Many times we enter a trade with a high degree of certainty that the stock will move in our chosen direction. All of our indicators can be screaming to buy or sell at a particular moment in time; however, there is no certainty that these indicators will function as intended. In order to combat this, start by entering a trade with a small percentage of your maximum size and wait for a move in your direction to confirm that the expected move is actually occurring. While you may miss the very first piece of the action, waiting for confirmation will significantly improve the probability of success. Remember, you don’t have to be the first to the party; showing up fashionably late almost always works out best.
Archives of “confirmation” tag
rss3 Rules for Traders
Valuation alone is insufficient reason to get short a stock — History teaches us that cheap stocks can get cheaper, dear stocks can get more expensive
ALWAYS work with a pre-determined loss – either a physical or mental stop loss — Never leave yourself open to infinite losses
Fundamentals tell you WHY to short something, not WHEN to short it. ALWAYS have some technical confirmation before shorting. Make a short selling wish list, then WAIT for technical confirmation.
7 Deadly Sins
- Trying to pick top or bottom
- My gut tells me that we’re going to break out (Professionals love fading breakouts)
- No confirmation from my Volume indicators (wait for everything to line up)
- Hesitating on entry (typically when the trade is “hard” to take)
- Canceling my stop (OMG, the biggest Sin of them all !)
- Moving my profit target (got to let the winners run)
- Letting a profitable trade turn into a loser (luckily, a rarity)
Trading Errors
1. Trying to catch a falling knife. 2. Picking Tops 3. Failure to wait for confirmation. 4. Lack of patience. 5. Lack of a clear strategy. 6. Failure to assume responsibility. 7. Failure to quantify risk. |
Trick for Traders
I developed a little trick that might seem trivial, but it is very important. Simply put, anytime to you put a trade on, assume that the trade is going to be a loser. No matter how much analysis, how many supporting factors, or how perfect the pattern is, assume that the trade will lose money. This creates a profound shift in your focus because, rather than searching for and possibly discounting contradictory evidence (which can sometimes be as simple as “I just bought and now it’s going down…”), you will be open to and will readily accept contradicting information. Of course you will, because you assumed the trade was wrong to begin with. When you find confirmation for the trade, it is almost a pleasant surprise. Shift your thinking into this mode, and you will be much less likely to overstay your welcome in suboptimal setups that are not working out–you’ll be far more likely to do the right thing, which is usually to pull the plug on the trade (time stop) and look for a better opportunity.
Now, there’s another piece to this puzzle. A lot of writers focus a lot of attention on confidence in trading, and this is important, but it is a different kind of confidence. You must have confidence in your method and know that a profit is virtually assured over a large enough set of trades, and be able to separate this knowledge from the outcome of any one trade which is, more or less, a coin flip.
3 Types of Traders & 4 Questions
An egotistical trader is more likely to argue with the markets, potentially leading to huge losing days or possible account blow-outs. You don’t need to win on every trade, or even every trading day, or every trading week.
A humble trader is able to admit that his trading is creating nothing but losses that day, and stop trading until the markets are better suited to his/her style. A humble trader is less likely to double-up into excessively risky trades, in order to ‘get back even’ on the trade or on the day. A humble trader has nothing to prove, to anyone, and can freely admit mistakes to themself and others, enabling them to quickly and easily react to what the market is telling them, with little regard for it’s contradiction to what he/she may have expected only minutes earlier.
Conversely, and egotistical trader might confidently tell his friends ‘what is going to happen’ and is unwilling or unable to subsequently change his mind when the market tells him otherwise. Once he’s made a public proclamation, he can’t go back on his ‘call’ or he might appear to be wrong.
The successful trader can’t tie up their self image or self worth on a single trade, or a single trading day. Keeping your attitude humble enables you to simply treat each and every trade as individually irrelevant, and allows you to focus on doing what’s right, and not being right.”
I’ll close with the questions I ask myself about each trade at the end of the day:
1. Was it a valid setup?
2. Did I wait for confirmation of the setup and follow my rules for entry?
3. Did I implement my risk management plan?
4. Did I manage the trade according to my rules, taking profits at or beyond the initial target, never earlier unless a valid stop-and-reverse signal appeared?“A successful trader is humble, not egotistical. The trader that knows it all, will typically quickly be proven wrong by the market. The humble attitude leads a trader to be willing to admit mistakes quickly, close out losing trades, and move on without loss of confidence.
THE BEST OF JESSE LIVERMORE
On emotions:
The unsuccessful investor is best friends with hope, and hope skips along life’s path hand in hand with greed when it comes to the stock market. Once a stock trade is entered, hope springs to life. It is human nature to be positive, to hope for the best. Hope is an important survival technique. But hope, like its stock market cousin’s ignorance, greed, and fear, distorts reason. See the stock market only deals in facts, in reality, in reason, and the stock market is never wrong. Traders are wrong. Like the spinning of a roulette wheel, the little black ball tells the final outcome, not greed, fear or hope. The result is objective and final, with no appeal.
I believe that uncontrolled basic emotions are the true and deadly enemy of the speculator; that hope, fear, and greed are always present, sitting on the edge of the psyche, waiting on the sidelines, waiting to jump into the action, plow into the game.
Fear keeps you from making as much money as you ought to.
On herd behavior:
I believe that the public wants to be led, to be instructed, to be told what to do. They want reassurance. They will always move en masse, a mob, a herd, a group, because people want the safety of human company. They are afraid to stand alone because they want to be safely included within the herd, not to be the lone calf standing on the desolate, dangerous, wolf-patrolled prairie of
contrary opinion.
On cash:
First, do not be invested in the market all the time. There are many times when I have been completely in cash, especially when I was unsure of the direction of the market and waiting for a confirmation of the next move….Second, it is the change in the major trend that hurts most speculators. (more…)
A new investment scam out there
100% return in 4 weeks ! (Guaranteed)
Trick 1) ; Client has to show that he has at least 1 M $USD (with due diligence done on the source of the funds)
Trick 2) ; Client’s funds are never removed from his bank (they show you their contracts, urgent you to show your lawyers, and bankers).
Trick 3) ; Bank issues a confirmation that client has the 1 M $ (clean money)
Trick 4) ; The salesmen then pretends that traders in London will borrow money based on that “confirmation document” and invested in the Forex market ; he then pretends that my client will collect 100% in 4 weeks.
Salesmen usually look above 40, well dressed.
Where is the trick ? Psychological ……….
1) Safety ; they repeat over and over that your money stays with you
2) They call you everday (after market close), and tell you what they traded 🙂
3) After 4 weeks of daily calls, you are so pumped up that you want your 100%
NOW.
4) Before paying you, they ask you to pay the traders, and the salesmen
commissions.
5) You pay 5% ……. then ? Nothing comes …….
Pure psychology ……
Pass this info around
PS : your friends will be in denial at first ; telling you that your are jealous ….
10 Great Quotes of Jesse Livermore
“Do not anticipate and move without market confirmation—being a little late in your trade is your insurance that you are right or wrong.” -Jesse Livermore
“The good speculators always wait and have patience, waiting for the market to confirm their judgment.” -Jesse Livermore
“{Limit} interest in too many stocks at one time. It is much easier to watch a few than many.” -Jesse Livermore
“Experience has proved to me that the real money made in speculating has been: “IN COMMITMENTS IN A STOCK OR COMMODITY SHOWING A PROFIT RIGHT FROM THE START. ” -Jesse Livermore
“As long as a stock is acting right, and the market is right, do not be in a hurry to take a profit. You know you are right, because if you were not, you would have no profit at all. Let it ride and ride along with it. It may grow into a very large profit, and as long as the “action of the market does not give you any cause to worry,” have the courage of your convictions and stay with it.” -Jesse Livermore
“It is foolhardy to make a second trade, if your first trade shows you a loss. ” “Never average losses. ” Let that thought be written indelibly upon your mind.” -Jesse Livermore
“One should never sell a stock, because it seems high-priced.” -Jesse Livermore
“Profits always take care of themselves but losses never do. ” The speculator has to insure himself against considerable losses by taking the first small loss. In so doing, he keeps his account in order so that at some future time, when he has a constructive idea, he will be in a position to go into another deal, taking on the same amount of stock as he had when he was wrong.” -Jesse Livermore
“It is significant that a large part of a market movement occurs in the last forty-eight hours of a play, and that is the most important time to be in it.” -Jesse Livermore
“A speculator should make it a rule each time he closes out a successful deal to take one-half of his profits and lock this sum up in a safe deposit box. The only money that is ever taken out of Wall Street by speculators is the money they draw out of their accounts after closing a successful deal.” -Jesse Livermore
16 Rules for Thirsty Traders
I always liked these rules for their simplicity and I think they can benefit some of you, if only in the form of a gentle reminder of what you should be doing…or not doing.
1. Market direction is the most important thing in determining a stock’s
probable direction.
2. Price and Volume action are more important than a jillion indicators and
complex theories, no matter how cool they may be.
3. Don’t miss the forest (broad market) for the trees (individual stocks).
4. Don’t anticipate. Wait for confirmation.
5. Don’t trade contrary to the market’s direction.
6. Don’t try to “outsmart” the market.
7. Things can go much, MUCH further than you think they can, in either
direction.
8. Divergences work best with double tops and double bottoms.
9. Quite often, divergence analysis doesn’t work at all. When that happens, it
means the prevailing trend is very strong.
10. You need to effectively filter or limit the amount of data or charts to look
at; otherwise, you will spread yourself way too thin. You must have the time and
alertness to keep your eye on the ball…..hard to do, when you are juggling
thousands.
11. Don’t focus on every tick of each trade. If you are, you are holding on to
the handlebars too tight.
12. Have a plan. Set stops and targets. Don’t be afraid to take 1/2 profits and
raise (or lower) your stops. If your trade follows your script, great. If it
doesn’t within a reasonable time, consider getting out.
13. That said, it’s OK to give your trade a little time, unless you are clearly
wrong. You are often ahead of the market a little bit.
14. You will lose money sometimes. Every trader does. It’s a business, not a
personal indictment against you. Get over it and move on to the next trade.
15. Political opinion and markets do not mix.
16. Learn from your mistakes, or you will be condemned to repeat them.