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rssWhy 95% Traders Lose MONEY ?Just Read These 7 Points
1) The majority of traders think directionally, and they think linearly. That has them trading momentum and that has them trading trends. Even the traders who look for reversals look for momentum and trend, just in a different direction.
2) Market behavior can be described as a combination of cyclical and linear (trend) components over any particular time frame. As markets become more crowded, cyclical components dominate over time, reducing the Sharpe ratio of those markets.
3) Traders fail because they are thinking in straight lines when they should be thinking in cycles. They think of cycles as sources of choppiness and noise, not as sources of signals that are different from linear, trending ones.
4) Any market cycle consists of mean-reverting behavior at cycle peaks and troughs and trending behavior between peaks and troughs. This ensures that any single approach to trading markets (looking for trend/momentum; looking for reversal/mean reversion) will draw down substantially over many cycles.
5) When the Earth was found to be round and not flat, that opened the door to exploration and development of new lands. When markets are viewed as cyclical and not linear, that opens the door to promising trading strategies.
6) A great deal of the emotional frustration and disruption of trading that traders encounter is the result of trying to fit markets into a preferred framework, rather than discovering the framework that best describes market behavior.
7) Becoming more disciplined in applying inappropriate models to markets leads to greater consistency in losing. If a ladder is leaning against the wrong building, becoming a better climber won’t get you to your destination.
Mark Douglas makes some great statements
In the book Trading In The Zone, Mark Douglas makes some great statements that I truly believe are important. He states:
I AM A CONSISTENT WINNER BECAUSE:
- I objectively identify my edges
- I predefine the risk of every trade
- I completely ACCEPT the risk or I am willing to let go of the trade
- I act on my edges without reservation or hesitation
- I pay myself as the market makes money available to me
- I continually monitor my susceptibility for making errors
- I understand the absolute necessity of these principles of consistent success and, therefor, I always follow them with confidence and joy.
What you’ll notice about his statements is that it is he is assuming that you have already done the first set of bullets up top; that you have already created a plan and you already have a set of RULES. Now you might ask, how do I know if my set of rules now will work next month or next year? GREAT question. The market dates back all the way into the late 1700’s. There is literally a few HUNDRED years of data. That’s why I say that back testing is KEY. Now that doesn’t mean that you need to back-test 200 years of data. Not even close. You want to back-test a reasonable time depending on your time-frame of trading. For example, if I plan on trading based on a daily system, then I might back-test the last 5-6 years. If I’m going to trade based on an intra-day 3 minute chart, I would probably backtest about a year. There is no way to KNOW what is going to happen, but trading really boils down to probabilities. Time and time again the same things tend to repeat themselves. Why do you think the markets tend do to the same things over and over. Why does it seem that certain stocks that are in the same class look the same from a chart perspective? How come a company will report great quarterly results, but still go down? It’s because there is a greater number of traders that BELIEVE that this is where an equity is too much or too little. Why do you think there are people who are talking about a “recession” right now? Again, it’s because the same things seem to be occurring that did prior to a previous recession and people have that BELIEF.
So what does all this mean? What can you gather from all this? Well, a few things actually. One is to make sure you create, find and organize a PLAN for trading. Think about it as if you wanted to open up a company. Do the research and find out how some of these traders got started and what they did. Once you’ve done that, write down your plan and look at your questions from up top. Once you can answer ALL of them, then you are moving toward being a consistently profitable trader. Then take a look at what Mark Douglas wrote. You have to own these statements mentally. You have to truly believe that you are a consistent winner because of all of the statements above.
Remember, you are starting a business, and if you want your business to succeed, you need to have a PLAN!
“Plan your trade, and trade your plan” – Anonymous
Deception Theory
Deception theory often refers to the eight basic emotions communicated through facial expressions: anger, fear, sadness, joy, disgust, curiosity, surprise, acceptance. Are these emotions manifested in markets? Are they predictive? Do they change? Is the theory of deception useful for studying, understanding and predicting markets?
Traders Must Read These 10 Points-Everyday
THE SUCCESSFUL TRADER … ACCORDING TO MARK DOUGLAS
There is a reason why so few traders succeed. It is not for lack of study or effort or passion. It is not for lack of education or a Bloomberg platform subscription. It is not because only a select few have access to technical “secrets” (a.k.a. indicators). No. So few succeed at trading for the same reason that so few succeed at living an abundant life.
The unsuccessful refuse to think differently when faced with difficulties believing that luck has passed them by. They do not succeed because the want of instant gratification and its fleeting rewards has replaced the need for sustainable, hard fought, earned rewards indicative of a mindset prepared to tackle failure as nothing but a mathematical equation: here is the problem now let’s find the solution.
The mediocre search for easy answers to difficult problems believing that the right answers to their questions are found somewhere “out there”. The successful make difficult decisions where there are no easy answers, questioning whether their perception of what is out there is a distorted reflection of what is inside of them.
The best traders, according to Mark Douglas, think differently than others because they know that what is most important is “how they think about what they do and how they’re thinking when they do it.”
Keep Secret
Watch Apple's robot take apart an iPhone in 11 seconds
Gann's trading rules
- Never risk more than 10% of your trading capital in a single trade.
- Always use stop-loss orders.
- Never overtrade.
- Never let a profit run into a loss.
- Don ‘t enter a trade if you are unsure of the trend. Never buck the trend.
- When in doubt, get out, and don’t get in when in doubt.
- Only trade active markets.
- Distribute your risk equally among different markets.
- Never limit your orders. Trade at the market.
- Don’t close trades without a good reason.
- Extra monies from successful trades should be placed in a separate account.
- Never trade to scalp a profit.
- Never average a loss.
- Never get out of the market because you have lost patience or get in because you are anxious from waiting.
- Avoid taking small profits and large losses.
- Never cancel a stop loss after you have placed the trade.
- Avoid getting in and out of the market too often.
- Be willing to make money from both sides of the market.
- Never buy or sell just because the price is low or high.
- Pyramiding should be accomplished once it has crossed resistance levels and broken zones of distribution.
- Pyramid issues that have a strong trend.
- Never hedge a losing position.
- Never change your position without a good reason.
- Avoid trading after long periods of success or failure.
- Don’t try to guess tops or bottoms.
- Don’t follow a blind man’s advice.
- Reduce trading after the first loss; never increase.
- Avoid getting in wrong and out wrong; or getting in right and out wrong. This is making a double mistake.
One Liners
“There are old traders, there are bold traders, but there are no old, bold traders. “There are a million ways to make money in the market. The irony is that they are all very difficult to find. “Most traders take a good system and destroy it by trying to make it into a perfect system. “If you’re going to panic, panic early. “We don’t see things as they are, we see things as we are. “If you look around the table and don’t see a sucker, then you are the sucker. “If you find yourself in the bottom of a deep hole, the first thing to do is stop digging. “The system wasn’t designed so that most people could beat it. “At all levels of play the secret of success lies not so much in playing well as in not playing badly. “The most dangerous thing in the world is to think you’ve got the time to play it safe.” |