Archives of “February 2019” month

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Wisdom of Dickson Watts

  
Analysis, Education
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Dickson Watts (PDF) has been dead for decades, but his wisdom never dies. Some fine lines:

“Many lean, few lift.”

“The man who conforms never transforms.”

“Rest with descending wave; mount with the ascending wave.”

“There is many a slip between the cup and the lip, but only one slip between the cup and the ground.”

“The unpardonable sin — not to make money.”

“Some men are alive after they are dead; others are dead while still alive.”

Become a good loser

  
  Education

My whole approach is geared towards controlling risk, and keeping losses as small as possible. This means knowing when and where I am going to exit a losing trade (as well as a winning one) allied to risking only a small element of equity on each position. It is only by doing this can I achieve a positive expectancy with a low win rate.  

With losing trades, I will open the position when my entry price level is hit, but if it doesn’t start to move in my favour, then I will get out pretty damn quick. I want to eliminate the possibility of a small loss becoming a big loss. I don’t even wait for my initial stop to be hit – a lot of my losing trades are closed within 24 hours of being opened. This keeps me in the game, keeps my equity intact, and helps to avoid the stress that comes with big losses or drawdowns. 

Failing to take a small loss, especially when price then moves back in your favour and generates a profit, is one of the most dangerous things you can do. You might get away with it once or twice, but the markets will ensure that the next time, you will suffer the mother of all losses. A lack of discipline, coupled with poor discipline will guarantee failure.
 
 
Getting people to accept that they are wrong on a trade, to bank the losses and move on is always a challenge, but something that is imperative if they want to succeed as a trader. Even if you believe in the underlying fundamental story on a stock, if price is moving against you then it is creating a very real loss (whether you take it or not!).
 

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Trading – Speculating – Gambling

  
  Education
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In the eyes of the vast majority, these things are blurred together, and very many things that the herd get up to in the name of “trading” is really either speculating or gambling. To that end, much of the advice published on the subject of trading can equally be as confused.

 
But not to real traders; real traders know the difference and are very clear that what they are doing is neither speculating or gambling. Just because you can know your risk per trade when speculating or gambling does NOT mean you are trading. Every game at the roulette table you can know your risk. Think about that…
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