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3 TRADING COMMANDMENTS

  
  Education
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You Learn More From Your Enemies Than You Do From Your Friends.  Make sure you take the criticism’s of others and use them to your advantage by recognizing that the more others criticize the more you value your own beliefs, trading or otherwise.

Be Careful Who You Get Into Bed With.  Although not a trading rule per se, keeping good, solid company outside the charts, can help you be the best trader inside the charts.  “Trust and integrity between two people are the most important variables in life and in business” 

Never Operate From a Position of Fear.  “If you are fearful in the markets, either as a result of taking a recent loss or some other mistake, or even as a result of being nervous about the level of risk you are taking, then you are putting yourself in the position of making and unclear and hence incorrect decision”

H + W + P = E

  
  Education
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Understanding your own trading psychology is critical to being a successful portfolio manager. 
Are you focused on trying to make money? Or are you more focused on trying not to lose money?
The truth is that making money is the easy part. It is keeping it that is so hard.
Statistically, you are going to make money half the time anyway as I have found that discretionary traders make money on approximately 45-55% of their trades. That is not my opinion – that is what the data say.
The difference between being profitable and not profitable or modest and substantial returns is not about the frequency of being “right.” It is about how much do you MAKE when you are right and how much do you LOSE when you are wrong.
Don’t trade to be right. Trade to make money. In order to make money, you have to lose less.
As a trading psychology coach, the formula I use with my clients is as follows:
H + W + P = E
Hoping + Wishing + Praying = EXIT THE TRADE! 

5 Mistakes Traders Make Again & Again

  
  Education
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There is a big difference between bad traders and good traders, here is what I think separates one from the other:

  1. Bad traders continually have the desire to short the hottest  stocks with the strongest momentum. What is their reasoning? “It can’t go any higher, this price is ridiculous.” Do they understand it is a bull market, no. Do they understand the technicals or fundamentals that are driving this stock? No. Bad traders just trade their beliefs good traders trade proven methods.
  2. Bad traders continually believe they have found the trade “That just can’t lose.” It is a sure thing. No doubt about it. They trade BIG, they trade a HUGE position size. Unfortunately the most obvious trades are usually the losing trades, so they lose, and lose big. Good traders divide out their trades so that no one trade has too big of an impact on their account. Good traders realize EVERY trade can win or lose so they plan a quick exit for if they are wrong.
  3. Bad traders do not do the proper homework before they begin to trade. Really  Bad traders enter the markets with a mile of ego along with mud puddle deep understanding of what really works in trading. Bad traders have the belief that they are more clever than the markets and they can win based on their own intelligence. The problem is they do not do the homework of studying charts, trends, robust systems, winning methods, the right psychology for winning traders, risk/reward ratios, or the danger of the risk of ruin, or how the top performing stocks acted historically, and on and on. The good traders learn what it takes to succeed in trading, the complete story, while the bad traders learn some basics and think they are ready. They are wrong. The markets will show them.
  4. Bad traders make low probability trades, they are where the profits come from for the good traders. They go short in bull markets and long in bear markets. They sell naked puts on stocks collapsing into death spirals and sell calls on the best momentum stocks. They trade with big risks for small profits. They have a few small wins but some really huge losses. When they have a winner they take the profits quickly, but if they have a loser they let it run hoping that it will come back. They are the ones that lose the money, they are on the other side of the good traders trades.
  5. Bad traders want a good tip. They just want to be handed a winning system or a hot stock that just can’t lose. They do not even understand what all the talk of trading psychology and risk management is all about. They don’t need all that, they just want to make money. They just want the fish, they do not care about the fishing pole, bait, boat, or how to fish. Unfortunately they were to busy looking for that fish and didn’t understand the art of fishing, they will drown in the market ocean because they never learned how to swim themselves.

Some things never change

  
  Education

Among the galaxy of individuals interested in the stock market with whom I have come in contact, there have been literally thousands of different types, ranging from stupid to brilliant, from greedy to conservative, from rich to poor and from dismal failure to brilliant success.  In fact, no two individuals bring to their market operations identical attitudes and attributes.  They are all different; yet they are all identical in one respect-they want to make a profit from their operations.  The profit motive is the universal aim in all market activity, yet by what devious and warped methods most individuals go about their operations is known only to the stock market analyst in all the pathos of its ineffectiveness.  And the greatest tragedy of all is the realization that by far the greater portion of those who come to the market with hard-earned savings, high hopes and enthusiastic ambitions-only to leave it with disappointments and loss-could be saved from their misfortune by a simple medium of a few logical rules of policy, by a small amount of consideration and common sense.   R.W. Schabacker, 1934

Wall Street speculation is the most stupendous game known to the world of chance; as compared with it, the game of Monte Carlo pales into utter insignificance; in no other game are the stakes so high, is success so transitory, and failure so overwhelming.  It is a game in which the wealth of Croesus changes hands in a single hour but in which the vast majority of the outside public, who tamper with it, go to financial and often to physical and moral ruin.  The general public seldom have any opportunity to become familiar with the inside workings of Wall Street speculation, as it really is, except through an expensive personal experience; but by the time most people have learned enough through personal experience to make money in Wall Street, their experience is all the capital they have left, and this alone makes rather a light margin, with which to operate in stocks.  Franklin C. Keyes, 1904

If you, my dear sir, were to join a first-class Whist Club [whist is a card game] you would be expected to know something about the game would you not?  Some of the elementary principles of the play you should understand at least, otherwise you have no business to be in the game with experienced players. What is true of the game of Whist is not less true of the game in Wall Street.  In this latter game the amateur who goes into it without study or knowledge is almost sure to lose in the end.  William Hoyle, 1898

Eurozone inflation update: There isn't any

  
Analysis, Education

Annual inflation in the euro area is up, and out of negative territory in October, but it still comes in at a big fat zero, according to the latest release from Eurostat.
Unsurprisingly, energy provides a huge drag. See the chart below from Eurostat.
The fact that the currency bloc is no longer in deflation takes a bit of the pressure off the European Central Bank to beef up its easing measures. But only a bit. The lack of a reaction in the euro to the news shows that traders and investors still think it’s close to a done deal. (The euro is now at $1.10.)

Black Belt Trading

  
  Education
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Black BeltJust like you shouldn’t practice your basic martial-arts forms in the ring where your mind is more focused on pain avoidance then executing the tactic correctly, a novice shouldn’t begin trading with real money and real consequences. Only once you’ve amassed significant practice in a safe environment where you can conduct your technical and fundamental analysis without being emotionally distracted should you begin to trade with real money. And when you finally start, don’t jump straight into the ring with Bruce Lee. Begin tentatively, gradually, slowly increasing your trading exposure over time as you become accustomed to the increasing levels of risk. How do you know you’ve moved too far, too fast? If you are finding it’s becoming harder to sleep at night, either because you are worrying about your trades or you are excited about your gains, then you have moved into the realm where your emotions are going to have too strong an effect. You are going to start making poor, emotionally-clouded decisions and so it is time to scale back.

When Your Have an Edge, Increase Your Size, Not The Number of Trades

  
Analysis, Education
  • Rather than increase the size of the casino floor, I just want to hone in on the time frame and patterns that I find most comfortable.
  • I want to strive for perfection within this world, and rather than increase the number of trades I enter, I want to increase the risk I take per trade. I accomplish the same end results without the manic activity.
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