Archives of “January 2019” month

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Courage

  
  Education
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Concentrate on developing courage now, or risk a shortened investment career. Trading is not for the weak hearted. The markets are unpredictable and even the smartest analyst will make mistakes. Eventually everyone experiences a sequence of losing trades and you will not be exempt. You have a choice between self-pity and self-reflection. The Genius Trader has the courage to look at their mistakes and learn from them. The average trader perceives this as too painful, and simply curses their bad luck.

How do you become a more courageous trader? You must journal every single trade. Over the years, as I continue to interview accomplished investors, they all keep some form of trading journal. This provides such valuable information that I incorporate into other areas of my life. A detailed trading journal will be a big revelation into the success behind your best trades, and possible causes behind your losers. Armed with these facts, self-reflection becomes more productive.

‘Alexander Elder Quotes’

  
  Education
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Trading is not all about just stock picking, it is not just about a winning system. Yes, first you have to understand how to trade and put the odds in your favor of winning, but that is not enough. You must also add in risk management so when you lose ten times in a row your trading career and account does not end there. You also must have  faith in your system and method to be able to keep trading it even when you are losing, and you will have losing months, maybe even a losing year, can you keep going to be around for the big wins?

One dimensional traders just pick stocks, if they are right they win for a while, but eventually they do not stop out when they are wrong and they blow up their account. They also eventually get emotionally frustrated from wild equity swings  and they eventually quit and blame the market.

Two dimensional traders have a good system and cut their losses but have trouble with self confidence and belief in their system. They tend to blame themselves when their accounts draw down 10% to 20% and have trouble understanding that it is just part of the game. The market environment is determining wins and losses not the trader, they don’t  understand this. All they can do is take their entries and exits as they come and let the market do what it does. They have not separated themselves from their trading.

The three dimensional trader takes entries and exits based on his methodology that he believes in, he manages risk per trade carefully and never loses more than 1% t0 2% of his capital on any one trade. The 3D trader’s self worth and confidence is not tied up in any one trade, or monthly performance he understands this is a long term process with ups and downs. Wins and losses do not change his mindset. It is just a business, stocks are just inventory, the market gives and the market takes away, and he just takes what it is giving.

Discipline & Fear

  
  Education
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emotionaldiscipline-the ability to keep their emotions removed from investment decisions. Dieting provides an apt analogy. Most people have the necessary knowledge to lose weight—that is they know that in order to lose weight you have to exercise and cut your intake of fats. However, despite this widespread knowledge, the vast majority of people who attempt to lose weight are unsuccessful. Why? Because they lack the emotional discipline.

fear

It’s important to distinguish between respect for the market and fear of the market. While it’s essential to respect the market to assure preservation of capital, you can’t win if you’re fearful of losing. Fear will keep you from making correct decisions.

5 irrational beliefs that can lead traders astray.

  
Analysis, Education
  1. What goes up must come down and vice versa.  That’s Newton’s law, not the law of trading. And even if the market does eventually self-correct, you have no idea when it will happen. In short, there’s no point blowing up your account fighting the tape.
  2. You have to be smart to make money.  No, what you have to be is disciplined. If you want to be smart, write a book or teach at a university. If you want to make money, listen to what the market is telling you and trade to make money — not to be “right.”
  3. Making money is hard.  Nope. Sorry. Making money is actually easy. Statistically, you’re going to do it about half the time. Keeping it, now that’s the hard part.
  4. I have to have a high winning percentage to be profitable.  Not true. How often you are right on a trade is only half of the equation. The other half is how much do you make when you’re right and how much you lose when you’re wrong.  You can remember that with this formula: Probability (odds of it going up or down) x Magnitude (how much it goes up or down) = Profitability.
  5. To be successful, I have to trade without emotions. That is both wrong and impossible. You are human so you have emotions. Emotions can be a powerful motivator to your trading.
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