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Discipline

  
  Education
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Dramatic and emotional trading experiences tend to be negative. Pride is a great banana peel, as are hope, fear, and greed. My biggest slip-ups occurred shortly after I got emotionally involved with positions.”

Ed Seykota

I don’t buy what I like, I buy what I can sell later at higher price.

Unless you are Buffet and capable to accumulate enough shares to impact management, your shares are just pieces of paper and you should treat them like such.

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It’s the greed factor that corrupts the way people think in this business. Unfortunately, I needed a 6 fig loss to remind me how stupid greed can make a person. Needless to say, from here on, or until I recover some of these losses, trading will be disciplined.

A Short Note

  
Analysis, Education
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“Jack Bogle likes “cheap” index funds. I don’t know why as they are risky and expensive considering the heavy losses, limited “work” involved and lack of skill. If a firm “manages” $1 trillion and charges “only” 20bp, that is $2 billion PROFIT every year even when returns are negative and retirement plans are wrecked! Lose investors’ hard-earned money? It’s the market’s fault not theirs, right? Get someone to make a list of stocks for a benchmark, buy them, and then endure many years below the high water mark! Who would invest in such a dangerous product as an index fund? No-one with fiduciary responsibility.”

To Trade or Not to Trade-The Biggest Question For Traders

  
  Education
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In trading activity alone does not make money, the right activity at the right time is what makes money. Many times the right thing, is to do nothing.

In your actual trading you have to do four things very well to make money.

You have to know when to get in.

Only enter trades that have the highest probability of success and the best risk/reward ratio. Buy the best monster stocks during up trends. Short the fallen leaders when the game changes and they are under the 50 day. Buy the monster stocks at the gift of the 200 day moving average. Short down trending junk stocks. Go where the trends are.

You have to know when to get out. (more…)

7 Basic Truths of Trading

  
  Education
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  1. Well-defined objectives. Are you trying to beat a certain return hurdle, like inflation or an index? Are you trying to generate 5% or 50% returns per year? You have to understand what you are trying to do and then bend your investment process around it. The other way around isn’t possible.
  2. An understanding of the markets that you will be operating in. Stick to what you know. Narrow your focus so as to make the most of your efforts. You need to know everything about the markets where you’re taking positions.
  3.  A clearly defined methodology for getting into and out of positions. This includes which indicators, news items, fundamental data points you look at and when you take action. This is your checklist—you should have it so well defined that you can be sure of the exact steps along the way. You need a game plan so that you stay consistent and disciplined and don’t get flustered under pressure. It should become automatic and engrained.
  4. This methodology must utilize your strengths and skills and suit your personality. A cerebral, research-driven economist should put that to work, instead of becoming a swing trader based on technical analysis. An adrenaline-fueled athlete should be an intraday trader, not be a long-term trend follower. Remember, every successful trader has a methodology of their own which plays to their strengths and their personality.
  5. This methodology has a positive statistical expectancy– the gains from winners more than outweigh the losses on losing trades. Use your own statistics and the Kelly Formula for a rough guide as to whether or not you have positive statistical expectancy.  On average you want to expect to win on an individual trade, meaning that your expected wins outweigh your prospective losses. That doesn’t guarantee that you will actually profit on each trade, it just means that over a sufficiently large quantity of trades, you will come out ahead.
  6. A well-stated risk management policy for when you get out of losing positions and how you manage risk overall. Cut losers. Let winners ride.  Many people have tried to overthink this rule and ended up losing as a result. Furthermore, you never want to put yourself in a position where you can blow up, so you need to be thinking how you can avoid taking excessive risk in the first place. Just remember Warren Buffett’s Two Rules:A framework for sizing positions. This is related to risk management— obviously, you don’t want to take a position that’s over a certain size, ever. But you may also want to size positions according to certain specific critieria, such as your conviction in the position or volatility in the market. Or they could all be the same size. Nonetheless, your methodology has to be able to address it and come up with a well-reasoned answer.
    1. Never Lose Money.
    2. Never Forget Rule #1.

Trading Wisdom-Different Walks of Life

  
  Education
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We come to the market from different walks of life and bring with us the mental baggage of our upbringing and prior experiences. Most of us find that when we act in the market the way we do in our everyday life, we lose money.

You success or failure in the market depends on your thoughts and feelings. It depends on your attitudes towards gain and risk, fear and greed, and on how you handle the excitement of trading and risk.

Most of all, your success or failure depends on your ability to use your intellect rather than act out your emotions. A trader who feels overjoyed when he wins and depressed when he loses cannot accumulate equity because he is controlled by his emotions. If you let the market make you feel high or low, you will lose money. (more…)

Emotional Resilience & Creativity -Qualities of Successful Traders

  
  Education
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Emotional Resilience – The very successful traders have a great attitude about losing. They know it’s going to happen. They don’t take it personally. If anything, they try to find learning experiences from losses. Elsewhere I have written about how good traders view a losing trade as “paying for information”. A trade with an edge that doesn’t go their way either tells them something important about the market, or it tells them something about their execution. Either way, it’s a potential learning experience. Resilience means that the excellent traders trade well out of a hole. They can be down money for day, week, or quarter and continue to make the same good trades they would normally make. 
Creativity – We normally think of creativity as a trait that belongs to artists, but it also is quite noticeable among traders who have been successful over many years. They find edges in the most unlikely places. They look at interesting relationships within the market they’re trading, and they find unique relationships from one market to another. One trader very recently told me of a strategy that exploited the way one market was priced related to a similar market at certain time periods. I would have never thought of that idea in a million years. He was making consistent money from the concept.

20 Principles That Make Market Wizards Successful

  
  Education
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  • They have the resilience to come back from early losses and account blow ups.
  • They focus on what really matters in trading success.
  • They have developed a trading method that fits their own personality.
  • They trade with an edge.
  • The harder they work at trading the luckier they get.
  • They do the homework to develop a methodology through researching ideas.
  • The principles they use in their trading models are simple.
  • They have mental and emotional control is key while winning or losing.
  • They manage the risk to avoid failure and pain.
  • They have the discipline to follow their trading plan.
  • Market wizards have confidence and independence in themselves as traders
  • They are patient with winning trades and impatient with losing trades.
  • Emotions are dangerous masters to the trader; they know how to manage their own emotions.
  • Market wizards evolve as a trader to avoid eventually failing in a method that has lost its edge over time.
  • It is not the news but how the market reacts to that news is what they watch for.
  • The fully understand the right way to position size for their goals of returns and drawdowns based on their risk/reward and winning percentage.
  • Market wizards understand comfortable trades are usually losing trades while the more uncomfortable trades are usually the winners.
  • They are good losers. Cutting losses when proven wrong and even reversing the direction of their trades when the price action dictates it.
  • The best traders are always learning through their own mistakes.
  • Passion for trading was the fuel for their eventual success.

Managing Emotions

  
  Education
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The hardest thing about trading is not the math, the method, or picking the right stock, currency, commodity, or futures contract.  The most difficult thing about trading is dealing with the emotions that arise with trading itself. From the stress of actually entering a trade, to the fear of losing the paper profits that you are holding in a winning trade, and most importantly dealing with the emotional lows of a string of losses or the highs of many consecutive wins the bottom line is how you deal with those emotions will determine your long term success in trading more than any other one thing.

To manage your emotions first of all you must trade a robust trading methodology that is profitable and you have to know that it will be a winner in the long term if you stay disciplined. You also must trade your method with proper position sizing and risk management to keep the volume down on your emotions and ego. If you have that the next step is the management of your emotions.

You must understand that every trade is not going to be a winner and not blame yourself for equity drawdowns if you are trading with discipline.

Do not bet your entire account on any one trade, in fact risking only 1% of your total capital on any one trade is the best thing you can do for your stress levels and to bring your risk of ruin to virtually zero. (more…)

The best pieces of trading advice

  
  Education
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Here is some great trading advice I have gathered around the web. These were either answers from real traders to the question “What is the best trading advice you ever received?” Or it was advice given be successful traders when asked “What one piece of advice would you give to traders?”  There are some gems in here.

Don’t treat trades like their actual cash, separate the thought of money lost and focus on the next gain.

Always use stop losses.

Don’t trade with funds you can’t afford to lose.

Don’t be obsessed by indicators .

Always, always,  put in a trailing stop and take your profit.

Decide what kind of trader you wish to be. Do you want to be a day-trader, a short term trader, or a longer term trader?

The Holy Grail of investing/trading is risk management. If you don’t have an exit strategy or proper position sizing, you are gambling. I recommend all traders spend 90% of their time perfecting risk management, and success will come with time. -Damien Hoffman

Cut losses, cut losses, cut losses. If I followed my own advice, my email would be unlisted or a Hawaii address. -Howard Lindzon (more…)

In Trading If You are Losing Money Then You Are Doing….

  
  Education
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  1. You consistently trade huge position sizes in volatile trading vehicles.
  2. You enter a trade with no exit strategy.
  3. You care more about being right than making money.
  4. Your emotions fluctuate wildly with your trading capital equity curve.
  5. You are trading your opinions instead of a robust trading method.
  6. Your ego is tied to your trading results. (more…)
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