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When Your Trading Plan is the Boss…

  
  Education
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1.  Creating a trading plan forces the trader to select a trading style. Will you be a day trader, position trader, or long term trend follower? You have to choose.

2.  You will have no choice but to do your homework, study charts, and read the books of other traders who made money in the markets, and discover what works.

3.  Entries will become crystal clear when you see them because you will know exactly what you are looking for.

4.  You will learn to look for what the market is offering, and not become overly obsessed with one stock, commodity, currency, or market direction.

5. You will know exactly when it is time to get out of a trade whether you are stopped out or use a trailing stop. (You may even have a price target).

6.  A trading plan should stop you from over trading because it will limit you in your entries by giving you specific parameters.

7.  You will easily be able to keep track of your trades and understand why they win or lose.

8.  It will enable you to focus like a laser on trading.

9.  A good trading plan will convert you from a gambler to a casino operator with the odds on your side.

10.  The only way to be a great trader is to have a great trading plan.
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28 Ways 'They' Rig The Market

  
  Education
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Via Nanex,

Rigged – Financial Word of the Year

What do people mean when they say the Stock Market is rigged? Below is a definition along with many examples that would lead reasonable people to conclude that the market is rigged.

DefinitionRig

 
rigged, past tense of rig
 
1. Used to describe situations where unfair advantages are given to one side of a conflict.
2. Describes the side of a conflict that holds an unfair advantage.

Use in a Sentence 

 

Despite costing taxpayers billions of dollars during the financial crisis, Wall Street decided to change nothing about the rigged market. In fact, Wall Street is known to have rigged the equity market, FX market, Libor, and the Commodities market since the financial crisis.

(more…)

Market losses are simply the cost of doing business

  
  Education
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When I put on a trade, all I expect is that something will happen. Regardless of how good I think my edge is, I expect nothing more than for the market to move or to express itself in some way. However, there are some things that I do know for sure. I know that based on the markets past behavior, the odds of it moving in the direction of my trade are good or acceptable, at least in relationship to how much I am willing to spend to find out if it does. I also know before getting into a trade how much I am willing to let the market move against my position. There is always a point at which the odds of success are greatly diminished in relation to the profit potential. At that point, it’s not worth spending any more money to find out if the trade is going to work. If the market reaches that point, I know without any doubt, hesitation, or internal conflict that I will exit the trade.

The loss doesn’t create any emotional damage, because I don’t interpret the experience negatively. To me, losses are simply the cost of doing business or the amount of money I need to spend to make myself available for the winning trades. If, on the other hand, the trade turns out to be a winner, in most cases I know for sure at what point I am going to take my profits. (If I don’t know for sure, I certainly have a very good idea.) The best traders are in the “now moment” because there’s no stress. There’s no stress because there’s nothing at risk other than the amount of money they are willing to spend on a trade. They are not trying to be right or trying to avoid being wrong; neither are they trying to prove anything. If and when the market tells them that their edges aren’t working or that it’s time to take profits, their minds do nothing to block this information. They completely accept what the market is offering them, and they wait for the next edge.

Source: “Trading in the zone”

Important Questions That Every Trader Must Answer

  
  Education
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  • What can I win?
  • What can I lose?
  • What do I know?
  • What don’t I know?
  • Why am I making a given decision?
  • Who am I? Am I, for example, the guy who needs to make $100,000 this year or my family leaves me?
  • Where am I in relation to my goals?
  • Where do I need to be to achieve my goals?
  • When will I start? Now or tomorrow or next year. Knowing when affects the next step I take.

One of the great things about the market is that it doesn’t give a damn about you. The market doesn’t care what color you are or if you are short or tall or if you live or die. The market doesn’t care whether you play or leave.

OPTIMISTIC & PESSIMISM in Trading

  
  Education
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PESSIMISM 

Pessimism is defined as a tendency to stress the negative or unfavorable or take the gloomiest possible view.  Obviously, the successful trader is not pessimistic. If so, then he would never trade in the first place or if he did, he would only trade short; a “permabear” if you will.  A purely pessimistic trader would also doubt his edge, doubt any market direction, only trade after the move has happened, cut his winners short while allowing his losers to run, overtrade, under invest, etc etc.  In other words, a purely pessimistic trader would break all the rules.

OPTIMISM

Optimism is defined as the inclination to anticipate the best possible outcome while believing that most situations work out in the end for the best.  The unsuccessful trader, especially the beginning trader, is optimistic about getting rich in the stock market.  No matter what every trade will eventually make money he reasons.  The optimistic trader also loads up on a “sure thing”, seeks to justify every trade via confirmation bias, adds to losers, brags about winners while hiding losers, refuses to develop as a trader, etc etc. Just as with pessimism, the optimistic trader breaks the rules.

Understanding what you do and do not know

  
  Education
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There’s a lot of things I don’t know:
1. How many people will be unemployed next month.
2. How much cash Apple had as of yesterday.
3. Whether Don Draper dies at the end of Mad Men.
4. Which sector will be leading next week.
5. How many tweets I’ll read today with the words “honey badger.”
6. Which will be the next big M&A deal.
7. Whether my last trade was impacted by high frequency traders.

But there are some things I do know:
1. The S&P is making higher highs as the up trend is still intact.
2. Stock participation, while still weak by some measures, has improved over the last couple of weeks.
3. Current seasonality and presidential cycle is bearish right now but has yet to be deemed important by the market.
4. Defensive sectors have been leading all year.
5. There’s someone in New Jersey getting a spray tan right now.
6. Traders still appear to be showing a preference for U.S. stocks over international.
7. There’s a high degree of complacency in the market right now but it won’t matter until it does.

Understanding and recognizing what you do know and what you don’t know can provide a great deal of clarity. So what do you know?

10 Ways to Become a More Consistent Trader

  
  Education
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Number-101) Visualize yourself trading consistently.
2) Set realistic goals for your trading. 
3) Do not spread yourself too thin.
4) Prepare consistently.
5) Keep a live trading journal. 
6) Develop clear exit rules for your trades.
7) Always know how much you are willing to lose on a trade.
8) Develop a trading PlayBook of your best setups and trade those plays. 
9) Keep trading statistics of what you trade well. Verify your best trade setups with statistics. 
10) Wait for a fat pitch (trade). 

6 One Liners For Traders

  
  Education
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  • Its psychologically comforting to construct a system that looks good in the past
  • Learn from your losses
  • Emotions do nothing for your trading
  • It’s just another trade out of the next 1000
  • System->Risk Management/Volatility Control->Trading Psychology
  • “You have to enjoy trading, because if trading is a source of negative emotions, you have probably already lost the game, even if you make money.”

5 BASIC STEPS TO BECOMING A SUCCESSFUL TRADER

  
  Education
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There are five basic steps to becoming a successful trader:

First, focus on trading vehicles, strategies, and time horizons that suit your personality.

Second, identify nonrandom price behavior, while recognizing that markets are random most of the time.

Third, absolutely convince yourself that what you have found is statistically valid.

Fourth, set up trading rules.

Fifth, follow the rules.

In a nutshell, it all comes down to: Do your own thing (independence); and do the right thing (discipline). 

10 Signs Your Trading Is Getting Better

  
  Education
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  1. Your losses are getting smaller and smaller.

  2. Your losing streaks are not as long as they use to be.
  3. Your draw downs are not as big as they use to be.
  4. You are very picky about entries and only take the ones with the best probabilities of success with good risk/reward skewed in your favor.
  5. You have become much more patient with holding winning trades and very impatient with holding losing trades. (more…)
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