First, let me say that I know of examples of successful trader’s that don’t have each of the characteristics that I would say the “typical” good trader shares. So there are exceptions to each of these. (more…)
Archives of “discipline” tag
rssTraders' Resolutions for the New Year-2013
What are our top trading resolutions for 2013?
D iscipline
R esults
I ntegrity
V ictory (Over Emotions)
E ducation
Discipline
Most traders could benefit from being more disciplined with their trading. Discipline in trading takes many forms. But it can be summarized as just doing what we know needs to be done.
For example, a common New Year’s resolution is to lose weight. Losing weight is simple in theory—we just need to eat healthy foods and exercise more. Just say no to the doughnut and yes to the salad—simple! Of course, sticking to your plan is anything but easy, which is where discipline comes into play. Just do what we know needs to be done.
If I could target only two things to be more disciplined in next year’s trading they would be:
- Cut losing trades: Do everything to keep losses small.
- Let profits run: Don’t fall prey to the fear of a small profit slipping away. (more…)
Day Trading Mistakes
There are some major day trading mistakes that just about every new trader will make early on in their career. The ones who survive are those who can recognize these mistakes and take corrective action.
The first mistake many day traders make is to skip the planning phase of the day or a trade. Every day you sit down in front of your monitors you should have a general plan for the day. You should understand the major trends and support/resistance of the major indices, and the stocks you plan on trading. In addition to that, once you see your stock setting up for a trade you should have a plan that includes an entry, a target and a stop-loss before you even pull the trigger on the trade.
Another mistake that we often see in day trading is the inability to exit on a losing trade. If you have issues with getting out of the market when your pre-planned loss has been hit on your own, try using stop-loss orders. Never. Never ever ever move a stop loss order once it’s been placed. This requires some discipline but it will save you tons of money in the long run. You should never be hoping that your stock will turn around, and go where you expected. You should be executing your plan to the letter.
On a similar note, you also never want to move your targets. If you keep moving your target away from the stock’s current price, you’re never going to take your profits. A typical day trading exit strategy is to take profits at predetermined levels as you proceed into green territory. This means that before you’ve entered the trade you’ve chosen two or more targets. You exit a portion of your trade at each target. Now, if you think your stock is going to trend for the day, you can plan for that too. This is called a trade-to-hold. It doesn’t mean you move your target, but rather you try to stay in the trend by setting a trailing stop. A trailing stop can either be automatically set at a certain percentage or point value behind the stock price, or you can mechanically keep moving your stop loss up to obvious points of resistance or support behind your trending stock. (more…)
Trade Your Plan
After yesterday’s close, we received an e-mail from a long-time subscriber, who asked us the following question, “When you see a position that is going against you and the market is dropping, and you are losing money on a trade, but your stop loss hasn’t been hit yet, how do you stay with the position? What is your secret? Do you pullback and look at the big picture or do you simple assume its all noise as long as it doesn’t hit that lower low? This is my biggest problem with tracking your trades and most of the time you are right in holding on.” … Because we thought our answer to his question may be beneficial to other traders as well, we wanted to share our reply to his e-mail, which was…
“The key point you stated is ‘but your stop loss hasn’t been hit yet.’ When we put on a trade, it’s like entering into a contract, so we try to stay the course and simply follow the plan. Over the years, we’ve found it’s best to stick with our original analysis because we usually plan a trade at night, or in the pre-market, without the stress of live trading. During the trading session, in the heat of the moment, there is so much pressure that we have to fight the voice in our heads telling us to sell the position when everything around is crumbling. It basically comes down to planning the trade and trading the plan…easier said than done, right? Sometimes, if you have a feeling things are going bad, and you’re an active trader, you can maybe sell 1/4 or 1/3 of the position to ease your mind. However, you must have the discipline to get back in once the coast is clear. Try to lay out a plan, write it on paper, and stick to it. The one thing every trader must accept, in order to be successful, is a loss. You must be fully prepared to lose what you’re risking. Once you accept losses as part of the trading game, the pressure to be right is not so intense.
Mirage
Profits resulting from the violation of one’s own system or methodology constitute the most treacherous mirage of success. We’ve all been tempted at one time or another to suspend our collection of pre-defined rules (so painstakingly accumulated, yet so easily put aside) for the possibility that for this one particular moment, distinguished from all others, things might be different. And perhaps we were right — this time — and the register rung. Yet for those of us who have chosen the way of the System, the momentary suspension of discipline is a transgression beyond profit or loss. For no matter the what the outcome of the trade executed, the damage has already been done (more…)
15 Rules for Traders
RULE # 1:USE MONEY YOU CAN AFFORD TO LOSE
If you are trading With funds
1) You need for some family projects, you are doomed to failure.this is because you wont be able to enjoy the mental freedom to make sound trading decisions.
2)your trading funds should be viewed as money you are willing to lose. your position should be careful analysed so you don’t jeopardize other funds or assets.
3)one of the keys to successful trading is mental independance.
4)you have got to trade outside influencing factors and that means your trading freedom must not be influenced by the fear of losing money you really have earmarked for a specific need.
RULE # 2: KNOW YOURSELF
1)you need an objective temperament, an ability to control emotions and carry a position without losing sleep. Although trading discipline can be developed, the successful traders are unemotional about their positions.
2)there are many exciting things happening in the market everyday so it takes a hard nosed type of attitude and an ability to stand above short term circumstances.If you do not have this attitude you will be changing your mind and your positions every few minutes.
RULE # 3: START SMALL
1)Test your trading ability by making paper trades. then begin to trade small.start with mini account.
2) beginning traders should learn the mechanics of trading before graduating to more volatile contracts.
RULE # 4
O NOT OVER COMMIT
1)One rule of thumb is to keep three times the money in your margin account than is needed for that particular position.Reduce your position if necessary to confirm to that rule.this rule helps you avoid trading decisions based on the amount of money in your margin account.
2) If you are under margined you may be forced to liquidate a position early at a costly loss that could have been avoided.
RULE # 5: ISOLATE YOUR TRADING FROM YOUR DESIRE FOR PROFIT.
1)do not hope for a move so much that your trade is based on hope. The successful trader is able to isolate his trading from his emotion. Although hope is a great virtue in other areas of life, it can be a real hindrance to a trader.
2)When hoping that the market will turn around in their favor beginners often violate basic trading rules. (more…)
Cutting losses
There is one big difference between traders, who make money and traders who don’t. It is called risk management. Even if you blindly pick your stocks, in the long-term you will make money as long as you cut your losses short. Add to risk management a proper equity selection model and then you are in top 5% in the world. The 5% that actually make money, consistently. This is the biggest secret of successful traders – cutting losses short. It saves capital and it saves your piece of mind.
If you browse on the internet, you will find thousands of articles that preach that losses should be cut short. It is well known fact and yet you’ll be surprised how few people actually utilize it, even those who write about it. Words are free. You can say whatever you want. Many people don’t practice what they preach and this is why the biggest edge someone could have is called discipline.
There are two types of traders: the ones that cut losses short and the ones that lose everything and go out of business. If you can’t define your risk in advance and most importantly if you can’t accept it, you should not be trading at all. Reading about cutting losses short will never be enough. It is human to believe that you are different and that you know better and that it will never happen to you. You have to experience it to realize it. It is part of the learning curve. I knew about this rule long before I committed serious money to trading and yet I didn’t practice it until I had my portion of outsized losses. Today, the thought of how and where I’ll exit a trade, is the most important.
I know that there are many people who preach that they don’t use stop losses and yet they are successful. Well, if they are successful doing that, then they are not really traders. They are investors and they limit their risk by hedging, which is a whole new chapter.
6 Mistakes Traders Make
1. Failure to have a trading plan in place before a trade is executed. A trader with no specific plan of action in place upon entry into a futures trade does not know, among other things, when or where he or she will exit the trade, or about how much money may be made or lost. Traders with no pre-determined trading plan are flying by the seat of their pants, and that’s usually a recipe for a “crash and burn.”
2. Inadequate trading assets or improper money management. It does not take a fortune to trade futures markets with success. Traders with less than $5,000 in their trading accounts can and do trade futures successfully. And, traders with $50,000 or more in their trading accounts can and do lose it all in a heartbeat. Part of trading success boils down to proper money management and not gunning for those highly risky “home-run” type trades that involve too much trading capital at one time.
3.Expectations that are too high, too soon. Beginning futures traders that expect to quit their “day job” and make a good living trading futures in their first few years of trading are usually disappointed. You don’t become a successful doctor or lawyer or business owner in the first couple years of the practice. It takes hard work and perseverance to achieve success in any field of endeavor–and trading futures is no different. Futures trading is not the easy, “get-rich-quick” scheme that a few unsavory characters make it out to be.
4.Failure to use protective stops. Using protective buy stops or sell stops upon entering a trade provide a trader with a good idea of about how much money he or she is risking on that particular trade, should it turn out to be a loser. Protective stops are a good money-management tool, but are not perfect. There are no perfect money-management tools in futures trading. (more…)
6 Mistakes done by Traders
1. Failure to have a trading plan in place before a trade is executed. A trader with no specific plan of action in place upon entry into a futures trade does not know, among other things, when or where he or she will exit the trade, or about how much money may be made or lost. Traders with no pre-determined trading plan are flying by the seat of their pants, and that’s usually a recipe for a “crash and burn.”
2.Expectations that are too high, too soon. Beginning futures traders that expect to quit their “day job” and make a good living trading futures in their first few years of trading are usually disappointed. You don’t become a successful doctor or lawyer or business owner in the first couple years of the practice. It takes hard work and perseverance to achieve success in any field of endeavor–and trading futures is no different. Futures trading is not the easy, “get-rich-quick” scheme that a few unsavory characters make it out to be.
3.Failure to use protective stops. Using protective buy stops or sell stops upon entering a trade provide a trader with a good idea of about how much money he or she is risking on that particular trade, should it turn out to be a loser. Protective stops are a good money-management tool, but are not perfect. There are no perfect money-management tools in futures trading.
4.Lack of “patience” and “discipline.” While these two virtues are over-worked and very often mentioned when determining what unsuccessful traders lack, not many will argue with their merits. Indeed. Don’t trade just for the sake of trading or just because you haven’t traded for a while. Let those very good trading “set-ups” come to you, and then act upon them in a prudent way. The market will do what the market wants to do–and nobody can force the market’s hand.
5.Trading against the trend–or trying to pick tops and bottoms in markets. It’s human nature to want to buy low and sell high (or sell high and buy low for short-side traders). Unfortunately, that’s not at all a proven means of making profits in futures trading. Top pickers and bottom-pickers usually are trading against the trend, which is a major mistake.
6.Letting losing positions ride too long. Most successful traders will not sit on a losing position very long at all. They’ll set a tight protective stop, and if it s***they’ll take their losses (usually minimal) and then move on to the next potential trading set up. Traders who sit on a losing trade, “hoping” that the market will soon turn around in their favor, are usually doomed.
Planning, Discipline & Patience.
- Predicting rain does n’t count; building arks does’: Warren Buffett’s Noah Rule.
- “To know and not to do, is not yet to know” – Courtesy of Tom Witters.
- ‘It’s easy to have faith in yourself and have discipline when you’re a winner, when you’re number one. What you got to have is faith and discipline when you’re not a winner.’ – Vince Lombardi
- ‘After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!’ – Jesse Livermore