Archives of “belief” tag

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Trading Thoughts

  
  Education
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To truly become a proactive trader, you need to believe that your trade WILL go the direction you thought. This shows that you have belief in your system that finds your trade setups in the first place. If you put your trade on and the first thing you do is mark your stop or think “I hope this goes well”, then you are bound to fail as a trader. Successful traders do not hope. They do the research and use their system to find good candidates and enter the trades. It is at that point that they manage risk. They know exactly how much they have at risk and are perfectly fine if they lose that much. Why? Because it is baked into their system, and every trade does not go the way they thought. You need to be the same way in your trading.

You need to have the courage to fail, step off the curb, and enter the trade. Expect that the trade will go your way and use the power of positive thinking. Set your target, entry and your stop and then you know, at any point during the life of the trade, where you stand. If your target gets hit and you see the stock continue to go the same direction, you can’t get mad. You simply put the positive trade aside and evaluate it in a couple weeks to figure out why it continued to go beyond your target. It is at that point that perhaps you make an adjustment to your system. Perhaps you find out that it was a news item that caused the surge and then you know that it was atypical, rather than the norm, and no adjustment is needed.

In going through this thought process, you prepare yourself emotionally and as a result remove the chance of trading on emotion once in the trade. As an example, you need to be fully prepared to lose the amount invested in a single trade if your stop is triggered. If you aren’t fully prepared to take that risk, then you need to adjust the size of your trade or move on to another trade. If you prepare and emotionally accept the fact that you could be wrong, your trading becomes more mechanical and less emotional. Take some time to role-play the different scenarios and see what your reactions would be.

5 Trading Mistakes & Destroy Yourself

  
  Education
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  1. 5-rulesInstead of cutting a loss the trader holds it stressing over it for the rest of the day or a week. This destroys the trader’s mental capital and inflicts completely unnecessary emotional pain. The first loss it the best loss.

  2. A trader that trades their opinion instead of the price action has a lower success rate than someone who just trades price action. The vast majority of traders make money by following trends and chart patterns not their own opinion.
  3. A trader who puts on the one big trade that they think they just can’t lose on is usually the one that blows up their account. A trader must always have stops and must always manage risk regardless of their belief in any one trade.
  4. Believing that you are right about a trade and the market is wrong is a sure path to destruction. The market is always right because price is reality. How do we know when we are wrong? We lose money that is proof enough.

  5. A trader who endlessly searches for stock picks and predictions instead of  learning how to trade a robust method while managing their own mind and using risk management is doomed to failure.

     

Discipline

  
  Education
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Discipline seems to be that elusive element in trading, the thing you just can’t seem to get no matter how hard you try. Its a willo-the-wisp that we’ve only heard rumours about. Do you jump from system to system, method to method, change your chart constantly and have a favourite indicator of the month? We roughly call this poor discipline.

However I’ve discovered that there is something more fundamental underneath this behavior, which is a lack of belief in the system you are using. You have no faith in it. If you did, all such behavior and “discipline problems” would vanish in a puff of smoke.

To prove the point, consider this: imagine if I gave you a magic box, and if you put a dollar in this magic box and pulled the lever it would always dispense one dollar fifty.

What would you do? Yes thats right, you would do it over and over and over wouldn’t you? Probably for hour upon hour you would do it. (more…)

Trading Rules

  
  Education
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*The big money is made from position sizing. You really must stop chasing a holy Grail and spend time on different position sizing rules. This is the one “secret” that separates a professional from the man in the street.

*Question everything and everyone. Even me. Never blindly believe anything you read or hear about. Be careful about what you read and even more careful about what you believe in. after all an opinion is only some-ones belief.

*If you have to ask you shouldn’t be in. I can’t believe people actually ask other people whether they should hold or sell a stock position they are in. Surely before you enter you have your exits all in place. I’ll guarantee if you are asking this question you are not making money.

4 Faiths For Traders

  
  Education
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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.

 

  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.

7 Points for Traders

  
  Education
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  1. You don’t choose the stock market; it chooses you.  A little bit of early trading success can have a profound effect on a person’s soul.  If it does choose you, you’ll have to accept that your life and investing will become forever connected.
  2. Your methodology must provide an unshakeable foundation that you believe in totally, and you must have the conviction to trade based upon it.   If your belief is tentative or if you don’t have complete faith in your methodology, then a few bad trades will destabilize and erode your confidence. 
  3. A calm mindset that can focus on the execution and not on the outcome is what produces profits.  It takes total emotional control.  You must maintain your balance, rhythm and patience.  You need all three to stay in the game.
  4. The markets are always conniving with ingenious techniques to get you to lose your patience, to get you frustrated or mad, to bait you to do the wrong thing when you know you shouldn’t.  A champion doesn’t allow the markets to get under his skin and take him out of his game.
  5. Like a great painting, all good trades start with a blank canvas.  Winning traders first paint the trade in their mind’s eye so that their emotional selves can reproduce it accurately with clarity and consistency, void of emotions as they play it out in the markets. (more…)

Three Types of Traders

  
  Education
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A trader that performs worst than their trading plan.  These traders often have a weak understanding and belief in their trading plan.  How they feel is more or as important as making money.  They fail to see past the current trade.

A trader that performs the same as their trading plan.  These traders have a strong understanding and belief in their trading plan.  They get a majority of their satisfaction from making money.  They can see past the current trading day.

Those that perform better than their trading plan.  These traders have spent time in the previous two groups so they not only understand and believe their trading plan, they have 100′s or thousands of experiences that “prove” it to them.  The only satisfaction is following their plan and knowing that the money will follow. They can see past the current trading year.  They find areas and times to be aggressive and times to hold back.

Conviction, Anxiety and Belief

  
Analysis, Education
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In 1952 Harry Markowitz effectively founded modern finance with his seminal paper “Portfolio Selection“. The famous (or infamous) CAPM and Efficient Markets Hypothesis, for all practical purposes, evolved from the Nobel winning ideas in this paper. (Note to self: resist urge to make Nobel joke). Ironically however virtually no one knows that Markowitz himself said his paper began with step 2! Step one was deciding what you believe.

We hear a lot from the well known trading coaches about conviction and it strikes me as funny because conventional risk wisdom says “don’t get married to an idea”, “let the market tell you”, “take what the market gives” and other such axioms all based on the idea of maintaining objectivity and essentially not becoming full of conviction.

Well which is it?

I mean we also hear “believe in yourself” but where do these advisories leave you when a trading idea is going wrong? How do you handle the teeter totter that holds belief and conviction on one side and price and risk management on the other? What fulcrum can you depend on?

We of course have our answer…but before we talk any more about it, we would REALLY like hear yours!

Everyone has a plan, until they get punched in the mouth

  
  Education
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I heard Mike Tyson say this years ago, and it immediately stuck with me because of so many ties it has to trading your trading plan with focus, discipline, and repetition.

Our main focus in training new and veteran traders is to build a belief in the system through repetition. After seeing the performance of a trade over 150 times within a 2 month period, it becomes evident that you begin to move away from a fear-based internal dialogue regarding your trade. You already know the system is consistently profitable, so the only X-factor in the entire process is that little 6-inch universe between your ears. Now, the focus of accuracy has everything to do with you, the trader, following your rules with consistency and repetition and nothing to do with the system.

Now back to my original point. We have seen the trades. We know the system is profitable. We have simulated the system and are showing a profit. We are ready to trade live hard earned cash that we have an emotional attachment to. Every dollar we are trading equals a loaf of bread, so to speak. Our hard earned trading capital is now taking the INEVITABLE equity draw-down, as dictated by the system. We WILL lose trades, traders, this is a fact that we must embrace on all levels. But remember, contraction leads to expansion. Your draw-down will inevitably lead to a run-up. The KEY is NOT TO MISS IT!

Now, we’ve had the draw-down, and to put it bluntly we’ve “Been punched in the mouth”. THIS is where the magic happens. At this very moment what will you do? Will you let the fear and painful associations of the market dictate your trading executions? Or will you draw upon your training, having fully accepted that this equity swing is nothing more than another step to consistent profitability?

Will you continue to place those next trades with consistency? Will you remove all mpulsive trades from your trading style? Will you follow the trading plan that you’ve put so much thought and process into developing for yourself?

If you have a pen, WRITE THIS DOWN and tape it to your Monitor:

“WHEN I TRADE MY PLAN WITH CONSISTENCY AND REPETITION THE MONEY WILL FOLLOW.”

Remember, every trader gets punched in the mouth. The magic is how you apply
your trading when this happens.

Mistakes Were Made (But Not By Me)-Book Review

  
  Education
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MISTAKES-WERE MADEOne of the best things I came across this  past week was this terrific review by  Morgan Housel where he shared insights  from the book “Mistakes Were Made (But  Bot By Me)” by Elliot Aronson and Carol  Tavris. Several members have  recommended this book to me so I was  very interested to read his review.
According to Mr. Housel, this are the six  most important things all of us should  learn from this book, many of which are  very important to investors and traders alike:

1. Everyone wants to be right and hates admitting the  possibility of being wrong.As fallible human beings, all of us share the impulse to justify  ourselves and avoid taking responsibility for any actions that turn
out to be harmful, immoral, or stupid. Most of us will never be in a  position to make decisions affecting the lives and deaths of  millions of people, but whether the consequences of our mistakes  are trivial or tragic, on a small scale or a national canvas, most of  us find it difficult, if not impossible, to say, “I was wrong; I made a  terrible mistake.”
The higher the stakes — emotional, financial, moral — the greater the difficulty. It goes further than that: Most people, when directly  confronted by evidence that they are wrong, do not change their  point of view or course of action but justify it even more tenaciously. Even irrefutable evidence is rarely enough to pierce  the mental armor of self-justification.

2. You brain is designed to shut out conflicting information.In a study of people who were being monitored by magnetic  resonance imaging (MRI) while they were trying to process  dissonant or consonant information about George Bush or John Kerry, Drew Westen and his colleagues found that the reasoning  areas of the brain virtually shut down when participants were  confronted with dissonant information, and the emotion circuits of
the brain lit up happily when consonance was restored. These mechanisms provide a neurological basis for the observation that  once our minds are made up, it is hard to change them. (more…)

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