Latest Posts

rss

The 5 Faiths Needed for Trading Success

  
  Education
#  #  #  #

While trading is a game of math, probabilities, charts, and earnings it is also a mind game. Many times a trader’s beliefs will determine their success more than anything else. All traders start out believing it is possible to make money in the markets. Many want to earn their living one day by trading. However it is perseverance, beliefs, and mental determination that will determine who wins and who just quits. Shockingly the majority of millionaire traders lost most of their accounts when they started or they experienced huge draw downs while learning lessons the hard way.

With my own experiences and reading many of their stories here are the five faiths I believe a trader needs to have to win big and make money consistently in the markets.

 

  1. You must have faith in yourself. You must believe that you can trade as well as anyone else.. This belief arises from doing your homework and staying disciplined in your system. Understanding that it is not you, that it is your system that wins and loses based on market action will keep the negative self talk at bay.
  2. You must have faith in your method. You must study the historical performance of your trading method so you can see how it works on charts. Also it is possible to quantify and back test mechanical trading systems for specific historical  performance in different kinds of markets.
  3. You must have faith in your risk management. You must manage your risk per trade so it brings you to a 0% mathematical probability of ruin. A 1% to 2% of total capital at risk per trade will give almost any system a 0% risk of ruin.
  4. You must have faith that you will win in the long term if you stay on course. Reading the stories of successful traders and how they did it will give you a sense that if they can do it you can to. If trading is something you are passionate about all that separates you from success is time.
  5. You need faith in your stock. It helps in your trading if you trade stocks, commodities, or currencies that you 100% believe in.  Of course you have to follow a defined system and take the signals even if it goes against your opinions but believing in your trading vehicle helps tremendously.

 

My personal trading rules

  
  Education
#  #  #  #  #  #

MYTRADINGRULES
There’s really just two rules:
1) If I have an edge – take a position.
2) When the edge is no longer there – get out.

It doesn’t matter what my entry point was and it doesn’t matter how much I’ve gained or lost on the trade. When the edge is no longer there, I shouldn’t be either. And when it is there – I should stay in the trade. This actually requires some discipline because there’s always a temptation to bail when it begins to go against you and there’s also always a temptation to try for too much when things are going your way.

Wisdom From Jason Zweig

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

  1. There are only three kinds of investors – those who think they are geniuses, those who think they are idiots, and those who aren’t sure.

  2. One of the clearest signals that you are wrong about an investment is having the hunch that you are right about it.
  3. Investors who focus on price levels earn between five and ten times higher profits than those who pay attention to price changes.
  4. The only way to be more certain it’s true is to search harder for proof that it is false.
  5. Business value changes over time, not all the time. Stocks are like weather, altering almost continually and without warning; businesses are like the climate, changing much more gradually and predictably.
  6. When rewards are near, the brain hates to wait.
  7. The market isn’t always right, but it’s right more often than it is wrong.
  8. Often, when we are asked to judge how likely things are, we instead judge how alike they are.
  9. Most of what seem to be patterns in stock prices are just random variations.
  10. In a rising market, enough of your bad ideas will pay off so that you’ll never learn that you should have fewer ideas.
  11. The more often people watch an investment heave up and down, the more likely they are to trade in and out over the short term – and the less likely they are to earn a high return over the long term.
  12. Investing is not you versus “Them”. It’s you versus you.
  13. The single greatest challenge you face as an investor is handling the truth about yourself.
  14. Hindsight bias keeps you from feeling like an idiot as you look back – but it can make you act like an idiot as you look forward.
  15. Ignorance of our own ignorance haunts our financial judgments. (more…)

Trading Psychology -4 Types of Trading

  
Analysis, Education

1)  The cognitive side of trading – How do you process information most efficiently/effectively and how can you refine your market preparation to better leverage your information processing strengths?
2)  The epistemological side of trading – How can you most effectively integrate quantitative data on markets (predictive models) with an experienced feel for markets?  How can you best blend analysis and intuition?
3)  The tactical and strategic sides of trading – How can you quickly identify when markets are changing and adapt to those changes?  How can you stay true to how you trade without becoming so inflexible that you become a dinosaur when markets evolve?
4)  The personal side of trading – How can you best manage your personal life and maximize your experience outside of trading so that you are best able to maximize your focus and energy while you are trading?

New Trading Principles

  
  Education

On Risk:
– Worry is not a sickness but a sign of health – if you are not worried, you are not risking enough.
– Always play for meaningful stakes – if an amount is so small that its loss won’t make any significant difference, then it isn’t likely to bring any significant gains either.
– Resist the allure of diversification.

On Greed:
– Always take your profit too soon.
– Decide in advance what gain you want from a venture, and when you get it, get out.

On Hope:
– When the ship starts sinking, don’t pray. Jump.
– Accept small losses cheerfully as a fact of life. Expect to experience several while awaiting a large gain.

On Forecasts:
– Human behaviour cannot be predicted. Distrust anyone who claims to know the future, however dimly.

On Patterns:
– Chaos is not dangerous until it starts to look orderly.
– Beware the historian’s trap – it is based on the age-old but entirely unwarranted belief that the orderly repetition of history allows for accurate forecasting in certain situations.
– Beware the chartist’s illusion – it is characteristic of human minds to perceive links of cause and effect where none exist.
– Beware the gambler’s fallacy – there’s no such thing as “Today’s my lucky day” or “I’m hot tonight”.

On Mobility:
– Avoid putting down roots. They impede motion.
– Do not become trapped in a souring venture because of sentiments like loyalty and nostalgia.
– Never hesitate to abandon a venture if something more attractive comes into view.

On Intuition:
– A hunch can be trusted if it can be explained.
– Never confuse a hunch with a hope.

On the Occult:
– If astrology worked, all astrologers would be rich.
– A superstition need not be exorcised. It can be enjoyed, provided it is kept in its place.

On Optimism & Pessimism:
– Optimism means expecting the best, but confidence mean knowing how you will handle the worst. Never make a move if you are merely optimistic. (more…)

Go to top