1. Need to internalize lots of trading simulation of specific set-ups in real-time to trade effortlessly
2. Need to trust money management system to weather +10 losses in a row
3. Tuff to internalize that its the 5-6 huge monthly runners that is the big pay-off days
4. Must master +3 trade set-ups to make money consistently month to month.
5. It takes considerable time to mathematically think and act like a trader
6. Trading is a performance skill which requires mastery of every element of trading
7. It requires time capital and considerable effort to achieve the experience to make it effortless and automatic (more…)
Archives of “attempts” tag
rssBrooks, Trading Price Action Reversals
The third and final volume of Al Brooks’s series is Trading Price Action Reversals: Technical Analysis of Price Charts Bar by Bar for the Serious Trader (Wiley, 2012). A trader does indeed have to be serious to read all three volumes because, according to the author himself, the task is daunting: some 570,000 words.
Only half of the final volume is about trend reversals. The rest deals with day trading, the first hour (the opening range), and putting it all together, including 78 trading guidelines, some of which you may not have encountered elsewhere.
This volume is the most accessible of the three, but then my very tired eyes did a lot of work before getting here. It would be difficult to skip the first two volumes and expect to understand the third.
Brooks himself is not primarily a reversal trader. As he writes, “I prefer high-percentage trades, and my most common trades are pullback entries and trading range fades. I especially like breakouts because when they are strong the probability of follow-through is often more than 70 percent. I look less often for reversal trades, because most reversal attempts fail, but I will take a strong reversal setup.” (p. 463) (more…)
11 Rules for Chart Watchers
Rule 1 – If you cannot see trends and patterns almost instantly when you look at a chart then they are not there. The longer you stare, the more your brain will try to apply order where there is none.
If you have to justify exceptions, stray data points and conflicting evidence then it is safe to say the market is not showing you what you think it is.
Rule 2 – If you cannot figure out if something is bullish or bearish after three indicators then move on. The more studies you apply to any chart the more likely one of them will say “something.” That something is probably not correct.
When I look at a chart and cannot form an opinion after applying three or four different types of indicators – volume, momentum, trend, even Fibonacci – I must conclude that the market has not decided what it wants to do at that time. Who am I to tell it what it thinks?
Rule 3 – You can torture a chart to say anything you want. Don’t do it.
This is very similar to Rule 2 but it there is an important point to drive home. You can cherry pick indicators to justify whatever biases you bring to the table and that attempts to impose your will on the market. You cannot tell the market what to do – ever.
Rule 4 – Be sure you check out one time frame larger than the one in which you are operating (a weekly chart for a swing trader, a monthly chart for a position trader).
It is very easy to get caught up in your own world and miss the bigger picture getting ready to smack you. It can mean the difference between buying the dip in a rising trend and selling a breakdown in a falling trend.
Rule 5 – Look at both bars (or candles) and close-only line charts to see if they agree. And look at both linear and semi-logarithmic scaled charts when price movements are large. (more…)
Master Talk Presents…William Eckhardt!
“One adage that is completely wrongheaded is that you can’t go broke taking profits. That’s precisely how many traders do go broke. While amateurs go broke taking large losses, professionals go broke by taking small profits. What feels good is often the wrong thing to do. Human nature does not operate to maximize gain but rather to maximize the chance of a gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance. Two of the cardinal sins of trading – giving losses too much rope and taking profits prematurely – are both attempts to make current positions more likely to succeed, to the severe detriment of long-term performance. Don’t think about what the market’s going to do; you have absolutely no control over that.
Think about what you’re going to do if it gets there. It is a common notion that after you have profits from your original equity, you can start taking even greater risks because now you are playing with “their money”. We are sure you have heard this.
Once you have profit, you’re playing with “their money”. It’s a comforting thought. It certainly can’t be as bad to lose “their money” as “yours”? Right? Wrong. Why should it matter whom the money used to belong to? What matters is who it belongs to now and what to do about it. And in this case it all belongs to you.”
The Right Approach to Losses
First of all, understand that losses are a necessary part of any risk taking activity. The goal should always be to blunt the impact of losses as opposed to eliminating the losses altogether. There is a distinct difference between minimizing the impact of losses versus minimizing the number of losses. If the money you are risking stands between you and hunger, think twice before placing it on the line. Risk capital must be true risk capital.
Second, losses are better teachers than wins. As noted above, wins often lead to complacency. Losses usually compel you to figure out “why.” If small and incidental to your overall strategy, they confirm that your plan is working. If relatively outsized and/or unexpected, losses make you examine the precedent trades and determine if your strategy should be adjusted. This is how advancement happens. Thomas Edison needed nearly 10,000 tries to find filament for an incandescent bulb that would last for more than a few hours. Of the thousands of attempts that did not produce the bulb, Edison did not see them as failures, but rather as things that didn’t work which was useful knowledge in and of itself. By knowing what didn’t work, Edison was able to find his way to what did. Containing and then examining your losses will help you do the same with your trading strategy.
Third, recognize that losses that are kept small relative to your portfolio are a big part of the fuel that propels your account higher. They say that you are taking prudent steps to grow your account… that you are “in the game.” The alternative, especially if you accept that losses are a necessary part of trading, is no risk taking or the taking of outsize risk (refusing to cut losers). Neither of these provide a path to account growth. If you can find/develop a trading method that allows for (in fact, embraces), many small losses while still delivering profits overall, you will have gone a long way toward eliminating the trepidation that most new traders feel about entering the fray. You will also be able to stop worrying about having the “right” picks.
Asymmetry
A general principle in trading for me is that without thorough investigation, comprehension, and experimentation leading to full acceptance, no trading rule or system can be properly executed. If one cannot completely understand and embrace the reasoning behind some method or axiom, whether internally discovered or externally given, the reflex necessary to act without further thinking or doubt is fatally compromised — the circuit between the eyes watching the screen and the finger on the trigger cannot afford even the slightest impedence. One area in my trading which I’ve been struggling over has been the disparity between the success of my entries versus the failure of my exits on profitable trades. If I had the ability to accurately anticipate and identify the origins of a move, why were my attempts in capturing and keeping the bulk of the profits so horribly inept? Why was my timing in closing trades so blatantly pathetic in comparison with their openings, to the point where I would either consistently stop-out on the lows of retracements, or conversely wind up giving back the entire move if I tried to avoid getting shaken out. (more…)
The Win/Loss Ratio
“One common adage on this subject that is completely wrongheaded is: You can’t go broke taking profits. That’s precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits. The problem in a nutshell is that human nature does not operate to maximize gain but rather to maximize the chance of a gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance. … (more…)
26 Quotes for Trading & Life
1. Don’t try making sense out of it. You’re in an insane asylum – things are not going to make sense, people will do things that don’t make sense, that they cannot adequately explain. People don’t know what makes them tick, only that they tick.
2. Happiness, of course…is all in your head. If you don’t know that, if you haven’t come to that realization, you will never be happy.
3. The Bull Market Syndrome. People, when they are met with success, take personal credit for it (bull markets breed geniuses), and when they are met with failure, blame luck.
4. Actually, luck is responsible for both! If you can only die by being struck by lightning, eventually, you will die by being struck by lightning! Conversely, if a man were to live forever, and bought a lottery ticket every week, eventually, he will win the lottery, with a probability that approaches certainty. Just stay the course, keep doing today what you must do today. As Woody Allen says, “Fifty percent of success is just showing up.”
Luck Trumps Brains. To get luck, keep showing up each day with your shoes on.
5. Creativity trumps money every time.
6. Fortunately in life, you don’t have to succeed at everything you do, only a few things. One success often justifies all prior attempts.
7. You can buy great a education – you can not buy brains.
8. The Oswald Principle: Usually, the best course of action in life, is to take no action (and usually, the best thing to say is nothing!). The guys in jail or there not because they didn’t do anything. Usually, you should just sleep in! If nothing really bad happens today, as my friend Oswald said to me in eighth grade, it’s been a good day!
9. You don’t have the problems you think you do. Actually, the only real problems are health and criminal problems. Everything else is just a frivolous, meaningless nuisance.
10. Never say never. Everyone, however righteous they may claim to be, however upstanding they say they are, will, under the right circumstances commit the crime. A cold morning, wet, hungry, tired, angry….they’ll do things they never dreamed they would! (more…)