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12 Trading Mantras from Trading Legend Mark Douglas

  
Analysis, Education
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Fill the “profit gap” with the right things…

In his books and seminars, Mark Douglas often refers to something he calls the “profit gap”. What he is talking about is basically the difference or “gap” between the potential profit you could achieve if you had just followed your trading method and what your actual bottom line results are.

Traders often begin trading a method with very high hopes. They want to produce an income they can rely on and get consistent results from their trading. However, this is only possible if you are trading an effective method with discipline and consistency, which most people simply do not do and as a result, they experience the profit gap that Mark refers to.

The key point that Mr. Douglas makes about this profit gap is that traders typically try to fill the gap by learning more about the market, changing methods, spending more time in front of their computers etc. However, what they really need to learn is more about themselves and how they interact with the market. Essentially, they need to acquire the “proper mental skills” to trade their method as they should and to get the most out of it, in order to properly fill the profit gap.

Winning and being a winning trader are two different things…

Anyone, and I literally mean anyone, even a 5-year-old child, can find themselves in a winning trade. It does not require any special skill to get lucky on any particular trade and hit a winner. All you have to do is open your trading platform and push a few buttons and if you get lucky, you can make a lot of money in a short amount of time.

As a result of the above, it’s natural for a trader who has not yet developed his or her trading skills to take the leap from “it’s easy to win” to “it can’t be that much harder to make a living from this”.

This is how many traders’ careers get started. Needless to say, it is also how they get on the path to losing a whole lot of money just as fast or even faster than they made it.

A winning trader has the mental skills to realize, understand and utilize the FACT that any particular trade he or she takes has basically a random outcome. That is to say, they cannot possibly know the outcome of that trade until it is over. The winning trader knows this and they also know that they must trade in-line with this belief over a large series of trades and ignore all the temptations and feelings that get kicked up on each trade they take. They are able to do this because they keep their eyes on the bigger picture. That bigger picture is the fact that IF they execute their method flawlessly, over and over, over a long enough period of time / series of trades, they will come out profitable.

Thus, do not mistake a winning trade for you being a winning trader, yet. A very easy trap to fall into. (more…)

THE DEFINING CHARACTERISTIC

  
  Education
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The defining characteristic that separates the consistent winners from everyone else is this: The winners have attained a mind-set – aunique set of attitudes – that allows them to remain disciplined, focused, and, above all, confident in spite of the adverse conditions. As a result, they are no longer susceptible to the common fears and trading errors that plague everyone else. – Mark Douglas

defining characteristic

Dealing with Loss Aversion in Stock Trading -Anirudh Sethi

  
Analysis, Education
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Loss aversion is a characteristic human propensity, yet it can wreak destruction on a trading account if the merchant doesn’t figure out how to deal with this mental issue. Underneath, realize what loss aversion is, the manner by which it shows (the side effects) and how to oversee it. Loss aversion is an unwillingness to acknowledge a loss once in an exchange. You disclose to yourself you’ll get out in the event that you lose a specific sum cash, yet as opposed to shutting the trade when you should, you choose to hold the trade and let the loss develop with the expectation that by giving the trade “more space” it will in the end pivot to support you. The reason generally given is that if the trade is shut the loss is acknowledged and there is no real way to profit back on that exchange. The merchant is trusting their trade will pivot and move into a gainful position.

Reasons behind Loss Aversion in Trade

Acing loss aversion implies getting into a state where a merchant can assuage of the dread of loss. Once in a while, a dealer can’t adapt to pondering losing, and losing is truly a piece of trading, so no disarray ought to emerge there that an effective merchant never loses. The significant issue with loss aversion happens when a merchant chooses to escape the trade after a specific sum lost, yet soon after that happens, the broker chooses to attempt to run more with a similar trade and accordingly simply increase the loss. The merchant does it since he or she trusts that they can abstain from losing. So as opposed to getting out, the trade proceeds in would like to return to the triumphant side. Loss aversion makes merchants leave their planned arrangement. For instance, a broker’s technique lets him know or her that in the following month rewards will occur in 60% of exchange. Yet, in an exchange, the merchant begins feeling that a specific stride can be skipped to bring an extra rate. (more…)

Mark Douglas: 7 Keys to Trading in the Zone

  
Analysis, Education
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Trading in the Zone by Mark Douglas book cover“I am a consistent winner because:

1. I objectively define my edges.
2. I predefine the risk of every trade.
3. I completely accept the risk or I am willing to let go of the trade.
4. I act on my edges without reservation or hesitation.
5. I pay myself as the market makes money available to me.
6. I continually monitor my susceptibility for making errors.
7. I understand the absolute necessity of these principles of consistent success and, therefore, I never violate them.”

15 Trading Rules For Day Traders

  
  Education
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Trading rule No 1. Never chase. Forget about the Rupee loss for a moment as the real damage comes from the distraction it creates.

Trading rule No 2. Wait for the break. Most traders buy inside the range, get impatient and as a result they sell on first sign of strength which ends up being the breakout.

Trading rule No 3. Don’t ride the ticks and Rupee profits. It creates emotional turmoil and is draining. Prevention is best cure. Takes the fun out of the game.

Trading rule No 4. Price action trumps everything. Management lie or mislead but price action (money flow) never lies.

Trading rule No 5. Sell the news or a least sell partials. Markets discount everything and over the long run you will be better off.

Trading rule No 6. Always stay in control. Do NOT put yourself in news related coin toss trades, where the risk cannot be managed.

Trading rule No 7. Mind your own business, avoid conflict. If you take offence because someone has disagreed with your trade, then you are such a precious little petal.

Trading rule No 8. Do NOT set targets as all this creates is a premature EXIT. Run a trailer and let that take you out.

Trading rule No 9. Minimise whipsaw at all costs. It’s a trader killer. The root cause of trading failure more often than not, starts with whipsaw.

Trading rule No 10. Do NOT buy stretched breakouts. More often than not they recoil back into the range to flush traders out.

Trading rule No 11. Start will longterm charts and look to catch major breaks/moves. These tend to follow through and it makes it easier to run with winners.

Trading rule No 12.  Turn trading rules into habit. There is no point in having trading rules if you dont apply them!

Trading rule No 13. And the most important; only tell your wife about your losers. 🙂

Trading rule No 14. Hit those stops, no questions asked. Hitting your stop and watching a stock rally hurts but not htting your stop and watching the stock fall hurts a hell of alot more.

Trading rule No 15. Avoid Blue Channels during trading hrs.Never Trade on TV Flashes ,Don’t trade on Result day -Untill u are having sure Result with u.Don’t trade on  Data flashes about Options -Everything is leaked and known by few Top people 

5 Reasons Traders Lose Money

  
  Education
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  1. Your method or system doesn’t work. This is a big one, and one of the hardest to fix. If you’re buying random stocks based on chatroom tips, that won’t work. If you’re buying based on what you think about the news, that won’t work. If you’re using some untested technical pattern, that won’t work. The only way you can build enduring success is to have a system that is your own and in which you fully understand the edge and variability of the system results. The only way (that I know) to do this is either to be taught such a system in enough detail that you own it, or do develop your own. Finding a system that works is not easy. I think most traders who fail probably failed because they were doing something that didn’t work and couldn’t work.
  2. You are impatient and take impulse trades. So, you have a system and it works, but if you don’t have the patience to wait for setups, then you essentially don’t have a system at all! Too many traders force trades or execute trades out of boredom. Don’t do this—it will destroy whatever edge you have in your system.
  3. You take trades on the wrong size. Any trading methodology depends on the balance of a large number of winners and losers. If you are randomly doing some trades bigger and some smaller, you can easily wipe out that edge. (On the other hand, some traders do make good, disciplined use of varying position sizes, but this is also a well-developed and tested part of their methodology.) Be consistent and disciplined in everything you do; that’s why the market pays you.
  4. You ignore stops. What do you do when a trade hits your stop? You get out. End of story. If you can’t develop this one skill, you can’t be a trader. You cannot afford, even once, to ignore your stop. Maybe the trade will work out this one time; maybe your prayers will be heard and the bad loss will turn around and become a winner? Ok, great, now what? Now you’ve just had a serious break of discipline and have had a bad learning experience as well because you got paid to do something wrong! The ongoing impact of a mistake like this and the false learning will ripple through your trading career for months or years. Don’t do this—respect your stops.
  5. You get out of winning trades without any reason. I think this is one of the great, underappreciated problems of learning to trade. Many people can develop the discipline to respect their stops, but then cave under the pressure of a winning trade. The thought of a winning trade reversing and giving back profit, the pressure of knowing the open winning trade would cover many losing trades, or the simple greed of wanting to ring the cash register—these can be overwhelming psychological pressures. It’s just as important to manage your winners with discipline, and that your trading plan has clear rules for when and how you get out of winning trades as well as losers.

The solution to most of these problems is not exciting: have a plan that works and execute that plan with discipline. Of course, there’s a lot more we can do at each step, but being aware of these errors will help protect against some of the worst, and most avoidable, mistakes that wait for the developing trader.

Don’t trade for the thrill-Jesse Livermore

  
  Education
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small picture of jesse livermore“The desire for constant action irrespective of underlying conditions is responsible for many losses on Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages. Remember this: When you are doing nothing, those speculators who feel they must trade day in and day out, are laying the foundation for your next venture. You will reap benefits from their mistakes.”

Once you realise the cost of trading and the benefits of being able to sit tight in a market you learn a valuable lesson.

Once you’ve learnt this lesson, you can look at all the other investors on Wall Street and realise how they are actually helping you in your quest.

They’re all trading in and out of the market, every day racking up huge commission fees and losing money. This reveals the opportunity for you to take advantage of. By sitting on your hands and waiting for the profits to roll in, by only making calculated bets.

Always trade according to the trend and according to your plan.

The desire for action will be strong but you need to resist. Because that is the gambling mindset. The professional trader mindset simply sits tight and waits for the opportunities to come to him.

Remember that when you trade, you don’t only pay a fee to your broker and a commission but you pay the spread too.

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