The sooner traders learn to carefully manage risk the better off they will be. So many new traders come in with only the thoughts of profits dancing in their heads. This is equivalent to a football team only focusing on scoring points and not planning their defense.In trading you must play both sides of the ball. You have to be able to score points against the market and not allow the market to score back those points on you.
Your entries are your offense and your exits are your defense.
Letting a winner run is your offense, cutting your loser short is your defense.
Your automatic buy stop is your offense and your automatic stop loss is your defense.
Buying a monster stock is an offensive move, planning on how you will exit with your profits is your defensive move.
Identifying a trend is your offensive play creating a trading plan on how to trade it is your defensive play.
Your choice on what to trade is playing offense, choosing your position size is playing defense. (more…)
Sometimes you let your ego get the best of you. It happens to the best of us. You make a few great trades and you feel like you’re running the market. Inevitably, though, the market will give you a brutal lesson in humility. It is up to you whether or not you get your ego back in check and persevere. Always remember, you are not in control.
I was reading a bit more about Ed Seykota after seeing The Whipsaw Song.
Ed Seykota became famous after appearing in Jack Schwager’s Wall Street Wizards book. He has an Electrical Engineering degree from MIT and was one of the pioneers of systems trading. He supposedly returned 250,000% over 16 years for one of the accounts he managed.
Below I have categorized some of the quotes that I have come across.
Ed Seykota’s Trading Style
- My style is basically trend following, with some special pattern recognition and money management
- In order of importance to me are: (1) the long-term trend, (2) the current chart pattern, and (3) picking a good spot to buy or sell. Those are the three primary components of my trading. Way down in very distant fourth place are my fundamental ideas and, quite likely, on balance, they have cost me money.
- I consider trend following to be a subset of charting. Charting is a little like surfing. You don’t have to know a
lot about the physics of tides, resonance, and fluid dynamics in order to catch a good wave. You just have to be able to sense when it’s happening and then have the drive to act at the right time.
- Common patterns transcend individual market behavior (my note: i.e. price patterns are similar across different markets).
- Trade with the long-term trend.
- Cut your losses.
- Let your profits ride.
- Bet as much as you can handle and no more.
Buying on Breakouts (more…)
In fact, there’s probably no better time than the present to talk briefly about the pros and cons of being an “independent trader.”
As someone who has worked independently for most of my professional career, you can say I place a tremendous value on “doing my own thing.” As I’ve often said, at least for me it has been a combination of personal choice (what I want in both life and career) and also necessity (as I don’t play well with others). Indeed, there are some tremendous positives for trading independently. After all, I wouldn’t be doing this if there were not some significant advantages from doing so!
Here are a few things that first come to mind:
As an independent trader, I set my goals and I’m in charge of my own destiny. I don’t rely on any other person for how much money I make or how I make it. Other people’s opinions of me are irrelevant to my own destiny. At the end of the day, bottom line trading results (not office politics) are all that matters.
Most people in “normal jobs” don’t have the opportunity to set out on their own and do something they really want and love to do and also make plenty of money doing it.
I spend most of my time every day doing things I really like to do (trading, reading, researching, running screens & mentoring others). These are things I would do even if I were not paid to do them because it is what I like to do the most! Every day I plan my work on things I want to work on, not what others want me to work on. That level of professional autonomy is rare.
The sense of accomplishment when you achieve success in the markets independently is unparalleled. There’s nothing like finding and taking a good trade that produces lots of upside gain. This is especially true when that trade is unpopular and unforeseen by the herd.
Through my research I’ve been able to learn about many things, many industries, many countries, and many people. At this point, I can have a conversation with just about anyone no matter what they do for a living or where they live because I know something we can probably talk about based on what I’ve learned and know about others.
It is always interesting and I’m NEVER bored. It is so true there is no better drama on Earth than following and being a participant in the markets daily.
Trading independently offers level of personal freedom that isn’t present in most jobs. If I want a day off to play golf, help a friend, visit with family, I do it. I don’t have to ask anyone for permission! However, offering a paid members-only website places some severe limitations on that freedom!
So, now I’ve talked about the positives, what are the downsides to trading independently? (more…)
From the SAME AS IT EVER WAS file: Bernard Baruch, a colleague and friend of Jesse Livermore’s, who made a fortune shorting the 1929 crash, and then who later advised presidents Woodrow Wilson and Franklin D. Roosevelt on economic matters, listed the following investment rules in his autobiography published in 1958 entitled Baruch: My Own Story. These rules are still as applicable today.
1. Don’t speculate unless you can make it a full-time job.
2. Beware of barbers, beauticians, waiters–of anyone–bringing gifts of “inside” information or “tips.”
3. Before you buy a security, find out everything you can about the company, its management and competitors, its earnings and possibilities for growth.
4. Don’t try to buy at the bottom and sell at the top. This can’t be done–except by liars.
5. Learn how to take your losses quickly and cleanly. Don’t expect to be right all the time. If you have made a mistake, cut your losses as quickly as possible.
6. Don’t buy too many different securities. Better have only a few investments which can be watched.
7. Make a periodic reappraisal of all your investments to see whether changing developments have altered their prospects.
8. Study your tax position to know when you can sell to greatest advantage.
9. Always keep a good part of your capital in a cash reserve. Never invest all your funds.
10. Don’t try to be a jack of all investments. Stick to the field you know best.
“In this revolutionary and beautifully reasoned book, Barry Schwartz shows that there is vastly too much choice in the modern world. This promiscuous amount of choice renders the consumer helpless and dissatisfied. The Paradox of Choice is a must read for every thoughtful person.”
— Martin Seligman, author of Learned Optimism and Authentic Happiness
“The Paradox of Choice carries a simple yet profoundly life-altering message for all Americans. Based on new research, Barry Schwartz explores why we want more choices when the best possible choice is already at hand, and how the creation of this “choice overload” undermines good decision-making. His eleven practical, simple steps to becoming less choosy will change much in your daily life. Buy this book now!”
— Philip G. Zimbardo, author of Shyness: What It Is, What to Do About It
“Today’s world offers us more choices but, ironically, less satisfaction. In this provocative and riveting book, Barry Schwartz shines the light of psychological science on popular culture and shows us steps we can take toward a more rewarding life. This is one of those rare books I just couldn’t put down.”
— David G. Myers, author of Intuition: Its Powers and Perils
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