Archives of “consistent profits” tag

rss

Fear, Greed & Trading Profits

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

Over the years we’ve noticed a remarkably consistent pattern. A very high percentage of our trainees can trade brilliantly in the simulation program; steady consistent profits, sharp entries and exits, excellent grasp of market conditions and a clear, rational plan for exploiting them

And then they start trading real money.

It’s like somebody turned out the lights. Almost immediately things turn sour; they jump in too soon, get scared out of good positions, hang on to losers and cut their winners short … the exact opposite of what they should be doing, and the exact opposite of what they were doing in the simulation program.

WHAT HAPPENED?

The only difference between real and imaginary – and between good and horrid – is the emotional impact on new traders of having real money at risk. They succumb to the two emotions that drive the market: greed and fear.

Nothing cranks up our emotional responses faster than money. And trading is about nothing else. But successful trading requires a kind of cold, calculating rationality, and any emotion – giddy joy as well as bitter despair – is fatal.

So we see trainees doing things they know are dumb: 

  • They jump on the long side of an uptrend because “they don’t want to miss the trade,” even as the trend is ending.
  • They cling tenaciously to losing  positions hoping the price will come back – an attempt to avoid admitting you made a dumb trade that usually turns a small loss into a big one.  
  • They pull their stops so they won’t get hit. Really! 
  • They become so traumatized by losing that they take excessive risks hoping to get back even.
  • Finally, they quit in despair, close their trading account, burn the computer, and retreat into a dark place to lick their wounds.

None of this is necessary. All of it can be avoided. Here are some things that help. (more…)

Trading Is A Business. Treat It Like One.

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

As I was preparing a presentation and looking for some interesting material I came across “Trader Vic – Methods Of A Wall Street Master” and this paragraph got my attention:

“I base my business philosophy on three principles, listed here in terms of importance: preservation of capital, consistent profitability, and the persuit of superior returns. These principals are basic in the sense that they underlie and guide all my market decisions. Each principle carries a different weight in my speculative strategy, and they evolve from one to another. That is, preservation of capital leads to consistent profits, which makes pursuit of superior returns possible.”

This was written in 1991 but I think its still a very valid proposition. I am also adding this line from the same book, “In my view, the way to build wealth is to preserve capital, make consistent profits, and wait patiently for the right opportunity to make extraordinary gains.”

Trader Vic’s Principles of Trading

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

It’s a helpful book to return to when market conditions get tough. A great place to start is Vic’s “business philosophy,” as encapsulated in three rules:

1. Preservation of Capital

2. Consistent Profitability

3. Superior Returns

Below is Sperandeo in his own words:

Preservation of Capital

Preservation of capital is the cornerstone of my business philosophy. This means that, in considering any potential market involvement, risk is my prime concern. Before asking, “What personal profit can I realize?”, I first ask, “What potential loss can I suffer?” (more…)

A Few Notes From Adam Grimes

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

Adam Grimes (Chief Investment Officer of Waverly Advisors) prefaces his 2012 book, The Art and Science of Technical Analysis: Market Structure, Price Action, and Trading Strategies, by stating: “This book…offers a comprehensive approach to the problems of technically motivated, directional trading. …Trading is hard. Markets are extremely competitive. They are usually very close to efficient and most observed price movements are random. It is therefore exceedingly difficult to derive a method that makes superior risk-adjusted returns, and it is even more difficult to successfully apply such a method in actual practice. Last, it is essential to have a verifiable edge in the markets–otherwise no consistent profits are possible. This approach sets this work apart from the majority of trading books published, which suggest that simple patterns and proper psychology can lead a trader to impressive profits. Perhaps this is possible, but I have never seen it work in actual practice. …The self-directed trader will find many sections specifically addressed to the struggles he or she faces, and to the errors he or she is likely to make along the way. …[Institutional] traders will also find new perspectives on risk management, position sizing, and pattern analysis that may be able to inform their work in different areas.” Using example charts for many assets from different times over different time frames and from different markets, he concludes that:

From Chapter 1, “The Trader’s Edge” (Page 7): “Every edge we have, as technical traders, comes from an imbalance of buying and selling pressure. …we do not trade patterns in the market–we trade the underlying imbalances that create those patterns.”

From Chapter 2, “The Market Cycle and the Four Trades” (Page 45): “When buying pressure seems to be strongest, the end of the uptrend is often near. When the sellers seem to be decisively winning the battle, the stage is set for a reversal into an uptrend. This is why it is so important for traders to learn to stand apart from the crowd, and the only way to do this is to understand the actions and emotions of that market crowd.”

From Chapter 3, “On Trends” (Page 95): “…many outstanding trades come in trending environments. Market structure in trends is often driven by a strong imbalance of buying and selling pressure, it is often easy to define risk points for trades, and some of the cleanest, easiest trades come from trends. However, markets do not always trend.” (more…)

What you WILL DO vs. NOT DO is what it comes down to

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

In trading you MUST take action and control.  It’s not the market makers, or the talking heads, or your neighbor, or any of the experts or people you entrust with your money that are causing your losses or your poor investing performance.  You are making the decisions, directly or indirectly.   Any trading and investing decisions made in your accounts are all DOWNSTREAM from you and your initial decisions, so you can make different ones in the future.

But you must take measurements.  You must have a plan.  You must assess, then make DECISIONS to GET you to your FINANCIAL, HEALTH and RELATIONSHIP goals.

In trading we teach a very simple and effective way to make consistent profits in the markets.  There is a learning curve and much of that curve is you getting to know you.  It’s understanding the psychological aspects of trading profitably with consistency and making those thought process changes that are necessary to get you in a winner’s trading mindset.

For many people this is a challenge.  The actual steps and actions you must take are not laborious or physically draining, they are simple things that need to be done but will go against the natural instinct to just want to go through each day on ‘autopilot’.

And this is why many a trader who is struggling slips into the ‘blame’ or ‘victim’ game.  Being aware of this is important and we are all human and capable of slipping off track……but the key is to catch it early, forgive yourself for it, and then learn and ‘zig zag’ your way back onto the path that will get you to your goals.

10 ways to Master the Trade

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

How do you know you’re making progress on the road to successful trading? There’s one obvious answer: Check your financial  results. There is little doubt you’re doing well if you’re booking consistent profits. Thump

 But raw capital production may not be the best way to judge your growth as a trader. The road to success has many detours  where profitability isn’t the best measure of results. For example, we all go through phases in which introspection and skill  development are more urgent than short-term profits. So let’s look at 10 ways to know you’re making solid progress on the road  to market mastery: 

 1. Money management becomes your lifeline, and all your trading strategies start to revolve around its core. Risk control  becomes a key aspect of every position you take. You accept that controlling losses has a far-greater impact on your bottom line  than chasing gains. 

 2. You develop your own trading plans and strategies rather than relying on books, gurus or other people’s opinions. You notice  how you’re finding more opportunities than you have time to trade while looking through your charts. You look forward to the  trading day with a growing sense of confidence and empowerment. 

 3. You feel more like a student than a master. You learn new things every day and can’t wait to apply them to real-life trading  scenarios. You listen closely to everything you hear, trying to pick up hints and concepts that will improve your performance. You expand your studies into everything market-related, including economics, fundamentals and balance sheets. 

 4. You stop visiting stock boards and chatrooms, because they don’t add anything to your trading goals. You realize that  everyone in those places has ulterior motives. You develop a healthy skepticism about companies, market-makers and even  other traders. You realize that no one is really interested in your success as a trader, except for you.  (more…)

Three Trading Wisdom

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

Preservation of Capital

Preservation of capital is the cornerstone of my business philosophy. This means that, in considering any potential market involvement, risk is my prime concern. Before asking, “What personal profit can I realize?”, I first ask, “What potential loss can I suffer?”
…There is one, and only one, valid question for an investor to ask: “Have I made money?” The best insurance that the answer will always be “Yes!” is to consistently speculate or invest only when the odds are decidedly in your favor, which means keeping risk at a minimum.

Consistent Profitability

Obviously, the markets aren’t always at or near tops or bottoms. Generally speaking, a good speculator or investor should be able to capture between 60 and 80% of the long-term price trend (whether up or down) between bull market tops and bear market bottoms in any market. This is the period when the focus should be on making consistent profits with low risk.
…Anyone who enters the financial markets expecting to be right on most of their trades is in for a rude awakening. If you think about it, it’s a lot like hitting a baseball — the best players only get hits 30 to 40% of the time. But a good player knows that the hits usually help a lot more than the strikeouts hurt. The reward is greater than the risk.

Pursuit of Superior Returns

As profits accrue, I apply the same reasoning but take the process a step further to the pursuit of superior returns. If, and only if, a level of profits exists to justify aggressive risk, then I will take on a higher risk to produce greater percentage returns on capital. This does not mean that I change my risk/reward criteria; it means that I increase the size of my positions.

Characteristics for successful trading

  
  Education
#  #  #  #  #  #  #  #  #

successfultraders-charctersticsA) absolute trust in myself to do what’s necessary when it’s necessary, B) discipline to follow my rules/method even when it’s going through a rough period (which all methods do), C) the unquestioning belief that I don’t know what’s going to happen next and that trading is just a probabilities game, D) that my success isn’t about the system/method – it’s about me and my attitude toward the market and trading, and E) the complete confidence that I really can make consistent profits from my trading over time.

Being Consistent

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

Successful traders know that success means consistency, more than it means immediate profits. Of course traders want to make money, but to do that consistently, you may have to learn by dealing with setbacks and unimpressive gains. The trick is not only to make money off of trades but to learn WHY you made that money. And if you simply get lucky now and then, you haven’t learned anything you can turn into a consistent strategy of success over a career, or even a lifetime, of day trading.

That’s why successful traders bank on consistent profits. They know that ignoring the small-profit trades and angling for a “grand slam” is a sure way to lose money. No one can repeatedly predict huge gains on any one trade. But many people can and do predict a host of small-profit trades that create the same, if not more, profit than people who get extremely lucky once or twice. (more…)

Two Steps to Consistent Profits

  
  Education
#  #  #  #  #

tworules1. Work on yourself and your personal issues so that they don’t get in the way of your trading. This step must be accomplished first; otherwise, it would interfere with each of the other steps.

2. Thoroughly understand your objectives and develop a position sizing strategy to meet those objectives. Probably less than 10% of all traders and investors understand how important position sizing is to trading performance and even fewer understand that it is through position sizing that you meet your objectives.

Go to top