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Cut Your Losers

  
  Education
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A big debate among traders is whether to sell your losing stocks or hold onto them. Obviously, dependent on both the short and long-term outlook of a stock each side could have a winning argument.

Whether there is a right or wrong answer, when solely using technical analysis for your stock picking analysis, YOU MUST ALWAYS SELL YOUR LOSERS.

The great thing about technical analysis is that it takes emotion out of trading; however, emotion will always be there for other traders. That is why stocks can easily dip or jump higher in a single day – generally it is a reaction to a tangible action that just happened.

When executing trades through the signals of technical analysis, there are always stop points or places where the trade is consider a failure . For the most part, that point of interest is determined by recent price action of a stock. Learn more about the art of stops.

Technical analysis all about using the setup that gives the trader the highest probability of success. Once that setup is broken, your original probability is out the window. Get it?

Basically once your stock dips below the “failure” point the criteria that you essentially bought the stock on no longer stands. Now you are just swinging into the wind hoping for the stock to come back.

Instead I recommend you cut your losses and move on to the next trade. It’s all about keeping the odds in your favor.

The Confident Trader

  
  Education
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Confidence overcomes fear. Confidence also overcomes greed because a component of greed is an underlying sense of scarcity. To be confident doesn’t mean that every trade or trading day will be profitable. What it does mean is that when you look to where you want to go, you know that you can figure out a strategy that will get you there. And you know you can execute that strategy in a consistent manner. A successful strategy doesn’t mean anything if you don’t or can’t or won’t employ it.

Theoretically we should be as successful at trading and investing as our trading and investing strategies. Unfortunately the vast majority of traders and investors fall far short of the results of their strategies. They trip over themselves again and again on the way to employing their methods. My work as a trading coach is to enable traders around the world to become as good as their methods.

Confidence need not waver when you have dips and troughs and plateaus in your trading. Confidence is developed when you realize you can correct mistakes and learn from failures. You don’t persist in failing. You learn and move on. You don’t fear repeating the failure either, you simply anticipate correcting it.

Self esteem is basically the sum total of all the thoughts we have about ourselves. This is quite important because we do tend to become what we think about ourselves. The noted philosopher and psychologist, William James, said, “People, in general, become what they think of themselves.” Not only did he say this but he added that this was the essence of all we had learned in psychology in the prior 100 years. (more…)

John Murphy’s Ten Laws of Technical Trading

  
  Education
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1. Map the Trends

Study long-term charts. Begin a chart analysis with monthly and weekly charts spanning several years. A larger scale map of the market provides more visibility and a better long-term perspective on a market. Once the long-term has been established, then consult daily and intra-day charts. A short-term market view alone can often be deceptive. Even if you only trade the very short term, you will do better if you’re trading in the same direction as the intermediate and longer term trends.

2. Spot the Trend and Go With It

Determine the trend and follow it. Market trends come in many sizes – long-term, intermediate-term and short-term. First, determine which one you’re going to trade and use the appropriate chart. Make sure you trade in the direction of that trend. Buy dips if the trend is up. Sell rallies if the trend is down. If you’re trading the intermediate trend, use daily and weekly charts. If you’re day trading, use daily and intra-day charts. But in each case, let the longer range chart determine the trend, and then use the shorter term chart for timing.

3. Find the Low and High of It

Find support and resistance levels. The best place to buy a market is near support levels. That support is usually a previous reaction low. The best place to sell a market is near resistance levels. Resistance is usually a previous peak. After a resistance peak has been broken, it will usually provide support on subsequent pullbacks. In other words, the old “high” becomes the new low. In the same way, when a support level has been broken, it will usually produce selling on subsequent rallies – the old “low” can become the new “high.”

4. Know How Far to Backtrack (more…)

Wisdom from The New Market Wizards

  
  Education
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Here are the excerpts from “The New Market Wizards” which are very useful tips from the top traders:

Randy McKay

“One very interesting think I’ve found is that virtually every successful trader I know ultimately ended up with a trading style suited to his personality… My trading style blends both of these opposing personality and put where it belongs: trading. And, I take the conservative part of my personality and put it where it belongs: money management. My money management techniques are extremely conservative. I never risk anything approaching the total amount of money in my account, let alone my total funds.”

William Echkardt

“What really matters is the long-run distribution of outcomes from your trading techniques, systems, and procedures. But, psychologically, what seems of paramount importance is whether the positions that you have right now are going to work. Current positions that you have beyond any statistical justification. It’s quite tempting to bend your rules to make your current trades work, assuming that the favorability of your long-term statistics will take care of future profitability. Two of the cardinal sins of trading – giving too much rope and taking profits prematurely – are both attempts to make current positions more likely to succeed, to the severe detriment of long-term performance.”

“Since most small to moderate profits tend to vanish, the market teaches you to cash them in before they get away. Since the market spends more time in consolidations than in trends, it teaches you to buy dips and sell rallies. Since the market trades through the same prices again and again and seems, if only you wait long enough, to return to prices it has visited before, it teaches you to hold on to bad trades. The market likes to lull you into the false security of high success rate techniques, which often lose disastrously in the long run. The general idea is that what works most of the time is nearly the opposite of what works in the long run.” (more…)

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