Your Stop loss should be at a location where your initial trading idea is invalidated.
Latest Posts
rssBitter Truth about Success
THE IDIOT TRADER
The idiot trader has no sense of process. It’s all seat of the pants and randomness. The enlightened idiot trader talks about “following my process”, but cannot produce a detailed flow chart of what they do and why they do it. That is because, for the enlightened idiot, process is merely a code word for engaging in some general routines.
The idiot trader keeps no journal and has no structure to his or her reflection. The enlightened idiot trader keeps a journal and writes down all of his or her mistakes and frustrations, but never transforms those observations into concrete goals, plans, and commitments for change.
Keep Your EGO out of Trading.
“Of all the traps and pitfalls in life ,self-disesteem is the deadliest ,adnd the hardest to overcome;for it is a pit designed and dug by our owen hands ,summed up in the phrase ,’It’s no use-I can’t do it .'” -Maxwell Maltz
The ego had no place in trading.An unstable ego will attach itself to anything you do.And trading is not exception.You cannot use the trading arena as an area to prove your worth or your capability.It will just bring your trading and your self-esteem to new lows.
If your ego is getting in the way of your trading,you need to build up your self-esteem.One way to do this to begain to appreciate yourself.Pay attention to what you’re doing that’s good.Give yourself recognisation for the little things you do as you go through the day.Make lists of your accomplishments.Make lists of your positive attributes.Each day ask yourself ,”What did I today that I’m proud of ?”Ask yourself ,”In what way an I improving ? “
Learn to handle a level of stress that would break most people.
Greed, Fear, Hope, and Regret
There are four psychological states of emotions that drive most individual decision making in any market in the world. They are greed, fear, hope and regret.
Since the stock market is made up of individual human beings who tend to act in similar manners, a group is formed. It is only the group’s opinion that matters during a trend, but it is the individual trader’s job to identify the subtle clues as to when a market is about to shift direction.
The clues are there, but they are subtle. An awareness and detailed understanding of these emotions is what keeps the astute technical trader out of trouble by providing a means to identify individual weaknesses. We shall now take a closer look at these emotions, and provide examples of how they influence a trader’s ability to consistently make money.
What is Greed?
Greed is commonly defined as an excessive desire for money and wealth.
In trading terminology, it can specifically be defined as the desire for a trade to provide an immediate and unrealistic amount of profit. When greed sets in, all a trader can focus on is how much money they have made and how much more they could make by staying in the trade. However, there is a major fallacy with this type of reasoning. A profit is not realized until a position is closed.Until then, the swing trader only has a POTENTIAL profit (aka. “paper profit”). Greed also frequently leads to ignoring sound risk management practices.
What is Fear? (more…)
Random Trading Thoughts
1. Do not think about making money, think about losing money – the first step toward success is accepting that losing is part of trading. You will not be right all of the time, you can not always trade your way out of a bad situation. There will be times when you simply have to walk away with a loss. The key is to keeping the losses small and manageable. When the market proves you wrong, take the loss.
2. Do not think you can average down to win – it is a logical idea, add more to a losing position with the expectation that the market must eventually go your way. Many times this strategy will work but, when it does not work, the loss may be insurmountable. The market does not eventually have to go your way.
3. Do not think that your success is entitled – you may make a great trade, pick a really great stock and have a feeling like you really have the market figured out. Forget your gloating, no one ever has the market figured out. We must always remember that we have to work as smart for the next trade as we did for the last.
4. Do not think that talent is required – making money in any trading endeavor is a small part technical skill and a big part emotional management. Learn to limit losses, let winners run and be selective with what you trade. Emotional mastery is more important than stock picking skill.
5. Do not think that you can tell the market what to do – the market does not care about you, it does not know that you want to make a profit. You are the slave, the market is your master. Be obedient and do what the market tells you to.
6. Do not think you are competing against other traders – trading success comes to those who overcome themselves, it is you and your persistent desire to break trading rules that is the ultimate adversary. What others are doing is of little consequence, only you can react to the market and achieve your success.
7. Do not think that Fear and Greed can ever be positive – in life, fear can keep us from harm, greed can give us the motivation to work hard. In the market, these two emotional forces will lead to losses. If your decisions are governed by either or both you will most certainly find that your money escapes you.
8. Do not think you will remember everything you learn – every trade provides a lesson, some valuable education on what to do and what not to do. However, it is likely that your lessons will contradict one another and lead you to forget many of them. Write down the knowledge that you accumulate, return to this trading journal so that you can retain some value from the lessons taught by the market. Remember, the market is cruel, it gives the test first and the lesson after.
9. Do not think that being right will lead to profits – you may be exactly right about what the fundamentals are and what they are worth. However, timing is everything, if your expectations for the future are ill timed, you may find yourself losing more than you can tolerate. Remember, the market can be wrong longer than you can be liquid.
10. Do not think you can overcome the laws of probability – traders tend to be gamblers when they face a loss and risk averse when the have a potential for gain. They would rather lock in a sure profit and gamble against a probable loss even if the expected value of doing so is irrational. Trading is a probability game, each decision should be made on the basis of the best expected value and not what feels best.
Proper Mind Set for Past and Present Trading
No shame in being wrong, only in failing to correct our mistakes ~George Soros
Get Rs 25000 right now or flip a coin with a 50/50 chance of winning Rs 50000. Which do you go for?
Think of an answer before reading further.
Now. You have the choice of definitely losing RS 25000 or flipping a coin with a 50/50 chance of losing Rs 50000. Which option do you take?
If you answered both questions the same way, congratulations, you have a rational attitude toward gains and losses. That’s good news if you’re a trader.
Studies show that most people will pick receiving Rs 25000 while opting to take the chance of losing Rs 50000 or nothing. It’s called loss aversion and it’s because negative reactions to loss impact our psyches twice as hard as the rush of making gains does.
Master that psychological part of trading and you’re one step closer to being the trader you want to be.