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Why Traders Keep Losing Money

  
  Education
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“Imagine a mutual fund run by several money managers. Some of these managers are relatively astute and quite attentive to market data and patterns. Others tend to take their eye off the market ball and consistently lose money. The overall performance of the fund, averaging the returns of these managers, is mediocre, as the losses of the poorly performing managers cancel out the gains of the astute ones.
 
What would you do if you were the chief executive officer (CEO) of this fund?
 
Easy, you say. You would identify the successful managers and place all the money in their hands. You would either fire the unsuccessful ones or ensure that they couldn’t make final decisions about the investment of funds.
 
Now imagine that, within yourself, there are actually several different traders, each of whom takes control of your account for a period of time each day. One or two of these traders are relatively astute; others are downright destructive. Your overall performance suffers as a result. As Chief Executive Observer of your own account, what should you do?
 
…If you harbor multiple traders within you—some careful, some impulsive, some successful, some losing—your first task is to avoid labeling these traders and instead take an Observing stance. You need to figure out why these lousy traders within you are trading! They evidently are not trading simply for the monetary reward; if that were the case, they would never overrule the successful traders within you. The chances are good that they are trading to achieve something other than a good return on equity: a sense of excitement, a feeling of self-esteem, or an imposed self-image.
 
You do not fail at trading because you are masochistic or because you love failure or feel you deserve defeat. Rather, you sabotage your trading because you have different facets to your personality, each with its own needs, each clamoring for access to the trading account. Your trading suffers because you are not always trading with the equity stake firmly in mind. In a strange way, a losing trade can be a success to that part of you that is, for example, looking for excitement—not profits—from the markets.”

One Liner For Traders

  
  Education
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Trade the market, not the money
• Always trade value, never trade price
• The answer to the question, “What’s the trend?” is the question, “What’s your timeframe?”
• Never allow a statistically significant unrealized gain to turn into a statistically significant realized loss (ATR)
• Don’t tug at green shoots
• When there’s nothing to do, do nothing
• Stop adjustments can only be used to reduce risk, not increase it.
• There are only two kinds of losses: big losses and small losses, given these choices – always choose small losses.
• Risk no more than 1% of AUM on any single position
• Never risk less than 1% of asset under management on any single position (as long as your models are performing well)
• Don’t Anticipate, Just Participate
• Buy the strongest, sell the weakest (RSI)
• Sideways markets eventually resolve themselves into trending markets and vice versa
• Stagger entries & exits – Regret Minimization techniques
• Look for low risk, high reward, high probability setups
• Correlations are for defense, not offense
• Drawdowns are for underleveraged trading and research
• Develop systems based on the kinds of “pain” (weaknesses) endured when they aren’t working or you’ll abandon them during drawdowns.
• Be disciplined in risk management & flexible in perceiving market behavior
• It’s not about the best RAROR, it’s about the best RAROR for your trading personality

Ways to Increase Willpower For Traders

  
  Education
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  • Plan in advance and operate on the basis of habit
    • You need to have a trading plan that covers all permutations that the market can possibly throw at you. You need less willpower to follow a clearly defined plan than to try adhering to broad principles in reaction to the market.
    • Keep practicing applying your trading plan, so that you can make following the rules a habit. It is like driving, the more you do the less effort it requires progressively.
  • Motivate yourself, remind yourself of the importance of what you are doing
    • You need to remind yourself of the importance of achieving good trading results, of the importance of not throwing your hard-earned money away.
    • Use visualization techniques to picture situations where you follow your trading plan successfully. Thinking that you have lots of willpower actually makes it so.
    • Think of some trader you admire that have lots of self-control and unfazed by market movements (e.g. Ed Seykota)
  • Exercise your willpower
    • Willpower is like a muscle, the more you exert your willpower in whatever tasks, the greater your capacity for self-control.
    • You can get yourself to follow rules such as sitting up straight, opening doors with your left hand, etc.
  • Have sufficient food
    • Exercising willpower uses up glucose. Being hungry means you don’t have the energy to exert willpower.
  • Have sufficient rest
    • You can replenish your ‘willpower’ stores through sleep. Get sufficient sleep every day.

11 Points For Traders

  
  Education
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  1. At the very top tier, the investors he’s interviewed don’t want to manage clients’ money and deal with client predilections, dramas and desires.  They have clients only until they can afford not to.
  2. The best traders are focused on varying bet sizes based on their calculations and the individual equities’ probability of success.  They bet more on positions that have a strong wind at their backs.
  3. If there is bad news or adverse results with respect to their equity and if the market shakes it off and barely moves down, these managers will add to their positions because they know that the market is telling them something valuable.
  4. In the long run, it’s not the genius of investment ideas that produce consistent profits.  Trade implementation and execution is more important and will usually trump big ideas.
  5. All your trades fall into one of 4 baskets.  Keep track and make the necessary adjustments.  (a) Winning trades where you properly followed your disciplines – the best choice.  (b) Winning trades where you did not follow your disciplines.   (c) Losing trades where you followed your disciplines – okay.  (d) Losing trades where you did not follow your disciplines.

(more…)

5 Steps To Becoming a Long-Term Success in Trading

  
Analysis, Education
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1. Make Rational, Not Emotional, Decisions — Do you have a plan to enter and exit your trades? Or do you just wing it? If you have a plan, write down your rules, and make sure that you trade your plan. If you don’t, or can’t, follow your rules, hire someone who can.
2. Respect Risk — Stock Market  is not going anywhere. If you risk too much, your emotions will take over, and you will likely go broke. Always know where you are going to exit before you enter and how much you are going to risk if wrong.,
3. Don’t Judge Your Success One Trade at a Time — Losing money is part of trading. It happens to everyone. Once you learn to expect that will happen, you can plan for it and get past normal pitfalls, such as giving up on your system after a few losing trades.
4. Think like a winner — Remember that winning starts within. How you think is everything.,
5. Ask For Help — Making money on Wall Street is simple, but it is definitely not easy. Don’t let your ego get in your way of making money. Most people have a hard time asking for help. That’s just one reason why most people lose money on Stock Market . You don’t have to go it alone. Find someone you trust and are comfortable with, and don’t be afraid to ask for help.

10 Enemies of Trader

  
  Education
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  1. Stubbornness: Not cutting losses short and sticking with a trading method that does not work.
  2. Arrogance: Believing that you are far smarter than the majority of market participants before their is any evidence that you really are is very dangerous.
  3. Opinions: The only opinion a good trader should hold is what they believe the price action is telling them after they have done the research of historical prices. Opinions about the future are useless unless you posses a fully functional crystal ball or time machine.Trading the price action in the present moment is what leads to success and profits.
  4. Bias: Getting stuck in bull mode or bear mode is dangerous and can lead to losses if you keep playing on a team that is losing day after day. Stay flexible in your trading and go with the flow you can spend both bull and bear sided profits the same way. (more…)

Must Read Quotes For Traders

  
  Education
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“Good investing is a peculiar balance between the conviction to follow your ideas and the flexibility to recognize when you have made a mistake.“-Michael Steinhardt
Do not stay bullish or bearish. Go with the current flow of the market. Be on the team that is making the money.
“There is only one side of the market and it is not the bull side or the bear side, but the right side.” -Jesse Livermore
When putting it all together, it is more than just numbers. Successful traders trade in three dimensions.
“Successful trading depends on the 3M`s – Mind, Method and Money. Beginners focus on analysis, but professionals operate in a three dimensional space. They are aware of trading psychology their own feelings and the mass psychology of the markets. Each trader needs to have a method for choosing specific stocks, options or futures as well as firm rules for pulling the trigger – deciding when to buy and sell. Money refers to how you manage your trading capital.” – Alexander Elder
The money is in the primary market trend, not jumping in and out.
“I think it was a long step forward in my trading education when I realized at last that when old Mr. Partridge kept on telling other customers, “Well, you know this is a bull market!” he really meant to tell them that the big money was not in the individual fluctuations but in the main movements-that is, not in reading the tape but in sizing up the entire market and its trend.” – Jesse Livermore (more…)

Avoid the pitfalls of ‘over trading’ and ‘under trading.’

  
  Education
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* There are basically two types of over trading. Trading too often and trading too many shares/contracts.

* Remember that there really is no good reason to trade constantly, since extreme over-trading creates stress, produces high commissions and can often lead to more losses.

* Market forces do not last forever and time has shown various examples of the law of gravity in the trading market- that whatever comes up must go down. – and vice versa.

* Instead of grabbing every opportunity that comes along (or thinking that it is an opportunity) make sure each trade setup meets the criteria of your trading plan, don’t be over confident or scared of making trades.

* Utilizing a risk calculator to determine the appropriate position size before you enter a trade can help you determine how many shares/contracts you initially buy. You can start off with a small position and add as the trade continues in your favor. It relieves stress to know that the amount at risk for each position you hold is well proportioned to the size of your entire account and this is great asset management.

* Whenever you feel that you did not stick to your trading plan and made a mistake, quickly learn from that and let it go.

12 Things Traders Should Not Do at all

  
  Education
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  1. A big ego that wants to prove they are right by stubbornly staying with a position that is wrong becasue they want to be right eventually so bad.12-Number
  2. A trader that want to prove he is a hot shot by trading big position sizes especially in options or futures.
  3. Not wanting to take a stop loss and instead just hope the trade comes back.
  4. Trading with emotions instead of a trading plan can get very expensive very fast.
  5. Being a bear in a bull market.
  6. Being a bull in a bear market.
  7. Being overly eager to start trading with real money before fully testing out a trading system.
  8. Trading without doing adequate homework on how to win.
  9. Dollar cost averaging down in a trade is many time expensive to fight that trend.
  10. Ignoring the charts and just trading your opinion.
  11. Ignoring the probability of the risk of ruin based on your current position sizing.
  12. Not really understanding the true danger of  ‘Black Swan’ and ‘Fat Tail’ events.

10 Lessons for Traders & Life

  
Education, Life
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1) Have a firm stop-loss point for all activities: jobs, relationships, and personal involvements. Successful people are successful because they cut their losing experiences short and ride winning experiences.
2) Diversification works well in life and markets. Multiple, non-correlated sources of fulfillment make it easier to take risks in any one facet of life.
3) In life as in markets, chance truly favors those who are prepared to benefit. Failing to plan truly is planning to fail.
4) Success in trading and life comes from knowing your edge, pressing it when you have the opportunity, and sitting back when that edge is no longer present.
5) Risks and rewards are always proportional. The latter, in life as in markets, requires prudent management of the former. (more…)

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