Archives of “Education” category

rss

10 Trading Wisdom points

  
Analysis, Education
#  #  #  #  #

(1) Any strategy you build will be determined by your beliefs about the market and the objectives you’re trying to achieve. Therefore, your beliefs and objectives are the starting point of the system design and build process and it’s from these you will determine your Key Idea.

(2) Therefore, your Key Idea is your working hypothesis or your explanation of what the foundations of your system are and how it will work.

(3) One of the most famous Key Idea’s was declared by the Turtle Traders, specifically Richard Dennis. Being trend traders they acknowledged that every trend, without fail, was preceded by a breakout.

(4) From that start point they used a standard channel breakout to enter and they also had what they called a ‘fail safe’ breakout entry which absolutely guaranteed they’d capture every new trend.

(5) The Key Idea of Warren Buffett is that you should buy a great company at a cheap price. From this Key Idea he built specific rules and guidelines about how to actually go about doing that.

(6) The Beliefs of many of the worlds great traders can be found in various texts, such as the Market Wizards series by Jack Schwager. Examples: – Markets only trends 30% of the time – The big money is made in the big trends – Buying value is a safe strategy – Stops get hunted

(7) Your objectives are also very important in the design process. In many instances I often hear, “I want to make as much money as possible”. Well, we all do, but that’s a very one dimensional view of the world and of the process of designing a trading system.

(8) Indeed, there is much research to suggest extremely successful traders view profits as a by-product and not the main goal. Many successful traders are passionate about the markets and it’s that passion, not the want of profits, that enable them to succeed.

(9) Taking a more holistic view, objectives encompass many other dimensions, such as your personal risk tolerance and your lifestyle factors. If you’re a family man & has system that requires you to sit in front of a screen for 15-hours a day, it’s probably not a realistic goal.

(10) So your objectives must be broader than just profitability. They must be aligned with your Beliefs. They must be aligned with realistic expectations and they must be aligned with your lifestyle.

Who Are You?

  
Analysis, Education
#  #  #  #

The following is an excerpt from an article in Naval Institute magazine – there’s a lesson not only for navigating a ship, but for traders too.

——-

Shortly after dark, the lookout on the wing of the bridge reported, “Light, bearing on the starboard bow.”

“Is it steady or moving astern?” the captain called out.

Lookout replied, “Steady, captain,” which meant we were on a dangerous collision course with that ship.

The captain then called to the signal man, “Signal that ship: We are on a collision course, advise you change course 20 degrees.”

Back came a signal, “Advisable for you to change course 20 degrees.”

The captain said, “Send, I’m a captain, change course 20 degrees.”

“I’m a seaman second class,” came the reply. “You had better change course 20 degrees.”

By that time, the captain was furious. He spat out, “Send, I’m a battleship. Change course 20 degrees.”

Back came the flashing light, “I’m a lighthouse.”

A Key Question to Ask Yourself NOW

  
Analysis, Education

After a big move like yesterday, emotions naturally are stronger. On days like today – the day after, the propensity  to trade in response to our P&L is much greater than usual.

On one level, the psychological backdrop of days like this is that it is all too easy to slip into trading our P&L, and not trade the market. I say one level, because there are deeper levels, but that’s beyond the scope of my blog…those deeper levels are more individual to each trader.

But a good question to ask yourself: no matter what your deeper psychological issues:

How much of what I’m doing or contemplating of doing right now is a response to my P&L?

I know in my own trading, and I see this in my clients as well, the more honest we are with that self-directed question, usually the better we trade. We should trade the market, not our P&L.

If you catch yourself trading your P&L more than the market, consider my Advanced Course, designed to address problems like this that all traders face. It is ‘heavy duty’ trading psychology with a lot of actionable steps to improve your performance. It’s for  traders who are serious about improving. And if you haven’t already, sign up for my free email newsletter that gives you professional trading psychology tips.

Chasing a Trade and The Power of Regret

  
Analysis, Education

Everyone knows that chasing price is usually not beneficial, we either end up catching the move too late, or we get poor trade location, which makes it more difficult to manage the trade.

However, there are other forms of chasing that are just as common, maybe more common, and just as counter-productive.   As a trading psychologist I see these all the time.

Traders who are not profitable are often too quick to chase after new set-ups and indicators, or a different chat room, if that’s your thing.  Obviously, we need to have a trading edge, whether it is from the statistical perspective of a positive expectancy, or simply the confidence in a particular discretionary strategy such as tape reading, following order flow, market profile, etc.

Chasing a trade is the fear of missing out. The fear of missing out is associated with various emotions, including regret. In my work with traders and in my own trading, I’ve seen the incredible power of regret. There’s a lot of talk about fear and greed in trading, but the power of regret is often overlooked. Some of my own worst trades, and those of my clients, often have a ‘regret from missing a prior opportunity’ component. When I finally finish my book on the psychology of financial risk taking, I will include much about this overlooked but very powerful emotion.

Somewhat related to chasing a trade, is impulse trading.  They both have in common the underlying feeling of the fear of missing out.  It’s tempting for me to talk about impulse trading here, but it really deserves its own piece.

Go to top