Archives of “common sense” tag

rss

The Four Elements Of Successful Trading. Do You have all Four?

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

The Knowledge

If we don’t do the homework to know what we need to know we will fail due to ignorance. Understanding historical price action, reading books by and about the best traders, seminars, mentor-ships, and  systems testing is all part of the homework we must do to get the needed knowledge.

The Resources

While trading with a small account is a good place to start it is not a good place to stay. Traders must be adequately capitalized for meaningful trading. We must have an affordable broker that does not charge bloated commissions and gives great execution on orders. A trader must have a platform and charting service that is adequate for his trading style. Trading a small account with an expensive broker with poor execution is a path to eventual failure. (more…)

48 Trading Laws

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

1. Never outshine the master. (You can trade better than your mentor, just don’t expect him to like it. You’ll also learn more from people who you help, than from those who you work against.)

2. Never put too much trust in friends. Learn how to use enemies. (The only one you can trust as a trader is yourself and your own decisions. When the herd is against your positions, find something that is misunderstood, overlooked, or not fully recognized in the current stock price.)

3. Conceal your intentions. (Limit orders are good for the novice and undisciplined, but the market makers will never let you pick off the bottoms and tops using these.)

4. Always say less than necessary. (Talk is cheap and being concise is a good thing. It’s ok to keep some things you learn and strategies you create all to yourself.)

5. So much depends on reputation – guard it with your life. (Wall Street watches where the smart money is going at all times and herd-like patterns typically follow. Find those with the best reputation and figure out what they’re doing now. It will help unlock some secrets to their success.)

6. Court attention at all cost. (The key is to be ahead of the tape before Wall Street takes notice. Find stocks that few are looking at which offer tremendous growth prospects. They’ll be tomorrow’s winners, not the stocks you hear so much about right now.)

7. Get others to do the work for you, but always take the credit.(It’s ok to use others’ research and opinions, but realize that none of these can serve as a substitution for common sense and developing your own edge in the market. What is already known and published by others has already been acted upon no matter what you may think or have been told. Assume you’re always the last to know.)

8. Make other people come to you – use bait if necessary.(Success breeds popularity. If others think that they can learn or profit from you, you’ll never be lonely. However, with respect also comes responsibility to act in the best interests of others, many times before your own.)

9. Win through your actions, never through argument. (Don’t waste time convincing others on message boards how good or bad a stock is and/or telling people how smart you were because of good calls you’ve made in the past. Instead, trade the stock and make your profit. Talk will never pay your bills. Show others by demonstration, not by time wasting chatter.)

10. Infection: avoid the unhappy and unlucky. (This is right on the money. I couldn’t have said this better myself. Who you surround yourself with will ultimately determine your destiny. Marry for love, choose your friends carefully, and spend time with people who’ve been more successful and who are much smarter than you. Good and bad emotional states are as infectious as a disease.)

11. Learn to keep people dependent on you. (If you tell everyone everything you know, they’ll end up knowing more than you know. Having others dependent on you will also serve as great motivation, especially when times are tough and you need a reason to work harder than ever before.)

12. Win through your actions, never through argument. (At the end of the day, all that matters is that you make good trades or investment decisions. There’s lots of hype in this business and you should run, not walk, from anyone who spends more time talking than learning.)

13. Use selective honesty and generosity to disarm your victim.(Sorry, I’m not in agreement with this. In my view, you have to be honest with yourself and others at all times. In addition, generosity is always a good thing, especially when it is done without the desire of getting something in return. Having good Karma through generous acts also go a long way in keeping the trading gods on your side!)

14. When asking for help, appeal to people’s self-interest, never to their mercy or gratitude. (Sad, but true. If you can help others, they’ll be far more likely to help you. I know I always make a tremendous effort to help those who’ve helped me in the past.)

15. Pose as a friend, work as a spy. (You can find out more about people and companies you invest in by having friends who have specialized knowledge about certain industries. Their unique insight can be a powerful edge if you can get it. Sometimes a simple phone call or email to someone who works in the business will tell you much more than any chart or balance sheet.)

16. Crush your enemy totally. (When you’re right in a trade or investment and things are going well, don’t back off UNTIL you have good reason to sell.)

17. Use absence to increase respect and honor. (Knowing when not to trade is a skill few possess. Take vacations and breaks away from the market. It will only empower you to return refreshed, relaxed, and well-motivated. Remember, we trade to live, not live to trade. Achieving balance in your work and personal life will lay the foundation for long-term success.)

18. Keep others in suspended terror: cultivate an air of unpredictability. (It’s good to mix it up from time to time to relieve trading/investing boredom. If you think you’re in a rut, make some changes and go find something you can get excited about again.)

19. Do not build fortresses to protect yourself – isolation is dangerous. (Take time to bounce ideas off of people who are smarter than you. At all times, seek out opinions that are against you instead of with you – you’ll learn a great deal more. And, remember, no one is right all of the time. But some people are more right than others.)

20. Know who you’re dealing with – do not offend the wrong person. (As a small investor, it is best to avoid picking fights with market elephants (i.e. institutions, hedge funds) who think they know your stock better than you do. They have the power to move the market and your stock for longer than you have time or money to fight it.) (more…)

Are Great Traders Born or Bred?

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

In a recent speech to a class at Harvard Business School Mark Sellers, founder of Chicago-based hedge fund Sellers Capital, argues that great traders are born and not bred. He believes that there are seven “structural assets” that cannot be taught, adding, ” They have to do with psychology. You can’t do much about that.”

The traits:

1) The ability to buy when others are panicking, and vice versa

2) An obsession with the trading game

3) A willingness to learn from past mistakes

4) An inherent sense of risk based on common sense

5) A confidence in your convictions and a willingness to stick with them

6) An ability to have “both sides of your brain working” (i.e. to go beyond the math)

7) The ability to live through volatility without changing your investment thought process

I  think that some of the concepts discussed here are spot on (and I spend a great deal of time hammering home the importance of #7) , but I disagree with the overall idea that great traders are born, not made. I believe success in trading is not about a specific style, but rather about understanding your personality traits and then developing a trading style (and which product – i.e. stocks, commodities, fx) that fits you best.

We are who we are. That does not change throughout our life, but we can learn to wait for times when the market is paying our personality type and then generate successful returns when that window of opportunity appears.

10 Essential Trading Words

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

1. Simplicity – have a simple, well defined way to generate trading ideas. Have a simple approach towards the market. You can’t simply take everything into account when you try to make an educated decision. Filter the noise and focus on several key market components. For me, they are relative strength and earnings’ growth.

2. Common sense – create a trading system that is designed on the basis of proven trading anomaly. For example, trend following in different time frames.

3. Flexibility – be open to opportunities in both directions of the market. Be ready to get long and short.

4. Selectivity – chose only trades with the best risk/reward ratio; stocks with the best set ups; it doesn’t make sense to risk a dollar to make a dollar.

5. Don’t overtrade – two or three well planned trades in a week (month) might be more than enough to achieve your income goals. Patiently wait fot the right set up to form and offers good risk/reward ratio.

6. Exit strategy – Always, absolutelly always have an exit strategy before you initiate a trade. Know at which point the market is telling you that you are wrong and do not hesitate to cut your losses short immediatelly. Don’t be afraid or ashamed to take a trading loss. Everyone has them. Just make sure that you keep their size to a minimum.

7. Let’s profits run – one or two good trades might make your month. One or two good months might make your year. Letting profits run is as important as cutting losses short. Bigger winners will allow you the luxury to be right in less than half of the trades and still be profitable.

8. Consistency – Stick to your method of trading ideas’ generation.

9. Specialize – Specialize in one or two distinct setups. It could be a combination of technicals and fundamentals, certain timeframe or special event as a trading catalyst, certain sector or trading vehicle.

10. Have a plan – Which are stocks that you will be paying special attention to – this week, today. Why those stocks? In which direction you expect them to continue their move? What will give you a clue for the beginning of the move? Follow them exclusivelly and enter without a hesitation when they give you a signal. Don’t  just wake up and sit in front of your monitor without having a clue what are you going to trade today.

10 Trading Lessons for 2011

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

1)You can’t succeed overnight. Most retail/aspiring traders get hooked on trading because they want money and they want it NOW! Over-trading, scalping, over-leveraging, random decisions, greed and the mirage of getting rich quick will turn trading into gambling.

A common sense rule says that – in order to make a lot of money fast, you either 1) steal, 2) you are a genius inventing or discovering something new, something that everyone will use or buy from you (like Google, Facebook, Angry Birds) or 3) gamble, if you are really lucky.

Learn from your own mistakes, don’t repeat them, practice and persevere. It doesn’t matter if you count Elliott waves better than anyone else or if you anticipate a rate hike 6 months in advance. It only matters how you control your emotions and your money.

2) Focus your efforts on the things that work best for you. If there is one trading strategy that works for you, then stick to it as long as it works. Don’t waste time testing everything you find on the Internet and don’t listen to everything you hear or read. Too much information can lead to confusion, difficult choices and failure – eventually.

3)Losing is part of the game but recovering is not an easy task and requires smarter trading decisions.

Have you ever been on a diet?
Common sense rule, again: if you have gained 40 lbs. (18 kg) in 1 year, don’t expect to lose 40 lbs. in 2 weeks. It takes a lot of work to get rid of them.
So if your trading account is down 50% after 2 months, you’ll have to double your remaining equity to break even. Will that be easy? I doubt.

4)Making mistakes is normal but rather than give up, try to learn something from your own trading mistakes, bad strategies, emotions etc.
If you don’t succeed, you aren’t out of the game.

Make a list of things that didn’t work – check it regularly so you don’t forget them. Avoid them in the future.

5)If you keep doing the same thing and you are constantly losing, it’s obvious that you are doing something wrong. Is your trading strategy constantly giving poor results? Change it. Are you always predicting the wrong market direction? Stop predicting – trade what you see, not what you think or expect.

If you want to achieve different results, then you must change your actions. (more…)

10 Essential Trading Words

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

1. Simplicity – have a simple, well defined way to generate trading ideas. Have a simple approach towards the market. You can’t simply take everything into account when you try to make an educated decision. Filter the noise and focus on several key market components. For me, they are relative strength and earnings’ growth.

2. Common sense – create a trading system that is designed on the basis of proven trading anomaly. For example, trend following in different time frames.

3. Flexibility – be open to opportunities in both directions of the market. Be ready to get long and short.

4. Selectivity – chose only trades with the best risk/reward ratio; stocks with the best set ups; it doesn’t make sense to risk a dollar to make a dollar.

5. Don’t overtrade – two or three well planned trades in a week (month) might be more than enough to achieve your income goals. Patiently wait fot the right set up to form and offers good risk/reward ratio.

6. Exit strategy – Always, absolutelly always have an exit strategy before you initiate a trade. Know at which point the market is telling you that you are wrong and do not hesitate to cut your losses short immediatelly. Don’t be afraid or ashamed to take a trading loss. Everyone has them. Just make sure that you keep their size to a minimum. (more…)

10 Essential Trading Words

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

1. Simplicity – have a simple, well defined way to generate trading ideas. Have a simple approach towards the market. You can’t take everything into account when you try to make an educated decision. Filter the noise and focus on several key market components. For me, they are relative strength and earnings’ growth.
2. Common sense – create a trading system that is designed on the basis of proven trading anomaly. For example, trend following in different time frames.
3. Flexibility – be open to opportunities in both directions of the market. Be ready to get long and short.
4. Selectivity – chose only trades with the best risk/reward ratio; stocks with the best set ups; it doesn’t make sense to risk a dollar to make a dollar.
5. Don’t overtrade – two or three well planned trades in a week (month) might be more than enough to achieve your income goals. Patiently wait fot the right set up to form and to offer good risk/reward ratio.
6. Exit strategy – Always, absolutelly always have an exit strategy before you initiate a trade. Know at which point the market is telling you that you are wrong and do not hesitate to cut your losses short immediatelly. Don’t be afraid or ashamed to take a trading loss. Everyone has them. Just make sure that you keep their size to a minimum.
7. Let’s profits run – one or two good trades might make your month. One or two good months might make your year. Letting profits run is as important as cutting losses short. Bigger winners will allow you the luxury to be right in less than half of the trades and still be profitable.
8. Consistency – Stick to your method of trading ideas’ generation.
9. Specialize – Specialize in one or two distinct setups. It could be a combination of technicals and fundamentals, certain timeframe or special event as a trading catalyst, certain sector or trading vehicle.
10. Have a plan – Which are the stocks that you will be paying special attention to – this week, today. Why those stocks? In which direction you expect them to continue their move? What will give you a clue for the beginning of the move? Follow them exclusivelly and enter without a hesitation when they give you a signal. Don’t just wake up and sit in front of your monitor without having a clue what you are going to trade today.

Are Great Traders Born or Bred?

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #
Harvard Business School Mark Sellers, founder of Chicago-based hedge fund Sellers Capital, argues that great traders are born and not bred. He believes that there are seven “structural assets” that cannot be taught, adding, ” They have to do with psychology. You can’t do much about that.”The traits:
1) The ability to buy when others are panicking, and vice versa
2) An obsession with the trading game
3) A willingness to learn from past mistakes
4) An inherent sense of risk based on common sense
5) A confidence in your convictions and a willingness to stick with them
6) An ability to have “both sides of your brain working” (i.e. to go beyond the math)
7) The ability to live through volatility without changing your investment thought process
I  think that some of the concepts discussed here are spot on (and I spend a great deal of time hammering home the importance of #7) , but I disagree with the overall idea that great traders are born, not made. I believe success in trading is not about a specific style, but rather about understanding your personality traits and then developing a trading style (and which product – i.e. stocks, commodities, fx) that fits you best.

Desire -Skill

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

The Desire
If you are trading just for the money you will quit before you are successful, Why? Anyone without a love for the game will quit during the long difficult learning process. After hundreds of hours of work and years of trading with nothing but a loss to show for all the effort anyone with common sense will think it is too hard and just quit. Those with a love and passion for trading will eventually succeed and usually make six figures or become a millionaire for their efforts. Those that do a cost benefit analysis in the first few years will generally quit due to the math.
The Skill
A trader must have the skill to trade in three dimensions. The management of the mind,  the method, and money management are all crucial for success. Traders must have the discipline and perseverance to trade robust systems through different market environments without giving up. They must have the ability to accept and deal with their thoughts and emotions as they arise during both winning and losing streaks. Risk must be managed on every single trade without the ego causing bets so big that they put your future trading at risk. The trader must also have the skill to not let fear take away the traders ability to pull the trigger on a good entry.

Jim Rogers' Keys to Success

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

JimRogerJim Rogers’ Keys to Success (taken from the titles and sub headings of each chapter of the new book, “A Gift to My Children: A Father’s Lessons for Life and Investing“)
1. Do not let others do your thinking for you
2. Focus on what you like
3. Good habits for life & investing
4. Common sense? not so common
5. Attention to details is what separates success from failure
6. Let the world be a part of your perspective
7. Learn philosophy & learn to think
8. Learn history
9. Learn languages (make sure Mandarin is one of them) (more…)

Go to top