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36 Points For Traders

  
Analysis, Education
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  1. You absolutely have to find a vent to release pressure and adrenaline – sports, drinking, painting, anything that helps.
  2. If you can manage to find a mentor in which you believe, you will make it much faster.
  3. Your trading style has to fit your personality and your lifestyle, or cognitive dissonance will get the better of you.
  4. Meditation sucks, doesn’t work for me.
  5. Overtrading is your death.
  6. Once you are comfortable missing a move, you will be able to trade profitably.
  7. Not trading the news does not make sense at all – during news there is real liquidity and a real interest to push prices in one way or another. Let the market show its hand, then get in.
  8. Let it turn, let price create structure, THEN get in, with the structure as protection in your back.
  9. Don’t system hop, but adapt the system of your choosing to your needs.
  10. Don’t trade overleveraged.
  11. Yes, it is possible to turn a small account into a huge account, but don’t expect it to happen overnight, and don’t expect to be able to do it before your fifth (or so) year of trading.
  12. Some are faster, some are slower, some will never get it.
  13. Risk per trade is a function of the volatility of your strategy and your psychological ability to deal with swings in your equity.
  14. Know exactly why you are trading, and what you want to achieve – which career path will be yours?
  15. Daytrading is not easier than swingtrading or vice versa. They both simply require different skillsets, different abilities (yes, some people are just too slow for daytrading) and different preparation routines.
  16. Trust your gut. Absolutely love the trade? Get in. Don’t love it? Just stay out.
  17. No pain, no gain. Demo trading is ok, but don’t do it for too long. Risk micro amounts of money, get used to losing money. Because you will lose for the rest of your life if you want to be a trader. It’s part of the game. You “just” need to win more than you lose.
  18. Listening to music while trading can be a good thing – just know yourself. If I listen to aggressive music in the car, I will push the pedal to the metal. The same happens when trading.
  19. Have a trading journal and review, review, review.
  20. Work on your psychology, but don’t underestimate the power of knowledge. Fear stems from not knowing. Work hard, know more, be more confident. Most psychological issues will dissolve into thin air.
  21. Yes, I said: don’t system hop. But for the first year or two, try out everything you can. Every market, every strategy, every trading style. How can you know what fits your personality if you don’t know what’s out there? Finally, decide and take the leap of faith.
  22. Screen time alone won’t help you. Again: review. REVIEW! You need an effective feedback loop or you will repeat the same mistakes again, and again, and again. There is no learning by doing in trading.
  23. You don’t need to be hyper intelligent to be a trader. The best traders I know are “simple” minds. They do what works, they have no ego, and they disregard what does not make sense to them.
  24. Do not have monetary goals. Have process-oriented goals.
  25. Do not look at your P&L during your trading session or you WILL trade your P&L. Before and after a trading session, the money in your account is money, yes. During the session, however, the money in your account is ammunition that has to be spent in order to acquire more ammunition, if that makes sense.
  26. Trading with the trend is not easier than trading against the trend. Trading with the trend is the last thing I learned and every single trader I know seems to have the hardest time following a trend.
  27. If you want to pay for education, do your research. It is very possible to differentiate the scammers from the real traders. If something sounds too good to be true, run as fast as you can.
  28. Never forget to be grateful at the end of the day. You are given the chance to make money by clicking a mouse from the comfort of your home. How many people on earth can say the same?
  29. Trading fulltime is often romanticized but can quickly turn into a social nightmare. Keep up that work-life-balance.
  30. Find other mental challenges for your brain than trading. Feeding your body McDonalds everyday will, and nothing else, will kill you. Trading every day without reading a good novel once in a while will make you braindead.
  31. Likewise, there are lots of videos on Youtube with quite good content. You need to find a way to distinguish the goodies from the baddies.
  32. Don’t be mistaken, trading is gambling. You want to be a professional gambler? Make up your mind.
  33. A structured pre-trading routine is one of the best things you will ever do in your career as a trader. Take your time to create and establish it.
  34. Learn your basic and classic price patterns such as Head & Shoulders, Wedges, Triangles, etc. It takes a week to get them all into your head and you will profit from that knowledge for years to come.
  35. Never pick tops and bottoms. Take the middle of the moves and your results will improve.
  36. Believe in your abilities and trust your strategy or you will be destroyed.

That’s it for now. I have plenty more of these in my tattered and very, very old notebook. Which do you agree with, which not? Do you want more of my wartime wisdoms? Let me know in the comments below!

Metaphors and Similes

  
  Education
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Similes and metaphors play an important role in both the internal thought-process of a day trader as well as in communication between two traders.  To describe the emotional reactions coupled to the movement of a stock in likeness to a rollercoaster, or to compare averaging down in hopes of breaking even to digging one’s self out of a hole is to use simile to quickly illustrate a particular situation as clearly and succinctly as possible.  Every trader uses these analogies, each having his own favorites, and they are used to add structure to an environment that often lacks useful tools for explaining particular occurrences. 

Sports metaphors also play an important role in quickly passing information to another trader with a small chance for confusion.  Traders use base-hit as a metaphor to describe a solid but ultimately small-scale win in the market, and home run for when a trade is “out of the park”.  

Ultimately, metaphors and similes can be used by a trader to keep his mind in the right place, and maintain emotional control.  By metaphorically comparing trading to baseball or basketball, the Michael Jordan truism about never missing a shot he didn’t take or Babe Ruth’s statistical record for strikeouts helps the trader keep in the back of his mind the inalienable reality that he won’t get a hit every time he swings the bat. 

Some traders choose to relate trading to fighting a war, conducting scientific research, or any number of analogous endeavors.  The best metaphors and similes are those with which the trader can most easily identify.  These easily identified intellectual aids, when utilized to enhance trading and the trader’s sense of control, in the end, will increasable productivity, and most importantly, profitability.  

Are You A Subjective or Objective Trader?

  
  Education
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Subjective: Based on or influenced by personal feelings, tastes, or opinions.Proceeding from or taking place in a person’s mind rather than the external world.

Subjective traders they are intertwined with their trades.Their signals are generally entering out of greed and exiting based on their own internal fear. The believe in their opinions more than the actually price action. They base trades off of whether they are feeling good or bad about a particular trade. A subjective trade comes out of the imagination of the trader, from their own beliefs, opinions, and what “should” happen in their view. Many times reality is not even cross checked as a reference, and if it is the subjective traders sees what they want to see instead of what is really going on. Their compass is their emotions and they have internal goals other than making money.

Objective: (Of a person or their judgment) not influenced by personal feelings or opinions in considering and representing facts. Having actual existence or reality.

Objective traders have a quantified method, a system, rules, and principles they trade by. They know where they will get in based on facts, and where they will get out based on price action. Objective traders have a written trading plan to guide them. The guides of the objective trader is historical price action, charts, probabilities, risk management, and their edge. They react to what is happening in reality in quantifiable terms that can be measured. They go with the flow of price action not the flow of internal emotions. (more…)

Discipline & Passion

  
  Education
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All successful day traders need discipline, once you have a plan stick to it. When day trading you can lose money as well as make money, as losses can result in an end to your career you need to manage your risks, know where to set your limits and stop loss orders accordingly. Once you have met your objectives do what you planned don’t let greed or fear take control of you. 

Day trading involves being passionate about the market, a good day trader never switches off tracking the market day in and day out following news globally, analysing charts and looking at quote screens. This all has to be processed as quickly as possible, this is of course is what will give a good day trader an edge. 

Mastering the Trade, quotes by John F. Carter

  
  Education
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The quotes below are provided by John F. Carter, master day trader; pulled directly from his new book Mastering the Trade.

This may be the best quote of all:
“The financial markets are naturally set up to take advantage of and prey upon human nature. As a result, markets initiate major intraday and swing moves with as few traders participating as possible. A trader who does not understand how this works is destined to lose money”

“The financial markets are truly the most democratic places on earth. It doesn’t matter if a trader is male or female, white or black, American or Iraqi, Republican or Democrat. It’s all based on skill.”

“A trader, once in a position, can deceive himself or herself into believing anything that helps reinforce the notion that he or she is right”

“…professional traders understand this all too well, and they set up their trade parameters to take advantage of these situations, specifically preying on the traders who haven’t figured out why they lose”

“…markets don’t move because they want to. They move because they have to.”

“After all, the money doesn’t just disappear. It simply flows into another account – an account that utilizes setups that specifically take advantage of human nature.” (more…)

6 Trading Rules

  
  Education
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6 TRADING RULES1.IF YOU DON’T LIKE THE TRADE YOU’RE HOLDING, GET OUT.

2.AFTER TWO HOURS OF TRADING, ASK YOURSELF: “DO I FEEL GOOD ABOUT MYTRADING TODAY?” Once two hours have passed, A day trader should have made at least two, or perhaps more, trades, “but enough to evaluate what you have done.” If the trader feels good about the day’s trading, continue. If not, stop trading that day.

3.ALL CYLINDERS OF THE ENGINE MUST BE RUNNING EFFICIENTLY. “Day-trading is a job, and your paycheck is determined by your ability. You can only maximize your ability if you have all the information you need to make trading decisions. “If a piece of equipment that one uses for trading is not working, stop trading.

4.HAVE COMPLETE FAITH IN YOUR INDICATORS.This is a must for success.Many times your indicators give you a buy or sell signal, and you don’t follow it because you don’t have the confidence the signal is right this time. Successful day traders believe in their indicators, but also are aware that nothing is 100% foolproof.

5. TO ANYONE WHO ASPIRES TO BECOME A DAY TRADER, OBSERVE THOSE WHO ARE SUCCESSFUL. “Any information you can procure on the trading philosophies, mechanics and techniques is well worth your while.”

6.DAY-TRADING IS A LONG-TERM COMMITMENT. “I fervently believe it takes several years to become a true professional”

Long or Short Position

  
  Education
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Do you need to long or short the market today? If you’re a day trader, forget this question and ignore this post. But if you’re a positional player, perhaps having a holding period of at least 5 sessions, the above question is necessary.

Let us ponder.

1. What are your chances of success (initiating a trade that will eventually turn into a satisfactory profit)? Since you’re going to hold for several sessions, possibly facing several opening gaps along the way, might as well establish a position that you’re going to sleep with. So, unless you get the price you’re comfortable with, stay aside. Particularly practical with long holidays.
2. Is this your original plan? Are you trading according to your overall strategy or purely intraday impulse? I don’t think its very difficult to tell the difference. If you trade base on intraday impulse, you get a little more excited than usual.
3. ‘I have been dormant for some time, and I seriously need to do something’. The degree of this itchiness varies according to individuals. If you come from a day trading background, you’ll have a tougher time adjusting. After all, the mindset of ‘If I don’t do anything, I am not going to make anything either’ is in every human’s mind. Think about it. Position trading involves much passiveness, so technically, after establishing a position, you are dormant in some way.
4. ‘I am sure this is a solid short term opportunity’. I think this is the mother of all trading sin. Of course, this does not apply to day traders. But if you’re now a positional trader, stay a positional trader. Learn to let go the small fish.

Core Trading Concepts

  
  Education
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If you are serious about your trading there are some concepts you must know in significant details. Those concepts will help you build a strong foundation on which you can build a trading system. There are seven  concepts you should study:
 
  • Momentum : If you understand this you will understand trends and mean reversion. You will understand why and how momentum works in the market. Most indicators are momentum based. Trend following and buying strength also works, so does mean reversion. They are all part of the momentum phenomenon. 
  • Market Breadth: Stock markets are composite markets. The overall move in market is an aggregate of moves of several hundred or several thousand stocks. So the level of participation in a move is important. 
  • Equity Selection: Because the overall market is a composite of many individual moves, it becomes critical to select right kind of stocks from the universe of stocks. Hence equity selection is extremely critical. You should know various ways in which one can select equities.
  • Market Anomalies: Market anomalies are the distortions in the market. If you base your trading on a proven and statistically significant anomaly, you will be profitable. Absent that no amount of indicators will help you. A through understanding of anomalies will give you an edge.
  • Market Microstructure: Market Microstructure is a branch of finance concerned with the details of how exchange occurs in markets.  Understanding this will tell you how the market operates. The concept of market microstructre is very critical if you are trading very small time frames or are a day trader. Because to be successful on those time frame you need to find exploitable anomalies in market microstructure. You need to understand role played by market makers, automated programs, arbitragers, large fund buyers and so on. Their tactics and behaviour creates certain patterns 
  • Growth investing : Growth investors buy stocks of companies growing faster than the average company in the market. 
  • Value investing : Value investors buy stocks of companies which are cheap or out of favor.

Failing Successfully: How the Day Trader Survives

  
  Education
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This one is pretty straight forward. I’m taking a profound queue from Michael Jordan, something he realized and adopted early in his stellar career, and applying it to day trading. And anything else you’re into. People don’t reach and stay at the top of their game by accident, without falling down, or undefeated.

Whether it is sports, music, science, software, business, trading, I think a major component of success is learning to fail … successfully.

Never Break Rule

  
  Education
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It seems like there has been a steady stream of information and opinion flowing on breaking rules. Originally I had planned to talk about the pros and cons of breaking rules. I realized that would be a disservice.  The following is not negotiable.

Day trader vs professional trader.

Rules are what separate a day trader from a professional trader. The only good time to break a rule is never. Barriers are made to be broken not rules, you can have one or the other not both. If you break a rule, what power does anyone of the other rules have? Do you have a rule for breaking rules and what if you break those rules? It adds unnecessary levels of complication.

The most important rule.

Eventually I will back traders assuming there is not some horrible tax or regulation that makes it a stupid risk. A trader must create their own rules. They know themselves the best. The rule that cannot ever be broken is losing more than limit down. I will fire them that day. I do not even like to take clients who break that rule. They are destined to fail. (more…)

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