Each point on the curve is equally profitable.
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rssLessons from the Wizards
One of the first books I read in this business oh-so many years ago was Stock Market Wizards. It had a profound impact on my thinking about trading, psychology, risk, capital preservation, etc.
- All successful traders use methods that suit their personality; You are neither Waren Buffett nor George Soros nor Jesse Livermore; Don’t assume you can trade like them.
- What the market does is beyond your control; Your reaction to the market, however, is not beyond your control. Indeed, its the ONLY thing you can control.
To be a winner, you have to be willing to take a loss
HOPE is not a word in the winning Trader’s vocabulary;
When you are on a losing streak — and you will eventually find yourself on one — reduce your position size;
Don’t underestimate the time it takes to succeed as a trader — it takes 10 years to become very good at anything;
Trading is a vocation — not a hobby (more…)
Bruce Lee on Stock Trading
If Bruce Lee was a trader I believe this would be his advice:
If you let the market show you the way you will win.
Do not trade your opinions about what the market will do next, instead always ask the questions:
What is the chart saying? Where is support and resistance?
Is the market trending or range bound? At what price level will I know that it has changed?
Where is all the capital flowing? What keeps going up day after day?
If I enter a trade at what price level will I know I was wrong?
Can I quickly admit I am wrong about a trade and move on to the next one?
Water is so versatile it can be ice in the winter and steam in extreme heat. Traders do well to be a bull in a bull market and a bear in a bear market.
Water can wear through a rock if it is a strong river. You can win in the markets if you keep trading the right method over and over again.
Water takes the form of whatever you put water into. Traders should trade for the market conditions that they find themselves in.
Water can only be reduced to its core elements hydrogen and oxygen but it can not be truly destroyed. If you only risk 1% per trade your account can experience a draw down in capital but it to can not be destroyed.
Jesse Livermore facts- Graphic :Must Read & See
6 ways to think about risk
1 Risk is not the same as volatility. Assets can be volatile on the upside as well as the downside. Risk should instead be viewed as the permanent loss of purchasing power.
2 A risk should not be evaluated based its frequency. Some risks only have to happen once to be catastrophic.
3 Sophistication and knowledge are not a form of or substitute for risk management.
4 Although following the crowd may feel comfortable, risks are just as catastrophic whether you suffer with company or suffer alone.
5 Bullish consensus manufacturers the greatest risks because nobody is prepared and everyone runs for the exits at the same time. Strong optimistic consensus provides a sense that nothing can go wrong. This is why the greatest catastrophes seem to come out of the blue.
6 Activity, research and analysis provides a false sense of control over the future. However devastating losses rarely due to a lack of brain power or analytical prowess.
I'm thankful to all those who said 'No' – because of them, I did it myself. —Albert Einstein
Disaster
When the market becomes volatile or a series of trades produce loses, it is easy for us to become fearful.
We then start to verbalize excuses as to why we even executed those trades or why we use the trading strategy that we use or any of a long list of items.
For all of us as traders to continue to grow, we need to develop a better way to address these situations. The foundation for this is analysis.
If we will be honest and look at the entire situation, generally we had executed a solid trade, however due to the very nature of the financial markets; an unusual movement occurred that caused us to not receive the results we expected. If we do this, most of the time we will see this fear, this confusion or these excuses just evaporate.
Are these times comfortable, never. Chaos is not comfortable, nor will it ever be.
But the successful trader will step up to the plate and handle this challenge instead of succumb to it. Do not allow a challenging situation to become a disaster because of fear or excuses.
What Happens 1 Hour After Drinking A Can of Coke ?Worst Then Maggi Noodles
Don’t Set Your Trading Size at the Optimized Setting
- On the subject of bet size, if you plot performance against position size, you get a graph that resembles
one of those rightward-facing, high-foreheaded cartoon whales. The left side of the graph, corresponding to relatively small position size, is nearly linear; in this range an increase in trading size yields a proportionate increase in performance. But as you increase size beyond this range, the upward slope flattens out; this is because increasingly large drawdowns, which force you to trade smaller, inhibit your ability to come back after strings of losses. The theoretical optimum is reached right about where the whale’s blowhole would be. To the right of this optimum, the graph plummets; an average position size only modestly larger than the
theoretical optimum gives a negative performance - Trading size is one aspect you don’t want to optimize. The optimum comes just before the precipice. Instead, your trading size should lie at the high end of the range in which the graph is still nearly straight.
George Soros quotes
The Hungarian-born financier will therefore no longer be able to move markets. But many of his aphorisms and apothegms will long continue to apply. Here are some of the best.
When I see a bubble forming I rush in to buy, adding fuel to the fire. That is not irrational.”Well, you know, I was a human being before I became a businessman.”Markets are designed to allow individuals to look after their private needs and to pursue profit. It’s really a great invention and I wouldn’t under-estimate the value of that, but they’re not designed to take care of social needs.”
The financial markets generally are unpredictable. So that one has to have different scenarios… The idea that you can actually predict what’s going to happen contradicts my way of looking at the market.”