Now, you ask, what does this have to do with stock and options trading? Just as in every day life and in the case of CFIT, stock and options traders must remain focused on the current trade or risk opening themselves up to any number of mistakes. These mistakes can include (but are in no way limited to)the following:
1) allowing impulsiveness to take over your trading rules, thus taking a trade that does not meet your criteria
2) not taking a trade signaled by your system because your focus is elsewhere (more…)
Archives of “different systems” tag
rssAre you A Discretionary Trader? How would you be able to tell?
Here is a quiz that will help you decide. Answer Yes or No to the following questions.
1. Do you sometimes buy newsletter recommendations without having a real plan for how you’ll get out of the trade?
2. Do you occasionally (or often) take trades based upon some interesting indicator that you learned in a workshop (i.e., when you see that indicator go, you usually get into a trade, but again you have no real plan about how you’ll get out of the trade)?
3. Do you trade three or more different systems in the same account?
4. Do you trade more than ten different systems?
5. Do you sometimes enter a trade and later not remember why?
6. Are you unsure of how many systems you have?
7. Do most of your systems lack a complete set of rules to guide your behavior?
8. Are your systems equivalent to the setups used to get into the trades and nothing more?
9. Are you unable to list the rules for the last trade you made?
10. Are you able to list the rules for any of the last five trades you made? (more…)
Larry Hite-Trend Following Legend Who Respects the Risks
Larry Hite was featured in Market Wizards. Market Wizards is a must read for all trend followers. On one level you will learn various trading tips however on the other hand, do not be think that your trading will be so easy. Trend following as easy as it is, is very difficult.
Try to internalize some of Larry Hite’s trading tips for trend followers:
I have noticed that everyone who has ever told me that the markets are efficient is poor.
People develop systems and people will make mistakes. Some will alter their system or jump from system to system as each one has a losing period. Others will be unable to resist second-guessing the trading signals. People don’t change.
The very first rule we live by at Mint is: Never risk more than 1% of total equity on any trade. Secondly, we always follow the trends and we never deviate from our methods. In fact, we have a written agreement that none of us can ever countermand our system. Thirdly, diversify in two ways. A. we trade more markets worldwide than any other money manager. B. we use lots of different systems ranging from short term to long term.
Over-rated indicators: Overbought/oversold indicators.
Two basic rules: (1) if you don’t bet, you can’t win. (2) If you lose all your chips, you can’t bet.
Never trade counter to the market trend.
Principles of Peak Performance
The first principle of peak performance is to put fun and passion first. Get the performance pressures out of your head. Forget about statistics, percentage returns, win/loss ratios, etc. Floor-traders scratch dozens of trades during the course of a day, but all that matters is whether they’re up at the end of the month.
Don’t think about TRYING to win the game – that goes for any sport or performance-oriented discipline. Stay involved in the process, the technique, the moment, the proverbial here and now.! A trader must concentrate on the present price action of the market. A good analogy is a professional tennis player who focuses only on the point at hand. He’ll probably lose half the points he plays, but he doesn’t allow himself to worry about whether or not he’s down a set. He must have confidence that by concentrating on the techniques he’s worked on in practice, the strengths in his game will prevail and he will be able to outlast his opponent.
The second principle of peak performance is confidence. in yourself, your methodology, and your ability to succeed. Some people are naturally born confident. Other people are able to translate success from another area in their life. Perhaps they were good in sports, music, or academics growing up. There’s also the old-fashioned “hard work” way of getting confidence. Begin by researching and developing different systems or methodologies. Put in the hours of backtesting. Tweak and modify the systems so as to make them your own. Study the charts until you’ve memorized every significant swing high or low. Self-confidence comes from developing a methodology that YOU believe in. (more…)
Are you a discretionary trader?
How would you be able to tell? Here is a quiz that will help you decide. Answer Yes or No to the following questions.
- Do you sometimes buy newsletter recommendations without having a real plan for how you’ll get out of the trade?
- Do you occasionally (or often) take trades based upon some interesting indicator that you learned in a workshop (i.e., when you see that indicator go, you usually get into a trade, but again you have no real plan about how you’ll get out of the trade)?
- Do you trade three or more different systems in the same account?
- Do you trade more than ten different systems?
- Do you sometimes enter a trade and later not remember why?
- Are you unsure of how many systems you have?
- Do most of your systems lack a complete set of rules to guide your behavior?
- Are your systems equivalent to the setups used to get into the trades and nothing more?
- Are you unable to list the rules for the last trade you made?
- Are you able to list the rules for any of the last five trades you made?
If you answered Yes to as many as two of the questions above, you have some elements of a no-rules discretionary trader. However, if you answered Yes to 6 or more questions above, you definitely are a no-rules discretionary trader.
Chances are you seldom make money in the market because you are not playing a winning game. You probably make many mistakes. In fact, since you don’t have rules, I would consider everything you do to be a mistake until you have a set of rules in place. How can you effectively learn from any of your trading experiences if you do not know which ones are mistakes? (more…)
Focus on You
It is never the system or author writing the trading book that fails.
It is YOU! It is your lack of focus.
Focus on yourself and then you can focus on trading successfully.
Trading is at least 98% psychological. It’s a mental state of mind based upon your beliefs of what may happen. Books, systems and technical indicators can only take you so far! You must accept and understand that the market is all in your head. It is you versus the other trader. If you don’t understand YOU, how will you ever understand other traders; thus taking advantage of market moves based on their mental state of mind and their underlying beliefs.
Many investors, both novice and experienced, drift from book to book to book and system to system to system, never understanding why they produce inconsistent profits. They are confused, looking at too many things, complicating the entire process while ignoring the essentials to success.
Keep it simple.
Why complicate things when simplicity works; especially when it comes to trading? We know that trading may be the most difficult endeavor that any human may attempt to undertake.
Thousands of different systems work in the stock market so we can conclude that it is the user that ultimately fails because of lack of concentration and motivation to stay the course. Wall Street is not for drifters and most people can’t play the game profitably because they never sharpen their own mental skills while applying basic money management techniques. They focus on the wrong set of skills.
We all see people come and go every day: rags to riches to rags. They are motivated for weeks, months and sometimes years but most fizzle away after they fail and can’t figure out what they are doing wrong. Some investors copy a system from a so-called guru and may find success for a while but they don’t tailor it to their personality, integrate it with their investing style and focus on their mental state of mind, therefore, it will become obsolete and they will fail. Working hard to become successful in the market is fine but understand that working smarter will always take you further.
Our goal as traders and investors is to understand the crowd and anticipate how they will act and react based on the thoughts we had, prior to focusuing on the proper skills, when we were just one of the sheep (waiting to be slaughtered)!
Focus on what is important and the success will follow.
Stop focusing on iffy stochastics, Bollinger bands, MACD, ADX, earnings releases and bogus news stories. Yes they can aid you to success but the main focus is on you!
Personally speaking, I require specific fundamentals, price, volume and basic daily and weekly charts to succeed but they are secondary tools. They can help me make money as long as I am focusing on the overall picture which is my mental focus and my emotional balance.
I know I am getting all “Dr. Perruna” on you but it is true.
Once your conscious mind understands how the beliefs of the crowd work, your subconscious mind takes over and intuition kicks in and you start making some of the best decisions of your life by flawlessly following your system.
As Jesse Livermore said:
“Wall Street never changes, the pockets change, the stocks change, but Wall Street never changes, because human nature never changes”
Why? Because humans never change!
Once you understand this and learn to trade other humans, you will become successful. Yes, you will need some of the tools mentioned above but don’t focus your attention in this area. Focus when investing by mastering the beliefs of the crowd and you will always be one step ahead.