “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”
In Whatever Way You Want
YOUR Behaviour is more important than any 'secret' indicator or system
