DON’T ASSUME THERE IS A RATIONAL REASON BEHIND THE MARKET DIRECTION
Market direction is simply the way the market is moving at any given time during the day, and can change at any moment. Market direction is based on the number of trades that take place at certain prices, no more no less. That is why when you think you have the direction called, the markets change and move in a new direction.
When a trader remains focused on what is happening, they remain focused on their own trades without wasting energy trying to understand why. The market will move where the market will move, one thing is for sure, the market does not need to have a rational reason why it is moving in a direction. Overcoming the need to rationalize a reason behind a market direction will serve to support a stronger trading plan.
SHOW UP EVERY DAY AND MAKE YOUR TRADING ASSUMPTION BASED ON WHAT YOU ARE SEEING (more…)
Archives of “January 2019” month
rssThe mark of a professional Trader
- It is my fault. I traded this position too large for my account size.
- It is my fault. I didn’t stick to my own risk parameters.
- It is my fault. I allowed my emotions to dictate my day trading.
- It is my fault. I was not disciplined in my trades.
- It is my fault. I knew there was a risk in holding this trade into earnings, and I didn’t fully comprehend them when I took this trade.
Perception vs Reality
“It is often said by experienced investors that the equity market discounts future events. Investors who support that contention believe that if you wait for an event to occur before investing, then you would probably be too late because the investment implications would already have been priced into the particular investment.
The notion that the equity market discounts future events necessarily leads us to the conclusion that the equity market prices stocks based on perception rather than on reality. Future events that are supposedly being discounted have not yet occurred. Therefore, stock price movements reflect investors’ changing perceptions of what will occur, but not what will certainly occur. If the market were able to discount an event with complete certainty, then we would not worry about volatility or risk.”
What enables a trader to exit every trade the same way, with confidence?
- Preparation: If you put yourself in the best possible position and you lose money at least you spent that money wisely. Good things happen to those that are prepared because 90% of people do not know how to do it or are unwilling.
- Purpose: Acting with purpose. You prepared, you knew the risks, you executed the way you wanted to execute. In cold blooded evaluation you would do it the same with the information you had at the time.
- Protection: Losing the invisible money is how I have seen many people blow up. Invisible money is not locking in profits or losing more than your plan allowed. If you lose what you intended to risk you own the trade, if you lose more the trade owns you.
Your goal as a trader is to always reduce the time it takes to analyze, react, and recover. The best traders do this effortlessly after much thought, experiment, and practice. I lacked confidence because I thought about the wrong things or not at all and I was doing random things all of which made it too costly, emotionally and financially, to practice.
Don't focus on the money
By focusing on the money, you get hooked on the trade that you have placed in. Therefore, you are less likely to be in the zone and really noticing what is happening in the market.
You need to detach yourself from the result of your trade. This does not mean that you don’t care. Of course you do, and that is why you have placed your trade. It means that you are not married to your position. You are free to be in the zone and really notice what is happening versus what you hope and wish to happen.
The Crowd Speaks Technical Analysis
Nice write-up
on the benefits of adding some technical analysis to a rational, fundamental worldview by Anthony Bolton, the recently retired manager of the top-performing Fidelity Special Situations fund. A few excerpts (emphasis mine):
My contention is that if you are trying to predict the mass action of thousands of investors, most of whom are investing on a rational or logical basis, you won’t be able to do this by taking the same logical approach as everyone else. (more…)
Trading-It's as much art as science
Habits of the Wealthiest People
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Why do you think most traders fail?
- Poor selection criteria; usually based on personal opinion, theory or tips and bad advice
They don’t stick to and commit to an approach; style drift
Don’t cut losses (#1 mistake made by virtually all investors)
Don’t know the truth about their trading – they fail to conduct in-depth post analysis
Treat trading as a hobby and not a business
- Want too much too fast; learning a skill takes time
There’s a lot of important meat in those few lines of text. We all recognize that it’s not easy to cut losses, but I firmly believe that this results in more grief for traders than anything else. What causes a trader to suffer a big hit? I believe that it’s the unwilligness to accept that a trade is not working, and that it’s not likely to get any better if held longer. Under those conditions, losses mount. The only way to prevent that big loss is to cut it off at its knees – and the time to do that occurs when it’s a much smaller loss.The difficulty with that is sacrificing the possibility that the trade would turn profitable. My advice: Get over it. Many trades will be unprofitable. That’s a fact of life for a trader.
I understand that on a rare occasion a gap opening may do irreparable damage, and not provide an opportunity to take the small loss. However, that’s also a preventable occurrence. If the damage is too great, then the position was too large. It really is as simple as that.
How many of us look at trades after the position is closed? How many dissect the entire trade in an attempt to find out what was done correctly and what mistakes were made? Very few.
A mistake is not a trade that loses money. A mistake is making a decision that was clearly incorrect at the time, but the trader was unable to see that. Another mistake is avoiding a trading plan and not doing postmortems on your trades. It all takes so much time. However, if you take trading seriously, and do not consider it to be a hobby, there’s work to be done.
Mistakes are part of the game. Making the same mistake repeatedly is not. At least it’s not part of any successful trader’s game.
Charcterstics of Successful and Unsuccessful Traders
