Archives of “business” tag

rss

Strategy

  
  Education
#  #  #  #  #  #  #  #  #
  • Adaptable- a strategy must be able to adapt to a changing market.  It must also be able to adapt to your internal changes.  If nothing changes there would be limited chances for profit. Every trader must root for changes but it does not matter if you cannot adapt.
  • Definable- there are times when you need to override your strategy but that happens for less frequently than we think.  A majority of your trades you should have a definite reason for a action.
  • Quickly explainable– if you can’t explain your strategy or reason for a trade in a minute or less it is probably too complicated.  Until you fully understand your strategy a majority of your “indicators” are just putting a band-aid over a gaping wound that is your lack of understanding.
  • Personal- You are an input into the way you execute.  You cannot be something you are not.  Do not get me wrong there are things about yourself that you need to bend to trading but strategy should not be that one.  It is hard to fake being tall and expensive to be a type of trader you are not.
I am not saying a trading plan will make you a successful trader, there are other factors.  It is a necessary first step.  You need a trading plan to consistently and confidently execute.  Your trading rules should answer whatever questions the market asks you.  Originally I made the mistake of planning out my trades, for example.  If the market does x I am going to do y.  Well when I was creating that plan that was what was working.  When I started to apply that plan the market had changed. That is why many probably scrap their plans or do not work on them in the first place.

You are either a system trader or a discretionary trader.  Each has it’s own equity curve and set of responsibilities. Below are some videos that you will find helpful.

 

Cutting losses

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

cuttingloss

There is one big difference between traders, who make money and traders who don’t. It is called risk management. Even if you blindly pick your stocks, in the long-term you will make money as long as you cut your losses short. Add to risk management a proper equity selection model and then you are in top 5% in the world. The 5% that actually make money, consistently. This is the biggest secret of successful traders – cutting losses short. It saves capital and it saves your piece of mind.

If you browse on the internet, you will find thousands of articles that preach that losses should be cut short. It is well known fact and yet you’ll be surprised how few people actually utilize it, even those who write about it. Words are free. You can say whatever you want. Many people don’t practice what they preach and this is why the biggest edge someone could have is called discipline.

There are two types of traders: the ones that cut losses short and the ones that lose everything and go out of business. If you can’t define your risk in advance and most importantly if you can’t accept it, you should not be trading at all. Reading about cutting losses short will never be enough. It is human to believe that you are different and that you know better and that it will never happen to you. You have to experience it to realize it. It is part of the learning curve. I knew about this rule long before I committed serious money to trading and yet I didn’t practice it until I had my portion of outsized losses. Today, the thought of how and where I’ll exit a trade, is the most important.

I know that there are many people who preach that they don’t use stop losses and yet they are successful. Well, if they are successful doing that, then they are not really traders. They are investors and they limit their risk by hedging, which is a whole new chapter.

Book Review: The Psychology of the Stock Market

  
  Education
#  #  #  #  #  #

In the great game that is trading, the game never really changes.

New technology is introduced; new methodologies are dreamed up; new investment fads come and go. But the essentials of trading are the same now as they were generations ago.

There is a class of books that brings home this timelessness. Four of the best are The Money Game by Adam Smith; Devil Take the Hindmost by Edwin Chancellor; Extraordinary Popular Delusions and the Madness of Crowds by Charles MacKay; and of courseReminiscences of a Stock Operator by Edwin Lefevre (with the guidance of Jesse Livermore).

The oldest of the above is MacKay’s book, published in 1841. The Psychology of the Stock Market, by G.C. Selden, is another addition to the “timeless classics” list.

Though published in 1912, Selden’s book could have been published yesterday. This makes complete sense, as the main topic — human psychology — has not changed at all in the past century. (more…)

Trading Psychology Quotes

  
  Education
#  #  #  #  #  #  #  #

Anyone who claims to be intrigued by the “intellectual challenge of the markets” is not a trader. The markets are as intellectually challenging as a fistfight. Ultimately, trading is an exercise in self-mastery and endurance.

The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading.

Just remember, without discipline, a clear strategy, and a concise plan, the speculator will fall into all the emotional pitfalls of the market – jump from one stock to another, hold a losing position too long, and cut out of a winner too soon, for no reason other than fear of losing profit. Greed, Fear, Impatience, Ignorance, and Hope will all fight for mental dominance over the speculator. Then, after a few failures and catastrophes the speculator may become demoralised, depressed, despondent, and abandon the market and the chance to make a fortune from what the market has to offer. (more…)

5 Characteristics of less Successful Traders

  
  Education
#  #  #  #  #  #  #  #  #

1) The less successful traders are anticipating market movement and trading accordingly. The highly successful traders are identifying asset class mispricings and trading off those.

2) The less successful traders are trading particular instruments and pretty much stick to those. The highly successful traders recognize that any combination of trading instruments can be considered an asset class and appropriately priced (and gauged for mispricing).

3) The less successful traders think of their market as *the* market. The highly successful traders focus on interrelationships among markets that cut across nationalities and asset classes.
4) The highly successful traders place just as much emphasis on understanding markets as predicting them. The less successful traders don’t ask “why” questions.

5) The less successful traders are convinced they have proprietary information of value that they must not disclose to anyone. The highly successful traders use their proprietary information to selectively share with other highly successful participants, thereby gaining a large informational edge.

If I had to use one phrase to capture the essence of the highly successful traders, it would be analytical creativity. These traders are creative in their thinking about markets and rigorous in their pursuit of this creativity.

Fear-Greed-logic

  
  Education
#  #  #  #  #

Fear – Distress Over Losses

Psychologically, our minds process losses as more significant than a gain of the same amount. In trading, our fear of being wrong will often be used as a reason for staying in a losing position which leaves our accounts vulnerable to larger losses.

The most important part of trading is risk management. If you have a consistent and objective approach to risk management it will allow you cut your losses fast, and hold on to your profits!

Greed – Batting For Home-Runs

Coulda, woulda, shoulda. Those are 3 words that you should eliminate from your trading vocabulary, as they are most often associated with home run trades you missed (hindsight is always 20/20). There are thousands of stocks to choose from – don’t get distracted by potential home run trades. Instead, focus on being disciplined and consistently extracting profits from stocks. No one gets all the winners, focus on your process.

Logic – Remain Disciplined (more…)

11 Thoughts on Trading Stress and Emotion

  
  Education
#  #  #  #  #  #  #

 *Everyone has a stop-loss level: For some, it’s a price; for others, it’s a pain threshold.11RULES
* It’s not stress and emotion that get in the way of trading; it’s the stress and emotion that results when trading becomes personal: about you, rather than about supply and demand.
* The measure of a trader is how hard he or she works when markets are closed.
* Much bad trading is hormonal: too much testosterone, too little.
* When traders don’t track their results, it’s because they don’t want to know them.
* The best traders have a passion for markets; the worst have a passion for trading. (more…)

10 points To Become Great Trader

  
  Education
#  #  #  #  #  #  #  #  #  #
  1. Cutting losses short is an edge. Only having small losing trades will save you from the big losses.
  2. Letting your winning trade run as far as it will go is a huge advantage over most traders. Having some huge winning trades will help your overall profitability.
  3. Eliminating the risk of ruin through limiting the total amount of capital you will lose on any one trade will keep your account intact and is an edge over those traders that eventually blow up their trading account.
  4. Proper position sizing will allow you to keep your correct decision making process in place by limiting the emotional impact of any one trade. This is an edge over many others that panic during a big trade and make an emotional decision.
  5. Having the discipline to consistently follow a predetermined written trading plan is an edge over many others that make decisions based on opinions and feelings.
  6. Having the confidence and faith in your trading method to follow it through losing periods is a huge edge. Most drift to new methods right when their last one finally starts working. (more…)

10 Unsuccessful Trading Behaviors

  
  Education
#  #  #  #  #  #  #  #
  1. Refusing to define a loss.
  2. Not liquidating a losing trade, even after you have acknowledged the trade’s potential is greatly diminished.
  3. Getting locked into a specific opinion or belief about market direction.  I.E. “I’m right, the market is wrong.”
  4. Focusing on price and the money
  5. Revenge-trading to get back at the market from what it took from you.
  6. Not reversing your position even when you clearly sense a change in market direction
  7. Not following the rules of the trading system.
  8. Planning for a move or feeling one building, then not trading it.
  9. Not acting on your instincts or intuition
  10. Establishing a consistent patter of trading success over a period of time, and then giving your winning back to the market in one or two trades.

Twenty Rules For Traders

  
  Education
#  #  #  #  #  #  #  #  #
  • 1. Forget the news, remember the chart. You’re not smart enough to know how news will affect price. The chart already knows the news is coming.
  • 2. Buy the first pullback from a new high. Sell the first pullback from a new low. There’s always a crowd that missed the first boat.
  • 3. Buy at support, sell at resistance. Everyone sees the same thing and they’re all just waiting to jump in the pool.
  • 4. Short rallies not selloffs. When markets drop, shorts finally turn a profit and get ready to cover.
  • 5. Don’t buy up into a major moving average or sell down into one. See #3.
  • 6. Don’t chase momentum if you can’t find the exit. Assume the market will reverse the minute you get in. If it’s a long way to the door, you’re in big trouble.
  • 7. Exhaustion gaps get filled. Breakaway and continuation gaps don’t. The old traders’ wisdom is a lie. Trade in the direction of gap support whenever you can.
  • 8. Trends test the point of last support/resistance. Enter here even if it hurts.
  • 9. Trade with the TICK not against it. Don’t be a hero. Go with the money flow.
  • 10. If you have to look, it isn’t there. Forget your college degree and trust your instincts.
  • 11. Sell the second high, buy the second low. After sharp pullbacks, the first test of any high or low always runs into resistance. Look for the break on the third or fourth try. (more…)
Go to top