The Emotions behind chart patterns
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rssThe trading curve.
I really like this visual because if you turn your head enough it looks like a face hitting the wall. Not sure if that was intentional but that is how I would best describe what trading is like when you are new and/or struggling.
There are subtle but important difference. Yes there are no clients or employees but that means that you have to rely on your own feedback mechanisms. Money is not as effective as one would think.
Initiation- Every trader comes in thinking they will make money, in fact if they have never traded, they probably have convinced themselves fully. They spend time looking for all the answers in charts but it is in the process. It seems like easy money. It is not easy but it is probably the best way to make money. The best of anything takes more work.
Wearing off of novelty– This is a critical time for any trader. This is where the hole gets deeper or ideally the trader stops and starts to work more efficient. Process and not charts. This is the motivation to understand what trading really is and who they really are.
Trough of sorrow- This is also a critical point. Now you have done some work but it has not paid off yet. Do you keep working? Do you get some help? Can you continue to improve?
Crash of ineptitude- You are starting to gain some experience and confidence. But you have a bad day and lose too much. Back to the drawing table.
Wiggles of false hope- This is where you understand what not to do so you are floating along again. The problem is you are only starting to understand what to do. You have corrected the big mistakes and now start down the path of correcting the small ones.
The promise land- Now you understand what not to do and what to do. Now it is up to you to actually do it. You are in the best position of your trading career.
Acquisition of liquidity- Now you are a self sustaining trader. You have the ability to make x amount of dollars to survive. This is what you have to lean on now. This is when trading begins to get real. You are methodically improving.
Upside of buyer- Not only do you understand what not to do and what to do, you always do it. Now the sky is the limit. You control your destiny.
The difference between trading and a start up is you are not looking to be acquired. You have to do this day in and day out, make a career. This does not stop but the process and progressions become second nature and you are seeing positive results. This is not the time to relax but the time to put the foot on the gas pedal. This is true about all of the stages except the first one.
Trading is also different in that any day you can put yourself back into one of the stages. That is why it is important to never forget that the purpose is to make money. As you gain experience you will spend less time in the early stages. The early stages will start to feel like touching a hot stove. You will recognized the situations more quickly and have the strength to make a change immediately.
Doom and gloomers fight amongst themselves
Roubini says we have asset bubble everywhere and everything is going to end badly.
Jim Rogers says Roubini knows nothing and that he doesn’t see any bubble. Jim Rogers sees commodities going higher.
Peter Schiff takes a stab at Roubini and says Roubini doesn’t understand gold. Schiff says gold is going higher.
Harvard University financial historian Niall Ferguson claims he’s a better doom and gloomer than Roubini in terms of timing and accuracy.
Disarray in the bear camp is probably good for bulls.
6 Things …Traders Must Do
Learning to trade is a process
"Speculation is a hard business, and a speculator must be on the job all the time or have no job."
Real world social media.
Must Read These Books :"Neurologic" by Eliezer Sternberg and "The Mind Club" by Daniel Wegner and Kurt Gray.
Let profits ride until price action dictates otherwise.
Perhaps the most famous quote attributed to Livermore is, “It never was my thinking that made the big money for me. It always was my sitting.” Traders are wired to be “doing something,” and this can cause churning, over-trading, getting out of positions too soon, and making your broker the wealthy one. The famous Turtle Traders were trend traders who made few trades and had learned the importance of staying in a winning trade.
For today’s traders, there are multiple variations to keep you in a trade. It’s not so important which method you implement, but that you do recognize when to hold a winner for maximum potential, and when a trend has changed character and it’s time to ring the register.
One method that satisfies the desire for profit and subdues the fear of a losing trade is to take one half of your profit off at a predetermined level, put a stop at breakeven on the rest, and let it play out without micromanaging the position. Even day and swing traders will benefit from letting a partial position play out when all indicators hint that more upside might be in the cards. Always remember this rule is letting a profitable position run, but it’s not a license to bury one’s head on a losing position
Trading: The Difference Between Playing Offense & Defense
The sooner traders learn to carefully manage risk the better off they will be. So many new traders come in with only the thoughts of profits dancing in their heads. This is equivalent to a football team only focusing on scoring points and not planning their defense.In trading you must play both sides of the ball. You have to be able to score points against the market and not allow the market to score back those points on you.
Your entries are your offense and your exits are your defense.
Letting a winner run is your offense, cutting your loser short is your defense.
Your automatic buy stop is your offense and your automatic stop loss is your defense.
Buying a monster stock is an offensive move, planning on how you will exit with your profits is your defensive move.
Identifying a trend is your offensive play creating a trading plan on how to trade it is your defensive play.
Your choice on what to trade is playing offense, choosing your position size is playing defense. (more…)