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What Greed and Fear do ?

  
  Education
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 What greed and fear do:

  • Not setting a stop when the method requires placing a stop (fear of taking a loss).
  • Moving a stop when it shouldn’t have been moved (fear of taking a loss).
  • Removing a stop when it was already in place (fear of taking a loss).
  • Taking profits too early when the signal to exit has not been given (fear of profits being taken).
  • Taking profits too late when the signal is already given (greed).
  • Chasing the market when the entry is already past or no signal was given (greed of missing profits).
  • Not making the entry when the signal is given (fear of losing again).
  • Buying the pullback that is no longer a pullback but a decline (greed based on judgment that it’s now cheaper) or short selling when the rally is now a continued primary direction (fear of losing).
  • Adding on a losing position, i.e. averaging down (fear of losing).

How does a trader go about trading without fear or greed? Although no one can really trade without them, the emotion will still be there, especially when the position is still on. However he can keep them under control by not acting on them.

                                            There are few solutions to this problem:

  1. Write a trading plan for each and every trade and referring to it when he feels the emotion is overtaking him.
  2. Keep a trading journal with each trade taken along with thoughts and emotions during the open position. Recording these moments will reveal how much or how little control he has over emotions that influence or interfering with his trading method.
  3. Use an automated trading system to avoid interacting and interfering with trading. When no trading decisions have to be taken, there is less of a tendency to interfere.
  4. Once the trade is taken and stops and targets are set, walk away from the trading station or go about with other tasks. Stay close and follow every up and down ticks will increase emotions and will eventually affect trading.
  5. Keep the Profits and Loss (P/L) columns out of the desktop. This is the most important factor of all emotions: counting money. By having it readily available emotion will be exaggerated swinging up and down according the profits or losses going up or down. Removing this information is especially recommended for day traders.
  6. Trade small size until emotions are under control. By doing this, it’s obvious that it’s not about making money but about trading the method properly. The further away the thought of money is, the better the emotions are kept at bay.
  7. If trading is technically-based, focus on the charts, not on the quotes windows. Scalpers spend so little time in a position that using quotes and ticks are a necessity. For other traders, these can only increase emotional states.

8 Trading Tips

  
  Education
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1. Know that you can’t control the markets: but you can be well-prepared.

2. Set aside time to prepare: Block out an hour before the markets open through the first hour of trading to make final plans for the day and focus only on your markets.

3. Generate a Trading Plan: Create a Trading Plan and stick to it! Having a plan in place can ease your mind, give you direction and help focus your efforts for profitability. It allows you to control how you will use your trading time.

4. Take a deep breath: You know you can’t control the markets so take a deep breath knowing what you can control – your trading decisions – and don’t let emotion or anxiety get in the way. You can also take a few moments to clear your mind with relaxation and meditation exercises.

5. Turn off all potential distractions: Avoid all potential distractions. When your day starts, make sure you don’t begin it with a potentially distracting activity like Twittering and checking email. Start with a focus on the markets and on how you will perform today. You will feel good about yourself for being well-prepared.

6. Stay positive! There is plenty of research proving the power of positive thinking and general thought on one’s life. Creating a positive approach right from the start of the trading day will have a positive influence on your trading during the rest of the day.

7. Separate emotion, anxiety and the facts: The one reason people feel like trading failures is because they allow their emotions and anxiety to control their actions rather than sticking to the facts of charts and information.

8. Admit that you will win some and lose some: Not everyone can win every time in the markets, but allowing yourself to accept that you will win some and lose some will help you brush off any emotions and anxiety that you feel so you can focus back on winning.

The Right frame of Mind

  
  Education
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The psychology of the trader plays a very important role in his trading decisions and style. The best traders keep their sentiments (greed and fear) out of their analysis and decide to trade with clear mind. Follow the advices below and you will notice a great deal of improvement in your trading style.

Never trade when your mind is occupied with other things. Try to be concentrated on the market. Try to feel the market, that is the Market Sentiment. When you feel overwhelmed of the information in your head, take a break. Then come back with clearer mind. Do not be trigger happy with your trades and always have a trading plan. Follow your Forex system with discipline. Apply the rules of Money Management with care. Always mind your loses! Then let the profits come. Stop loss orders are there to save you by yourself. Always use them and never stay on a false trade just to feed your ego. Ego never makes money! Even the best traders are often wrong. But market is always right!

The best traders have the vigilance to realize the market sentiment quickly and ride the market in the right position. Even when they are wrong at first, they quickly change their posiotions when they realize it!

d your ego. Ego never makes money! Even the best traders are often wrong. But market is always right!

The best traders have the vigilance to realize the market sentiment quickly and ride the market in the right position. Even when they are wrong at first, they quickly change their posiotions when they realize it!

 

A Look at 9 Quotes from George Soros

  
Education, Life
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1. Perceptions affect prices and prices affect perceptions

I believe that market prices are always wrong in the sense that they present a biased view of the future. But distortion works in both directions: not only do market participants operate with a bias, but their bias can also influence the course of events.
For instance, the stock market is generally believed to anticipate recessions, it would be more correct to say that it can help to precipitate them. Thus I replace the assertion that markets are always right with two others: I) Markets are always biased in one direction or another; II) Markets can influence the events that they anticipate.
As long as the bias is self-reinforcing, expectations rise even faster than stock prices.
Nowhere is the role of expectations more clearly visible than in financial markets. Buy and sell decisions are based on expectations about future prices, and future prices, in turn are contingent on present buy and sell decisions.

2. On Reflexivity

Fundamental analysis seeks to establish how underlying values are reflected in stock prices, whereas the theory of reflexivity shows how stock prices can influence underlying values. One provides a static picture, the other a dynamic one.

Sometimes prices change before fundamentals change. Sometimes fundamentals change before prices change. Price is what pays and until expectations change, prices don’t change. What causes expectations to change? – it could be change in fundamentals or change in prices. So what I am saying is that sometimes prices could be manipulated to change expectations, which will fuel further price momentum in a self-reinforcing way. (more…)

Using Hope & Fear Correctly in Trading

  
  Education
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In trading most new traders allow hope and fear to dictate their trading. They have a losing trade and instead of selling it and getting out they instead hope it will come back to even allowing the loss to grow. Another error  for new traders is that when they have a winning trade they fear that the profit will disappear so they sell for a small gain and miss the big trend in their favor. When hope and fear controls the trader they end up with big losses and small gains. A formula for ruin.

Instead the rich trader is fearful of losses getting bigger so they sell quickly when losing, risking a maximum of 1% of their capital on any one trade. Rich traders are able to think clearly and trade rationally knowing exactly what they are risking, when their stop is hit, they get out. This enables them to keep all their losses small.

When a trade is immediately a winner for a rich trader they hope it will run 100 points in their favor. Rich traders enable this to be possible with a trailing stop, they do not get out of a winning trade until a key price reversal has happened that tells them that the trend is actually reversing.

Rich traders are fearful of losses growing bigger and hope that their winners will continue on a monster trend. This mindset allows  them to be on the right side of trends and avoid any huge losses. This is why the best traders in the world are trend followers and win consistently. Do you want to join their club? Then do not let fear and hope dictate your trading decisions use them correctly.

10 Things that Great Traders have Declared Independence From

  
  Education
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10 Things that Great Traders have Declared Independence From

  1. Great traders do not have to be right about any one trade, their success is based on winning more than they lose on a large amount of trades.
  2. Great traders do not need trade ideas from other traders, they trade a system and method independent of others opinions.
  3. The best traders are independent of holding on to losing trades stubbornly trying to prove they are right, they cut losses.
  4. The best traders are not prisoners of their emotions they can make clear headed decisions due to trading like it is a business not an ego trip.
  5. Rich traders became rich because they had systems that allowed winning trades to be free to run as far as they would go. They are independent of price targets.
  6. Rich traders trade independently from Blue Channels sentiment.
  7. Great traders trade charts independently of market sentiment.
  8. Great traders trade independently of talking heads on financial television.
  9. Winning traders are independent of market gurus they have proven systems and methods.
  10. Great traders are free from the risk of ruin because they never risk more than 1% to 2% of their total capital on any one trade.

Five Trading Virtues: Best Practices for Traders

  
  Education
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1) Preparation to start the day and week: Having a clearly formulated strategy to guide trading decisions;

2) Keeping score: Using a trading journal to structure learning, document progress, and sustain positive motivation;

3) Managing risk and maximizing opportunity: Trading with more risk/size when trading well and clearly seeing opportunity and pulling back risk when drawing down, trading poorly, and perceiving little opportunity;

4) Taking breaks: Stepping back from markets periodically to gain fresh perspective, reformulate views, and tweak strategies;

5) Treating trading as a business: Limiting overhead, having a clearly defined plan to move toward profitability, focusing on distinctive areas of strengths and opportunity.

So much of what makes traders great is what they do between market sessions, how they do it, and how much of it they do.

Jim Rogers' Keys to Success

  
  Education
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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…)

10 Pitfalls of Trading & Answers

  
  Education
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What are the 10 major mistakes that these traders make that cost them dearly?

  1. Having no trading plan

When you don’t have a plan, you don’t have a template to follow. It becomes very costly when your emotions are high and you have to make decisions on the fly.

  1. Using strategies that do not match your personality

You hear of a trading strategy that has worked very well and you are anxious to follow it. One important factor to consider is: does it match who you are and your lifestyle?

  1. Having unrealistic expectations

Most traders assume that it is very easy to make money in trading. They have unrealistic expectations with regard to their initial capital, their risk profile and how much money they can expect to make.

  1. Taking too much risk

Usually when traders are down, they want to make their money back very quickly. Therefore, they increase their position size without thinking about the risk/rewards.

  1. Not having rules to follow

Most traders think if they have rules to follow, they are restricting themselves. It is on the contrary. Having rules allows you to be more flexible since you have thought about lots of issues beforehand.

  1. Not being flexible to market conditions (more…)

You Just Might Be …Gambler

  
  Education
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When does trading become gambling? There is a very thin line. I maintain that most traders ARE gamblers. They use markets as a substitute for a casino.

1. IF you enter trades without a clear trading plan, you just might be a gambler.

2. IF you trade just to be trading, you just might be a gambler.

3. IF you’re bored and enter a trade, you just might be a gambler.

4. IF you look at potential profit before assessing potential loses, you just might be a gambler.

5. IF you have no impulse control, you just might be a gambler.

6. IF you have no methodology, you just might be a gambler.

7. IF you rely on others for your trading decisions, you just might be a gambler.

8. IF you do not take full responsibility for your trading outcomes, you just might be a gambler.

9. IF you increase your risk due to losses, you just might be a gambler.

10. IF you do not use stop losses or do not adhere to them, you just might be a gambler.

And my all time favorite

11. IF you get an adrenaline rush when your entering trades, you just might be a gambler.

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