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Good Trading =
What enables a trader to exit every trade the same way, with confidence?
- Preparation: If you put yourself in the best possible position and you lose money at least you spent that money wisely. Good things happen to those that are prepared because 90% of people do not know how to do it or are unwilling.
- Purpose: Acting with purpose. You prepared, you knew the risks, you executed the way you wanted to execute. In cold blooded evaluation you would do it the same with the information you had at the time.
- Protection: Losing the invisible money is how I have seen many people blow up. Invisible money is not locking in profits or losing more than your plan allowed. If you lose what you intended to risk you own the trade, if you lose more the trade owns you.
On Trading Psychology
The speculator’s chief enemies are always boring from within. It is inseparable from human nature to hope and to fear. In speculation when the market goes against you you hope that every day will be the last day — and you lose more than you should had you not listened to hope — to the same ally that is so potent a success-bringer to empire builders and pioneers, big and little. And when the market goes your way you become fearful that the next day will take away your profit, and get out — too soon. Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit. It is absolutely wrong to gamble in stocks the way the average man does.
Trading Thought
“We know that the random element in the market represents at least 40 to 60 percent activity. Therefore, it’s not logical to look at every tick or to think that every tick or every chart formation has meaning. They don’t. There are too many traders trying to look at the markets from too stringent an analytical viewpoint. Most of what happens in the markets is meaningless. Why try to interpret every little movement, every little reversal, every little tick? In trying to do too much, they’re actually paying too much attention to the market. You have to keep a distance from the market. Only then will you have the psychological resources to let your profits ride. You won’t be looking at every tick and interpreting it in a fearful way.”
Now Reading :Book by Ashvin Chhabra -The Aspirational Investor
Great Book ,Now Completed Upto Page 126.
Ten Common Reasons Traders Lose Discipline And How To Avoid Them.
There is very little that is new in the world of trading psychology but mastering the basics and mastering our mind is essential if we are to develop as highly efficient traders. The following are common discipline issues and suggestions to counteract them. Discipline is needed if you are to succeed as a Forex trader
1. Boredom and a need to trade for the “buzz”
Try to use dead time between trades for things like self improvement training i.e. read a book by your favorite personal development guru or learn to meditate/practice Yoga! Anything that keeps you in the right frame of mind for the job of trading. A positive mindset will have a positive impact on your bottom line over time.
2. Trading when tired.
One of the great things about trading is that we can close for business whenever we want. If you are not in the correct mindset for trading then shut the shop! There will be no customers banging on the door shouting for you to open up.
3. Not taking a loss well and revenge trading (more…)
Trading is a business
Trading can be mastered if you concentrate your efforts on how you will react to price rather than desiring to predict it. Reacting is a business decision, predicting is an ego play.
Traders want to make money. Losses in the long run don’t matter. Forecasters (prophets) want to be right (ego). And that’s all that they are concerned about.
Don’t decide anything (ego), let the market do that job for you (business).
Like any other business you have a business plan and the financial portion of that plan is the most important.
In this business your inventory is stocks, bonds, futures or options. Like any other business you define what an acceptable loss is on an item and what is an acceptable profit for the risk undertaken. Like any other business if the item of inventory doesn’t do what you expected it to do, you put it on sale and liquidate it to raise capital to purchase inventory that will do what you want it to do. Your acceptable loss is your stop. Your money management system tells you how much that is. Your mark up is dependent upon your trading system and trading style. It doesn’t make any difference if you are a day trader or an investor. Like any business, some turn their inventory 10 times a day, some 20 times a year and some only twice a year. Your trading style and inventory volatility will tell you what your turnover rate will be.
Trading is a business and if you treat it as anything else you will be a loser.
Trading Lessons
The market is a tough battle. Each day there are chances and opportunities to make money though, it is the greatest form of free market capitalism known to man. It’s a vast ocean with treasures; we just have to be able to unearth them at the right moment. We have the ability to navigate carefully through markets, put our bets out there and see where the chips fall.
But if we are too loose with our capital then we are headed for a bad ending. Discipline is one of the keys to success: learn your craft and practice. Each day that passes is one more great learning experience – capture it, analyze it and grow from it. Use a trading system, pay attention to the timeless patterns of price/volume and believe in what you see and not what you hear. (more…)
THE MOST COMMON ERROR IN STOCK MARKET RESEARCH
Jeff Miller of Dash of Insight wrote a brilliant post on common research mistakes. It can be found here.
He breaks it down into two things: Selecting the Right Data and Comparison.
Selecting the Right Data. As the saying goes, if you torture the data for long enough it will tell you anything. There is so much data out there that you can make it say whatever you want. The most important thing about finding the right data is accepting the limitations of it and understanding it. Look at this way, I like a fast car but insurance and gas will cost more. Does that justify the tradeoffs for me? Yes. You? Maybe. All data is local.
Comparison. Mr. Miller calls is comparison but I prefer the word context. Most anyone can look at a data or chart and come to a reasonable outcome. Data records it does not tell the story. It can can tell a story but for the most part they are without context. Yes you can throw a couple more pieces of data in and get closer but who knows. Think about how ridiculous it would sound if I showed you a picture from 1950′s Chicago and asked you what it was like.
What Mr. Miller didn’t mention, probably because of time or my inabilities, is that data is secondary to what we do with it. For the most part we are untrained at using it. We are 14 year olds at the Playboy mansions. We get data F@#%&ed, data blocked, data complacent or whatever you want to call it.