The Components of a trading plan:
1. Entering a trade: You must know clearly at what price you plan to enter your trade. Will it be a break through resistance, a bounce off support, or a specific price, or based on indicators? You need to be specific.
2. Exiting a trade: At what level will you know you are wrong? Loss of support, a price level, a trailing stop, or a stop loss? Know where you are getting out before you get in.
3. Stop placement: You must either have a mental stop, a stop loss entered, or a time stop alone, or a time stop with an indicator.
4. Position sizing: You determine how much you are willing to risk on any one trade before you decide how many shares to trade. How much you can risk will determine how much you can buy based on the equities price and volatility.
5. Money management parameters : Never risk more than 1% of your total capital on any one trade. (2% maximum for aggressive traders who can handle bigger draw downs.)
6. What to trade: Trade things you are comfortable with. Swing trading range bound stocks, trend trading growth stocks, or trend following commodities or currencies. Trade what you know.
7. Trading time frames: Choose your time frame, are you a day trader, position trader, swing trader, or long term trend follower? If you are a long term trend follower do not get shaken out of a position in the first day by taking profits or getting scared out, know your holding period and adjust your plan accordingly.
8. Back testing: Do not trade any method until you review charts over a few years to see how you would have done, or for the really savvy run software back testing on historical data for your system for as much as can be quantified. There are also precooked systems like CAN SLIM, The Turtles Trading System, and many Trend Following Systems that can be found online or purchased. You need to enter your trading knowing you have an edge.
9. Performance review: Keep a detailed record of your wins and losses with profits and losses. You need to be sure that your method is working in real trading, review this after each 20 trades. Also if you had any issues with discipline then learn from your mistakes or make needed adjustments to improve your system.
10. Risk vs. Reward: Enter high probability trades where you are risking $1 to make $3, or trade a system that wins big in the long term through trend following.
Archives of “February 2019” month
rssSuccess is the mother of confidence
How do you build confidence? There are many ways but only one process: multiple small successes. I am very much an advocate for boring trading. What I mean by that is I trade the same edge over and over again without variation. By trading the same edge over and over again I know when to get in and when to get out. I know what to look for when a trade is working and I can safely add to my position. On the other hand, I know what to look for when the trade is not working and I can exit with a small loss. By following the rules EVERY TIME you can succeed, not in making money every time (impossible!), but by following the same plan every time. These small successes give you the confidence to trust yourself each and every time your edge presents itself. This is true in any new venture, whether it be golf, bowling, drawing, flying, etc. Each small success gives birth to greater confidence which in turn brings further successes. You can then replace a vicious circle of failure with a confident circle of success. It is so EASY to want the lottery ticket or the home run every time at bat but HARD to accept when the numbers do not add up or when all the preparation leads to nothing more than the hard earned single.
787: Made in USA?
Justin Fox’s The Myth of the Rational Market:Book Review
Justin Fox’s The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street(Harriman House, 2009) isn’t exactly hot off the press, but I discovered it only recently. It’s a fast-paced history, replete with interesting (sometimes chatty/catty) details, of theories about the financial markets from Irving Fisher to Robert Shiller.
The cast of characters is huge. I list them here to give a sense of the scope of the just shy of 400-page book: Kenneth Arrow, Roger Babson, Louis Bachelier, Fischer Black, John Bogle, Warren Buffett, Alfred Cowles III, Eugene Fama, Irving Fisher, Milton Friedman, William Peter Hamilton, Friedrich Hayek, Benjamin Graham, Alan Greenspan, Michael Jensen, Daniel Kahneman, John Maynard Keynes, Hayne Leland, Robert Lucas, Frederick Macaulay, Burton Malkiel, Benoit Mandelbrot, Harry Markowitz, Jacob Marschak, Robert Merton, Merton Miller, Wesley Mitchell, Franco Modigliani, Oskar Morgenstern, M.F.M. Osborne, Harry Roberts, Richard Roll, Barr Rosenberg, Stephen Ross, Mark Rubinstein, Paul Samuelson, Leonard “Jimmy” Savage, Myron Scholes, William F. Sharpe, Robert Shiller, Andrei Shleifer, Herbert Simon, Joseph Stiglitz, Lawrence Summers, Richard Thaler, Edward Thorp, Jack Treynor, Amos Tversky, John von Neumann, and Holbrook Working. (more…)
Where is your head during the market day?
1)Are you looking through the rear-view mirror, criticizing your last trade?- 2)Are you looking at your profit/loss for the day and filtering trades through that?
- 3)Are you distracted by people or the phone?
- 4)Are you thinking about yourself and how well or poorly you’ve been doing?
- 5)Are you locked in an opinion of what the market “should” be doing instead of observing what it *is* doing?
- 6)Are you wanting to get your money back after a loss or hold onto it after a gain?
- 7)Are you focusing more on yourself or on what markets are doing?8)Many times, our head just isn’t in the game. We can’t be focused on performance outcomes and immersed in our performance at the same time.
1)Thought For A Day
Quotes from "Trading for a Living" by Alexander Elder and my love for trading
“The market does not know you exist. You can do nothing to influence it. You can only control your behavior.”
“The ocean does not care about your welfare, but it has no wish to hurt you either. You may feel joy on a sunny day, when a gentle wind pushes your sailboat where you want it to go. You may feel panic on a stormy day when the ocean pushes your boat toward the rocks. Your feelings about the ocean exist only in your mind.”
“A sailor cannot control the ocean, but he can control himself. He studies currents and weather patterns. He learns safe sailing techniques and gains experience. He knows when to sail and when to stay in the harbor.”
“When joy sweeps you off your feet, you will make irrational trades and lose. When fear grips you, you’ll miss profitable trades. A professional trader uses his head and stays calm. Only amateurs become excited or depressed because of their trades.”
I still need to control my emotions, thus I am still an amateur trader. No matter how much I try to pretend to myself to not get excited or fearful, its impossible. You just cant lie to yourself… This is the one other skill I need to work on psychology wise.
On a side note I would like to share with you what attracts me about trading (more…)
Trading Truths
- It’s all about risk management … never risk what you can’t comfortably lose.
- Never fall in love with a stock.
- To be succesfull in trading; study, understand and practice. The rest is easier.
- Always start by assuming your analysis is WRONG and that people much smarter and with more recent information are already positioned opposite you.
- Never take on a position larger than your comfort zone. (Don’t overtrade)
- Patience. never chase a stock.
- Before entering the trade very think carefully what will make you wrong, write it down clearly and put it infront of you where you trade, and when your wrong get out happy you’ve followed your trading discipline.
- Buy strength, sell weakness. Most traders are essentially counter-trend; most traders lose.
- No one ever went broke taking a profit!
- Once you find a good one, hang on unless of course they do you wrong.
- Never add to a losing position! (Unless scaling in was part of the plan).
- Whenever you think you’ve found the key to the lock, they’ll change the lock.
- Do not overtrade.
- Trade price not perception.
- Know the difference between stocks that you want to stay married to and those that are just a fling.
- The only sure way to make a small fortune is to start with a large one.
- Cut your losses quickly and you may have a chance.
- An indicator works until it doesn’t.
- “MR. MARKET” IS ACTUALLY “MRS. MARKET” ONLY WOMEN CAN THINK, AND ACT THE WAY THE MARKET DOES. THAT IS WHY -ON AVERAGE -WOMEN ARE BETTER TRADERS THAN MEN, THEY UNDERSTAND WHAT THEY DEALING WITH! (more…)
and to paraphrase Will Rogers: Buy only stocks that will go up. Don’t buy the ones that don’t go up. “THIS is GAMBLING.”
Best Trading Practices for Trend Followers
Best practices are those things that would contribute to your bottom line over a long period of time. These best practices are built on routines. I have the exact same routine every day for my trading. I am up at 5am down load my data and it is automatically entered into my trading platforms. Years of work is instantly automated. I manually check my orders as anything can happen. I know that when I do not follow this exact routine..I will likely reduce my profitability. Maintaining and reviewing a list of best practices can keep a trader grounded in a right mind-set.
Best trend following practices go hand and hand with a complete trading plan which tells us what to buy or sell…how much to buy or sell…and when to exit with a profit or a loss…
Past performance is not indicative of future performance
Traders Read this 100 times. Memorize it. Then duct tape it to your computer screen. –
