1. You shall back test and develop quantify robust trend trading systems that are profitable over the long term.
2. You shall identify and follow the long term trend in the markets you trade, and have no guru that you bow down to.
3. You shall not try to predict the future, that is a fool’s game, but follow the current price trend.
4. You shall remember the stop loss to keep your capital safe from destruction; you shall know your exit level before your entry is taken.
5. Follow your trend following system all the days that you are trading, so that through discipline you will be profitable.
6. You shall not give up on your trading system because of a draw down.
7. You shall not change a winning system because it has had a few losing trades.
8. You shall trade with the principles that have proven to work for successful traders. Manage risk, go with the trend, and diversify so your days in the market will be long.
9. You shall keep the faith in your trend following system even in range bound markets; a trend will begin anew eventually.
10. You shall not covet fundamentalist’s valuations, Blue channels talking heads, newsletter predictions, Holy Grails, or the false claims of any of the black box systems.
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rssOur 10 Trading Resolutions for 2015
- We will only take the very best trade set ups in 2015 discarding the average and mediocre ones.We want each trade to have an excellent risk/reward ratio.
- We will position size based on the worse case scenario for volatility and range expansion not what I think is a safe bet.
- We will use more option contracts when their volume permits in my trades to limit my risk to the size of the option contract instead of using so much capital to trade equities.
- We will limit my total risk exposure to only two trades on at a time.
- We will focus on limiting my losses and drawdowns in 2015 to in return maximize my gains.
- We will be looking to structure trades for a more consistent monthly return by trading stock indexes primarily.
- We will focus on understanding the emotions that arise during my trades, each trade will be made with a clean slate focused exclusively on current price action.
- We will be in absolutely no hurry to place trades. I will be waiting for trades to come to me.
- We will flow with the patterns and price action of the markets and restrain from bias and options. Signals will be my guide.
- We will double my efforts in backtests and chart pattern studies of historical charts.
ATMs To Generate Receipts In Hindi-Hindi Ke Achhe Din
ATMs in Hindi-speaking states will now generate receipts in Hindi, along with English, as the Home Ministry has asked the Reserve Bank of India to direct banks to procure only those ATMs that can print receipts in Hindi.
The ministry has also instructed two major foreign suppliers of ATMs to upgrade the software in the existing ATMs to ensure printouts in Hindi.
The Department of Financial Services has written to the Home Ministry, saying the matter is under consideration. “We will be perusing this matter… the issue is that the printout of the receipt (from the ATM) should come in the language in which the transaction is being made,” a Home Ministry spokesperson said.
At present, only ATMs procured by the Union Bank of India from Diebold firm have the facility to print in Hindi.
Traders-Never Do These 5 Things
There are things that we do as traders that set us back in our journey to success and lose us money. There are other things that traders do that just destroy themselves. Many of the following things are done daily by the 90% of traders that lose money in the market consistently. If we want to be a longer term winner trading the markets we have to take these lessons to heart and over come our natural instincts by doing the opposite.
- Instead 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.
- 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.
- 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.
- 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.
- 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.
The Top 5%
The largest academic study ever conducted on day trading shows that most traders lose money …. even during a bull market. Only 5% of active traders were able to earn significant profits two years in a row.
Are 95% of traders dumb? Hardly. As a trading coach for more than a decade, I believe traders are among the intelligent and motivated individuals.
Even so, most traders get fooled by news or price action and behave in ways that limit or erase profits.
Is this self-sabotage? Fear of success? A hidden wish to fail? I don’t think so. The struggles of most traders arise for a different reason: the trading environment turns our own reward-seeking and self-protective instincts against us.
Trading for a living is harder than it seems at first. You were probably not mentally or emotionally prepared for the randomness in the market you trade.
There is a saying that goes: “Doing the same thing over and over and expecting different results is the definition of insanity.” In trading, however, it’s the very definition of normal. Let me explain.
We constantly get tricked and trapped due to random price action. Our job as traders is to behave consistently and predictably in the face of very different results than we expect. This is a skill few have practiced in daily life, where results are more directly linked to action.
1929 Wisdom
From John Hussman:
Galbraith reminds us that the 1929 market crash did not have observable catalysts. Rather, his description is very much in line with the view that the market crashed first, and the underlying economic strains emerged later: “the crash did not come – as some have suggested – because the market suddenly became aware that a serious depression was in the offing. A depression, serious or otherwise, could not be foreseen when the market fell. There is still the possibility that the downturn in the indexes frightened the speculators, led them to unload their stocks, and so punctured a bubble that had in any case to be punctured one day. This is more plausible. “Some people who were watching the indexes may have been persuaded by this intelligence to sell, and others may have been encouraged to follow. This is not very important, for it is in the nature of a speculative boom that almost anything can collapse it. Any serious shock to confidence can cause sales by those speculators who have always hoped to get out before the final collapse, but after all possible gains from rising prices have been reaped. Their pessimism will infect those simpler souls who had thought the market might go up forever but who now will change their minds and sell. Soon there will be margin calls, and still others will be forced to sell. So the bubble breaks.”
HOW TO LOSE MONEY IN THE STOCK MARKET
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
10 points -Risk Managment
1. Never enter a trade before you know where you will exit if proven wrong.
2. First find the right stop loss level that will show you that you’re wrong about a trade then set your positions size based on that price level.
3. Focus like a laser on how much capital can be lost on any trade first before you enter not on how much profit you could make.
4. Structure your trades through position sizing and stop losses so you never lose more than 1% of your trading capital on one losing trade.
5. Never expose your trading account to more than 5% total risk at any one time.
6. Understand the nature of volatility and adjust your position size for the increased risk with volatility spikes.
7. Never, ever, ever, add to a losing trade. Eventually that will destroy your trading account when you eventually fight the wrong trend.
8. All your trades should end in one of four ways: a small win, a big win, a small loss, or break even, but never a big loss. If you can get rid of big losses you have a great chance of eventually trading success.
9. Be incredibly stubborn in your risk management rules don’t give up an inch. Defense wins championships in sports and profits in trading.
10. Most of the time trailing stops are more profitable than profit targets. We need the big wins to pay for the losing trades. Trends tend to go farther than anyone anticipates.
James Montier's 7 Immutable Laws Of Investing
1. Always insist on a margin of safety
2. This time is never different
3. Be patient and wait for the fat pitch
4. Be contrarian
5. Risk is the permanent loss of capital, never a number
6. Be leery of leverage
7. Never invest in something you don’t understand
Trader Types and Personalities
- Scalpers
- High energy, short attention spans.
- Usually former athletes, tennis and hockey players make the best traders.
- Able to play both offense and defense simultaneously, and able to think a few steps ahead of the game.
- Spreaders / Option Traders
- Quick and flexible thinkers, able to look at numbers and figure risk and value instantaneously.
- Not in the market to take risk, methodically search for mathematical anomalies and lock in profits immediately.
- Position Traders
- Energy level almost nonexistent.
- Put on passive positions, ride the winners, cut losers.
- As a position trader, your brains are working all the time, and you keep looking for an informational edge that might drive the market one way or the other.