Archives of “Education” category

rss

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!).
 

(more…)

Trading – Speculating – Gambling

  
  Education
#  #  #  #  #

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…

Top Trend Traders Bank Millions, Ride The Trend

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Famed Stanford University psychologist Leon Festinger once said, “A man with a conviction is a hard man to change. Tell him you disagree and he turns away. Show him facts or figures and he questions your sources. Appeal to logic and he fails to see your point.” 
Although trend following has been one of the most successful trading strategies for decades, some critics downplay the massive profits accumulated by trend followers, arguing there are just a few chance winners — “lucky monkeys,” they claim. 
BEAT THE AVERAGES
Not true. Large numbers of trend followers have found a way to outpace market averages. They have done so with hard work and the ability to stick with a trading plan — usually for a very long time. Some argue, “There’s no romance in trend following.” The romance is found in returns. Money is the ultimate aphrodisiac. 
PROFITS COUNT
Think of it this way: Performance data examples from the great trend followers could be the foundation of every college finance class. When you show up on the first day, instead of your teacher handing you a syllabus and telling you to buy certain books, you are handed one piece of paper that simply shows the performance histories of professional trend following traders for the last 50 years. (more…)

Risk

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #

Ancient man had no risk management. Everything was left to ‘fate’ and the whims of the gods. Because ancient man felt that he was merely a victim of circumstance he did not see a need to plan for the future. Therefore, he had no future. In his book Against The Gods: The Remarkable Story Of Risk, Peter Bernstein plots out the history of man’s discovery of the law of probabilities and risk management. Suffice it to say, economic progress seems to run parallel with man’s ability to discover, quantify, and manage risk. Risk and reward are two sides of the same coin. One is not present without the other. You cannot receive the reward unless you are willing to take the risk and you cannot expect to keep that reward unless you learn to mange that risk. It is imperative to master both subjects if you expect to be successful in any endeavor, especially the arena of investing/trading.”

Visualize Success

  
  Education
#  #  #  #  #  #  #  #  #

“I made a picture in my mind of who I wanted to be, and then I lived into that picture.” – Arnold Schwarzenegger

 

Every person who has tried or read about body building, has probably already heard that quote. Some of the most successful people in the world became that way because they were able to visualize their success and were not afraid of doing hard work to get there. They knew that they could achieve their goals if they set their mind to it.

Unfortunately, investors tend to be the self-defeating type – they search for easy answers, easy stock picks, and they don’t visualize success in a way that makes their trading and investing truly rewarding. They are also quick to blame others or search for the easy road. That’s why you have hundreds of very expensive investment newsletters and advisories, thousands of mutual funds, and trading systems that are sold to investors even though over the long term none of them manage to beat the major market averages.

The lesson that Arnold offers is an important one – you have to visualize success and do the hard work it takes to get there. There are no compromises or short-cuts to that destination. This is especially true when investing as well as anything you try to achieve in life.

Go to top