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10 Things A Trader Can Know

  
  Education
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While we can’t know where prices will go, what the next breaking news will be, or how much profit we will make in our next winning trade there are a few things we can know:

  1. We can know how big of a position we will take on our next entry.

  2. We have to know where price will go to prove us wrong and cause us to exit a trade. You have to know where you are getting out before you get into a trade.

  3. We should know how much we could lose if our trade goes against us and we are stopped out.

  4. We should know the highest probability entries that we would take.

  5. We should know the watch list that we will be trading from and not take any wild card trades before understanding chart patterns and historical price performance.

  6. We should know what our total portfolio risk is at any one time if all our positions turn into losers at the same time.

  7. We should understand how the leverage works before we trade futures or option contracts.

  8. We should understand the potential maximum draw down of a string of losers based on our position sizing and winning percentage.

  9. We should know whether the market we are trading is in an up trend or a down trend in our time frame.

  10. We should always have a trading plan that tells us what to do based on what the market is doing. We should know how to react to each days price action based on our current positions.

 

The Difference: Mediocrity vs. Greatness

  
  Education
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In Trading, the STATISTICS show that smarts, experience, etc. are not the differentiating factor.
The BEST (most successful guys I know and work with) have winning %’s of less than 50%.. actually, the average is between 45-55% but the point is, basically, winning percentages don’t matter – so they might as well be a random event.

 So, what does make a difference?

 

  • CONVICTION in ideas
  • INTERNAL CONFIDENCE
  • TRUSTING YOURSELF
  • GETTING BIG IN TRADES you believe in
  • LETTING WINNERS RUN
  • CUTTING LOSERS QUICKLY
  • SWITCHING DIRECTIONS QUICKLY

 

 These are many of the factors that allow some people to become monster traders over time. It’s not my opinion, just my observations. 

Thoughts on The Psychology of Speculation by Henry Howard Hopper

  
  Education
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Thoughts on the Psychology of Speculation by Henry Howard Hopper published in 1926 and then reprinted by Fraser Publishing Company.

The book is excellent on many different levels. I like most that it talks about encompassing principles of human nature. Not the trivial made up ones of behavioral economics but broad human tendencies that are crucial to how we make our decisions and go about living our life.

Included among these broad human tendencies is the tendency to go crazy when you see a massive flow in front of you like the many who commit suicide in Niagara falls after seeing the water flow and the many who lose their minds as the market goes up. Also paramount is the incredible ennui that a human feels when something that he formerly owned goes thru the roof in other hands. I also like the many market periods of boom and bust he covers including the fantastic bull market of 1915 in the middle of the war where stocks of many a sage speculator was short skyrocketed by 15 fold or more. “He did not live to see General Motors at 850 on October 25, 1916,” as his broker was forced to sell him out well before hand and “he had crossed the bar into the great beyond”.

Like my father’s experience in the Bowerey where he had to cart the bodies away when they couldn’t pay the rent after dying from gambling, “the widow was left almost penniless and he was buried at the expense of the lodge”. I like also the colorful vivid language so characteristic of the roaring 20s that makes on wish one was there and feel for the every emotion that he elicits.

I like best the last words he repeats of a short seller who made a fortune in leather goods and then lost it in the market through shorting. “In the past year I’ve suffered every torment known to the demons of hell. My only grain of comfort is that it’s all over now and I have nothing more to lose.” From this tragic experience, the author concludes “there is but little comfort or profit to be gained on the short side of a protracted bull market”. (more…)

Consistency is the Key

  
  Education
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Consistency is an essential component for a successful trading career. This is how you achieve confidence and become comfortable with “riding a trading bike”.

Psychological comfort is the key to a long term trading career and is achieved by becoming consistent with small profits. If you can make consistent $ per day: it can be increased drastically within a year and become exponential in long term.

When I hear from students that their goal is ”to make a lot of money“, I always emphasize that there are few essential steps that must be achieved prior : building confidence by achieving consistency with small lot size is the step that cannot be skipped. (more…)

3 Habits every trader must avoid.

  
  Education
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Not having a plan. Get a plan, who cares if it is bad, start with something. You can build off of it and refine it. You have to be willing to spend the time to make the plan yours. You do not start anything without some level of planning. Trading is hard; your brain spends a lot of time in fast forward, affecting your memory. You can slow it down by having a plan and increase your brains ability to remember.  A plan makes it possible to improve. Most importantly, a plan gives you a chance at removing emotion.

Forgetting why you are trading.  The purpose of trading is to make money.  Every action should bend to that goal. That does not mean every trade makes money.  It means every trade gets to closer. If you are looking for comfort, get a teddy bear. If you are looking to be right, play trivial pursuit.  If you want excitement, drive fast.

Letting it go. It is really important to separate what happened from how you felt. The more distance between the two the less time it takes to learn from that situation.  Admitting you made a mistake or are wrong are necessary for letting it go.  Unlike life, you get no credit for admitting you are wrong, it is just a part of trading. Neither matter unless you take action.

Every Trader Must Read These 10 Points -Take Print Out

  
  Education
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  1. An entry does not determine profitability it only determines potential profit the exit is where the win or loss occurs, focus on that.
  2. A robust trading system means nothing unless you can follow it with discipline and self control.
  3. Charts don’t care about any one persons opinions why should you?
  4. Good trading will make you some money but only good risk management will allow you to keep the money.
  5. Good traders search for the right entries, great traders search for the right systems.
  6. Bad traders have an opinion, good traders have a plan.
  7. In the markets money flows continually from those you do not really know how to trade to those who do.
  8. Eventually those with the best risk management and trading method end up with the money from those who only have a good  trading method.
  9. Bad traders tend to be stressed and emotional, good traders tend to be more quiet and at ease.
  10. Show me a trader overly focused on just one trade and I will show you the 90% that are unprofitable, show me a trader focused on the whole process of trading with little concern over any one trade and I will show you a member of the 10% that are profitable.
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