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Losers Average Losers

There are so many concepts about the stock market that are taught in the classrooms, promoted throughout the media, and passed along from generation to generation but, unfortunately, most of them are FLAT OUT WRONG!

I decided to write a 5-part series (this is part 2 of 5) on the common misconceptions that really need to stop being promoted. Keep in mind, these are all my humble opinions, but after 16 years of trading and studying market history, one really begins to notice what works and what doesn’t.

Common Misconception #2 – Dollar Cost Averaging

Paul Tudor Jones is one of the greatest traders in market history. Why? Because he’s consistently profitable. The best “anything” in the world are the best because they perform at a consistent, superior level for long periods of time. Michael Jordan isn’t considered the best basketball player ever because he scored 30 points ONCE in a game. It’s because he averaged 30 points per game over his ENTIRE career. (more…)

The Ten Things Profitable Traders Do Differently

The following 10 reasons may be why the 10% of long term profitable traders take the money from the 90% that are unprofitable. I see these differences in real life all the time. There is a big difference between profitable and unprofitable traders that usually comes down to homework, mental discipline, and risk management.10NUMBER

  1. Winning traders let winning trades get as big as possible before exiting. They have the really big winners to pay for all the losers.
  2. Winning traders have no patience for losing trades, they keep losses small. They know how not to give back their profits with big losing trades.
  3. They are focusing on trading actual price action not their own opinions or beliefs.
  4. They are experts on the trading vehicles that they trade.
  5. The trade with the trend in their time frame.
  6. Good traders know that their trailing stops are smarter than they are.
  7. Profitable traders know that it is their robust methodology that makes them profitable not any one trade.
  8. Winning traders are great risk managers. Their #1 concern is how much they can lose, their #2 concern is how much they can make.
  9. Profitable traders have put in the time, usually years and thousands of hours to learn what really makes money in the markets.
  10. Profitably traders have studied historical price data, chart patterns, trends, and price action.

     

Seven Sins of Trading

7numbers1. Trading an inappropriate position size.
Simply put…if you risk too much, you’ll lose too much. In my eyes, this is the single most important rule of trading. Risking only 1-2% of an acct value is crucial to staying in the game.

2. Not knowing when to take the loss.
If you cannot answer the questions “Where am I taking the loss,” and “Where is my profit target” then stay out of the market. If you leave these decisions for later, then you will make them emotionally, which will be the worst decisions a trader can make.
3. Trading on someone else’s research or recommendation.
We have all heard stock tips thrown our way. Sometimes we might even hear people throw out potential trades that they are watching and become tempted to jump in. Sometimes I throw out stocks that I am trading and I am watching. The problem is that you might not know what this person is watching for, what strategy this stock fits, or what types of efforts are thrown into their research. If you take these stocks into consideration, make sure they are trades you would have likely come across on your own by conducting your own research. (more…)

Difference between Skill & Luck in Trading

Many times, good traders make the right trade but still lose, but it is okay because they will win in the long term because their method is tested, their risk is managed, and their mind set is right for long term trading success. They have developed the skills of a successful trader. Other times a new trader with no skills makes a trade based on a hunch and wins big, the danger is that the new trader will confuse luck with skill. The delusion begins with winning on a few trades, the new trader trades bigger, and bigger, until their luck runs out and they are wiped out. We need to all keep a good understanding of whether we traded will the right skill set or we just got lucky.

Traders with skill have large gains after 100 trades and are relatively quiet, traders that were lucky have huge gains after a few trades and are very loud, then very quiet for the next few trades that usually bring their account to zero.

Traders with skill risk 1% to 2% of their trading capital per trade and win in the long term, traders that are just lucky risk the majority of their account for a few big wins in the short term but lose in the long term when their luck runs out.
Traders with skill use a successful method with different stocks, currencies, commodities, future markets while traders with just luck are only successful with one lucky pick in one of those markets and when its up trend ends their winning streak ends. (more…)