Many times day traders are very anxious and want to be involved in a trade all day. The market only gives a few good opportunities a day and that is when traders should react and take what the market is offering.
Trading is very similar to the lion in the jungle. The lion stalks his pray in the brush and he does not pick on the strongest animal in the pack. He looks for the one that is wounded or the animal that is not paying attention. Therefore, as a trader we must do the same thing.
Patience is what pays. Patience is what gives the lion a full belly when he has not eaten all day. Take a page from nature and only take the best chart setups at the most opportune times. As a trader we cannot impose our will on the market we can only take what the market gives us.
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rssTraders Psychological TEST
Paul Farrell observes that 95% of traders don’t make it. 80% of all day traders lose money. One study found active investors turn over their portfolios excessively (258% annually) but made less than 12% on their money. Passive buy-and-hold investors with only 2% portfolio turnover had significantly better returns.
And, most day traders suffer negative health consequences from their hyper active market moves.
To find out what your trading instincts mean — to grade your own Traders Psychological Profile — answer the following questions Yes or N:
Traders Psychological Profile
Y N You’ve tried more than one new investment strategy this year
Y N Feel you’re buying and selling funds at the wrong time
Y N Rarely open up to anybody for feedback about your losses
Y N Subscribe to two or more newsletters, feel overwhelmed
Y N Can count on one hand all the good laughs this week
Y N Have a lingering resentment about someone or something
Y N You love cable news, but need more time to trade
Y N Rarely break a sweat when exercising the past few weeks
Y N Wonder whether you bet too much on recent investments
Y N Need more than three caffeine and alcohol drinks a day
Y N Feel “something” keeps you from making more money
Y N Frequently don’t trust your instincts or your strategy
Y N You’ve had a major family or personal loss recently
Y N Believe losses are caused by the market manipulators
Y N You’re overweight and snack often on comfort food
Y N Fear your future trades may fail due to a losing streak
Y N Diet and sleep are disturbed by worries about money
Y N Your retirement portfolio’s not growing fast enough
Y N No vacation in a year, and lack an active social life
Y N Nothing (or everything) interferes with making money
Add up the number of Yes answers. Farrell notes that if your total number of “yes” answers is six or more, then day trading is too stressful and risky for you.
The alternative to active trading is intelligent asset allocation. At the very least, he advises that you segregate your “untouchable” retirement money . . .
A great quote
I’m sure every trader has run into some kind of negativity from know-it-all chodes who just don’t get what this subject is about – it goes something along the lines of “What good does it actually do? You are just stealing other peoples money?” blah blah *yawn* blah….
Here’s a great quote from a book I’m reading “Hedge Fund Edge” that demolishes their complaints:
“Principle 7: Develop a Love and Respect for Trading, Free Markets, and Individual Liberty and Initiative.
Profits are just the gravy. When they test a group of traders, one of the traits that almost all successful traders and investors share is a deep understanding of how trading and investing is part of the process that allows humankind to progress. Even day-traders provide critical liquidity that allows others to hedge, companies to raise capital, and investors to invest with limited risk. Stock selection allows investors to become second-level venture capital firms, with their demand helping provide access to financing in areas where the people need capital most. The more you understand the remarkable way in which freedom and free association work to produce economic gain and real progress for humankind from new innovations and technologies, the more likely you are to feel a strong sense of purpose at being a part of such an incredible system. And the stronger your sense that your efforts are creating something good that is bigger than yourself, the more committed, enriched, excited, and innovative you will become.”
… so put that in your pipe and smoke it.
5 Trading quotes for Weekend
-If you are hesitating to take a position, that indicates a lack of confidence that is not necessary. Just get into the position and PLACE A STOP. Day Traders lose money in positions everyday. Keep them small. The confidence you need is not in whether or not you are right, the confidence you need is in knowing you will stick to your stop no matter what. Therefore you can actually alleviate this hesitancy to pull the trigger by continually sticking to your stops and reinforcing this behavior.
-You want to own the stock before it breaks out, then sell it to the momentum players after it breaks out. If you buy breakouts, realize that professional day traders are handing off their positions to you in order to test the strength of the trend. They will typically buy it back below the breakout point which is typically where you will set your stop when you buy a breakout. (In case you ever wondered why you get stopped out on a lot of failed breakouts).
-Embracing your opinion leads to financial ruin. When you find yourself rationalizing or justifying a decline by saying things like, “They are just shaking out weak hands here,” or “The market makers are just dropping the bid here,” then you are embracing your opinion. Don’t hang onto a loser. You can always get back in.
-Professional day traders focus on limiting risk and protecting capital. Amateur traders focus on how much money they can make on each trade. Professionals day traders always take money away from amateurs traders.
-In the stock market, heroes get crushed. Averaging down on a losing position is a “heroic move” that is akin to Superman taking a spoonful of Kryptonite. The stock market is not about blind courage. It is about finesse. Don’t be a hero.
10 Rules for Rookie Day Traders
Here is our philosophy around trading rules:
Rule should be designed to promote growth, not create limitations.
Rules should make YOU better.
Rules need to be second nature.
1. The three E’s: enter, exit, escape
Disagree, I can’t explain for proprietary reasons.
2. Avoid trading during the first 15 minutes of the market open
I agree that the first 15 minutes is risky but the most important thing to a new trader is lasting as long as possible. You are going to be better the more time that goes by, but you learn faster by doing. It is a tough balance.
3. Use limit orders, not market orders
Limits keep you out of the market, which is important. But they can also keep you in a market, which is of importance too.
4. Rookie traders should avoid using margin
Agree. Your winning positions should be larger than losing position, but a new trader doesn’t usually know which is which.
5. Have a selling plan
Agree. (more…)
Nuggets of Wisdom from REMINISCENCES OF A STOCK OPERATOR.
Just Today evening again completed reading this book and this was I think 10th time I had read this book.Iam telling you this is a Bible for Day Traders.
Here are some of the Quotes/Nuggets from this Book.Just spare some time and read them ……
Of course there is always a reason for fluctuations, but the tape does not concern itself with the why and wherefore.
My plan of trading was sound enough and won oftener than it lost. If I had stuck to it I’d have been right perhaps as often as seven out of ten times.
What beat me was not having brains enough to stick to my own game.
But there is the Wall Street fool, who thinks he must trade all the time. No man can always have adequate reasons for buying or selling stocks daily or sufficient knowledge to make his. play an intelligent play.
The desire for constant action irrespective of underlying conditions is responsible for many losses in 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.
It takes a man a long time to learn all the lessons of all his mistakes. (more…)