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Trade Like Michael Jordan

  
  Education
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How does basketball exactly relate to golf and perhaps trading successfully? Well, you’re going to soon find out!

In this article, Michael provides 10 rules for maximizing competitiveness and if you’ve been trading for any period of time, you’ll instantly recognize their value to trading successfully. In fact, here’s my personal take on how Jordan’s rules directly relate to making us all better traders:

  • Focus on the little things.  It is true, if you focus on the little things (finding and exploiting attractive entry points, proper position sizing, sticking to stop loss levels, unbiased chart analysis, etc.) they’ll all add up to contribute to your big picture success and bottom line. When the pressure is on and tension and stress is high, traders must rely on the basic skills they’ve developed through constant practice to make the tough trades. That practice and constant dedication to improve oneself will make a world of difference when opportunities are the most plentiful.

  • Have total confidence in what you can do.  As Michael says “If you have 100 percent confidence that you can pull off a shot, most of the time you will.” I couldn’t agree more. While we all make trades based on imperfect information and conflicting data, at all times we must be 100% confident in the trades we make. There’s a good reason why so many traders say you must always “trade to win” instead of “trading not to lose.” There’s a huge difference. In addition, the only way to have confidence you really need in the trades you make is to actually do the work the leads up to making those trades in the first place.

  • Don’t think about the prize; think about the work.  Novice traders focus on how much money they stand to gain or lose from trading while great traders focus simply on the process of trading well and to their best of their ability. That’s a key difference. Sometimes a good trader will be very unhappy even if they make money in a particular trade because they didn’t trade it well or the trade violated their strategy and they got away with it whereas a novice trader will simply focus on the profits or losses no matter how and why they earned them. Money, and the rewards the flow from successful trading, are a low priority to the successful trader – instead trading well and trading even better the next time are the two top priorities. (more…)

TRADING RULES

  
  Education
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rules-mind

The hardest lesson I have had to learn is to “Act in my own best interest”. And to overcome and correct things like:
1) trading without a stop
2) refusing to admit I am wrong and to get out of a losing position
3) trading for the sake of trading
4) chasing entries (going long on the top tick, shorting on the bottom tick)
5) revenge trading (after a series of losses)
6) trading while sick or tired
7) trading without a plan (entry, exit, money management rules)
8) …
Anytime that I am in a position and either don’t know why I am, or what my profit target is, or what my stop loss is, etc. – I am not acting in my own best interest and have always struggled to close out the position immediately.
The times I have without any further hesitation, it turned out to be a wise choice and saved my butt from significant losses (more so than I already incurred).
The bottom line is that you will do much better in this profession if you can answer YES to the question – “Am I acting in my own best interest”?

HOW TO LOSE MONEY IN THE STOCK MARKET

  
  Education
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There are so many ways to lose money in the stock market but whether it is from blindly trusting what turns out to be a Bernie Madoff ponzi scheme to refusing to take a loss on a “sure thing”, the root cause of losses is our inability to objectively perceive market action without the many and varied biases associated with “money on the line”.

According to Mark Douglas…

In any particular trade you never really know how far prices will travel from any given point. If you never really know where the market may stop, it is very easy to believe there are no limits to how much you can make on any given trade. From a psychological perspective this characteristic will allow you to indulge yourself in the illusion that each trade has the potential of fulfilling your wildest dream of financial independence. Based on the consistency of market participants and their potential to act as a force great enough to move prices in your direction, the possibility of having your dreams fulfilled may not even remotely exist. However, if you believe it does, then you will have the tendency to gather only the kind of market information that will confirm and reinforce your belief, all the while denying vital information that may be telling you the best opportunity may be in the opposite direction.

There are several psychological factors that go into being able to assess accurately the market’s potential for movement in any given direction. One of them is releasing yourself from the notion that each trade has the potential to fulfill all your dreams. At the very least this illusion will be a major obstacle keeping you from learning how to perceive market action from an objective perspective. Otherwise, if you continually filter market information in such a way as to confirm this belief, learning to be objective won’t be a concern because you probably won’t have any money left to trade with (italics mine).

From Chapter Four of THE DISCIPLINED TRADER

Bottom line:  successful trading is about making money…not about being right.

Trading vs gambling

  
  Education
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The difference between a trader and a gambler is frequency.  A gambler does it once.  A trader is committed to take the natural fluctuations in their bottom line.  A gambler gives up control and takes little responsibility for the outcome.  A trader sees the outcome as a learning experience.  A chance to take that knowledge and let it pay over time.  A gambler sees a success as a pay day.  A trader see it is an opportunity.  A gambler focuses on luck, a trader focus on repeatable actions.  A traders can tell the difference between an aberration, for a gambler there is no distinction.

Independent Trading: Pros & Cons

  
  Education
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In fact, there’s probably no better time than the present to talk briefly about the pros and cons of being an “independent trader.”

As someone who has worked independently for most of my professional career, you can say I place a tremendous value on “doing my own thing.” As I’ve often said, at least for me it has been a combination of personal choice (what I want in both life and career) and also necessity (as I don’t play well with others). Indeed, there are some tremendous positives for trading independently. After all, I wouldn’t be doing this if there were not some significant advantages from doing so!

Here are a few things that first come to mind:

  • As an independent trader, I set my goals and I’m in charge of my own destiny. I don’t rely on any other person for how much money I make or how I make it. Other people’s opinions of me are irrelevant to my own destiny. At the end of the day, bottom line trading results (not office politics) are all that matters.

  • Most people in “normal jobs” don’t have the opportunity to set out on their own and do something they really want and love to do and also make plenty of money doing it.

  • I spend most of my time every day doing things I really like to do (trading, reading, researching, running screens & mentoring others). These are things I would do even if I were not paid to do them because it is what I like to do the most! Every day I plan my work on things I want to work on, not what others want me to work on. That level of professional autonomy is rare.

  • The sense of accomplishment when you achieve success in the markets independently is unparalleled. There’s nothing like finding and taking a good trade that produces lots of upside gain. This is especially true when that trade is unpopular and unforeseen by the herd.

  • Through my research I’ve been able to learn about many things, many industries, many countries, and many people. At this point, I can have a conversation with just about anyone no matter what they do for a living or where they live because I know something we can probably talk about based on what I’ve learned and know about others.

  • It is always interesting and I’m NEVER bored. It is so true there is no better drama on Earth than following and being a participant in the markets daily.

  • Trading independently offers level of personal freedom that isn’t present in most jobs. If I want a day off to play golf, help a friend, visit with family, I do it. I don’t have to ask anyone for permission! However, offering a paid members-only website places some severe limitations on that freedom!

    • So, now I’ve talked about the positives, what are the downsides to trading independently? (more…)

Five Market Scenarios

  
  Education
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  1. Bad Markets – A good pattern won’t bail you out of a bad market, so move to the sidelines when conflict and indecision take hold of the tape. Your long-term survival depends on effective trade management. The bottom line: don’t trade when you can’t measure your risk, and stand aside when you can’t find your edge.
  2. Bad Timing – It’s easy to be right but still lose money. Financial instruments are forced to negotiate a minefield of conflicting trends, each dependent on different time frames. Your positions need to align with the majority of these cycles in order to capture the profits visualized in your trade analysis.
  3. Bad Trades – There are a lot of stinkers out there, vying for your attention, so look for perfect convergence before risking capital on a questionable play, and then get out at the first sign of danger. It’s easy to go brain dead and step into a weak-handed position that makes absolutely no sense, whether it moves in your favor or not. The bottom line: it’s never too late to get out of a stupid trade.
  4. Bad Stops – Poor stops will shake you out of good positions. Stops do their best work when placed outside the market noise, while keeping risk to a minimum. Many traders believe professionals hit their stops because they have inside knowledge, but the truth is less mysterious. Most of us stick them in the same old places.
  5. Bad Action – Modern markets try to burn everyone before they launch definable trends. These shakeouts occur because most traders play popular strategies that have been deconstructed by market professionals. In a sense, the buy and sell signals found in TA books are turned against the naïve folks using them.

Ten Common Reasons Traders Lose Discipline And How To Avoid Them.

  
  Education
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There is very little that is new in the world of trading psychology but mastering the basics and mastering our mind is essential if we are to develop as highly efficient traders. The following are common discipline issues and suggestions to counteract them. Discipline is needed if you are to succeed as a Forex trader
1. Boredom and a need to trade for the “buzz”
Try to use dead time between trades for things like self improvement training i.e. read a book by your favorite personal development guru or learn to meditate/practice Yoga! Anything that keeps you in the right frame of mind for the job of trading. A positive mindset will have a positive impact on your bottom line over time.
2. Trading when tired.
One of the great things about trading is that we can close for business whenever we want. If you are not in the correct mindset for trading then shut the shop! There will be no customers banging on the door shouting for you to open up.
3. Not taking a loss well and revenge trading (more…)

Trading To Win

  
  Education
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One of the easiest mistakes any trader can make is not a ‘trading’ mistake at all. Rather, the mistake is complacency with his or her trading skills and knowledge. Unfortunately, trading is not like riding a bike – you can (and will) forget how. Obviously you’ll always know how to enter orders, but the efficiency and accuracy of your trading will diminish without constant renewal of your trading mindset.

The reason that most traders don’t undergo psychological self-development is a lack of time, and that’s understandable. However, a good book, DVD or Coaching Class is actually an investment in yourself, and ultimately an investment in your bottom line. Today as a primer, and a challenge, I’d like to review some self-development concepts that Ari Kiev explores in his book ‘Trading To Win, The Psychology Of Managing The Markets‘. This in no way is a substitute for his excellent book, but they are still useful ideas even in this abbreviated form. None of them are going to be new to you, but all of them will be valuable to you.

1. Plan the entire trade before you enter the trade. Have an entry strategy, and an exit point (both a winning exit point and a non-winning exit point). This will inherently force you to look at your risk/reward ratio. Write these entries and exits down in a journal.

2. Eliminate distractions. It’s difficult enough to find trading time at all if it’s not your regular job. If you’re a part-time trader who trades at work between meetings and phone calls, think about this: there are full-time professional traders who are concentrating on nothing other than taking your money. It’s not that they’re better or smarter than you – they just have the time to focus. If you must trade, set aside blocks of time to study or trade without distraction. Or it may be more feasible to do your trading on an end-of day basis, meaning you
place your orders and do your ‘homework’ the night before when you can
focus on it.

3. Choose a method or a small group of methods, and stick to them. Far too often we see a trader adopt a new indicator or signal only to see it backfire. Become a master of your favorite signals, rather than a slave to any and every signal. Understand that an indicator will fail sometimes. That’s ok. The sizable winning trades should more than offset the small losing trades initiated by an errant signal. This trading method is designed to eliminate the emotional bias of trading.

4. Choosing not to trade can also be a prudent choice. You’ll frequently hear ‘don’t fight the tape’. The same idea also applies to a flat market – you can’t make stocks do something they’re just not going to do. Wait for good entries into a developing trend rather than force a bad entry into an unclear trend. (more…)

The Difference Between Skill and Luck

  
  Education
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Basketball comes closest to chess in terms of being the game with the most skill involved. In comparison, hockey looks more like the lottery (and don’t even ask about trading). 

The bottom line is that the law of smaller numbers allows for more variance in individual player and game outcomes in a sport like baseball or hockey – in baseball the most skilled hitter only gets up to bat a few times per game and in hockey the star players aren’t on the ice much more than a period or two out of three. Less plate appearances or ice time can mean that it is more likely that a fluke of some sort, good or bad luck, can make an impact.  This is in contrast to basketball where there are only five players at any time and the stars typically play most of the game – more playing time means a bigger sample, by extension this means less variance.

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