It is not whether you can be a good trader, it is whether you can find the trading that is good for you.
When you have found your niche, you don’t need discipline to do the right things. You won’t want to do anything else.
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rssWHY traders really lose money
Let us now talk a bit about the reasons WHY traders really lose money. Since I was able to talk to many traders from different corners of India, I can honestly say that majority of them show the same reasons to the trading failure.
THE MOST FREQUENT REASONS ARE:
1. No quality trading education and know-how;
2. Poor, or nonexisting, trading plan;
3. Lack of trading discipline;
4. Underestimating the importance of money management;
5. Trading on inner “impulses” or “inspirations”;
6. Trading with the money that one cannot afford to lose;
7. Knowing a little, or nothing, about the psychology of trading.
Trading Plan & Discipline
Just remember, without discipline, a clear strategy, and a concise plan, the speculator will fall into all the emotional pitfalls of the market and jump from one stock to another, hold a losing position too long, cut out of a winner too soon and for no reason other than fear of losing the profit.
Greed, Fear, Impatience, Ignorance, and Hope will all fight for mental dominance over the speculator. Then, after a few failures and catastrophes the speculator may become demoralized, depressed, despondent, and abandon the market and the chance to make a fortune from what the market has to offer.
Get Out When You’re Wrong
Successful traders know that discipline is what allows them to enter their trades when the odds are in their favor and, more importantly, to get out when they’re wrong.
Being right is not the problem. What you do when you’re wrong is the crucial issue.
There are a lot of traders who buy then pray while the market goes against them, because they think that it will eventually go their way.
Most traders average down and wait for the market to turn their way.
Trading my way, I always have defined amount of money that I am willing to lose.
I let the market decide how much money I’m going to make.
Trading Loss
Losses are part of any type trading. Some are bigger and some are smaller. Every loss hurts, it does not matter whether it is big or small. Learn to respect them and try to minimize them.
A Planned ‘Entry’ leads to a Planned ‘Exit.’ Before you enter into a trade, you have plenty of time to think about Entries/Exits. Once you are in a trade, you have limited focus and may not make rational decisions for the exits (loss/profit).
If you have planned your trade ‘Entry’ with multiple entries/lots at multiple levels, then ‘ADDING’ or ‘Scaling Up’ is part of the plan. Adding is part your strategy. You must know ‘ADDING’ levels and size BEFORE you place your first order. You must also know how you plan to EXIT this trade.
If you are adding more shares/contracts because of a losing position and DID NOT PLAN then averaging down becomes gambling. Most traders blow out their capital by Forced-Adding process. This obviously leads to many psychological issues (Poor discipline, Gun-Shy:Afraid to pull-trigger, Overtrading, Premature Entries/Exits etc.) If you see a Loss at your ‘STOP LEVEL’, get out of the trade than ADD. Never HOPE that this trade will turn-around. 7 out of 10 times, it will NOT turn-around and will end up in a bigger loss. If you have planned ‘STOP’ ahead of your trade, you will feel confident during the trade and may come back to trading with cooler head at a later time/day, in case of a loss.
Trading: Doing the Homework
Many new traders fail in the stock market simply because they rush in without putting in the proper time and discipline in doing their homework. Trading is a professional endeavor much like any other career, you will only get out of it what you put into it. There is no easy money, you will have to earn it by out witting, out playing, and out smarting the majority of other market participants.
You need to learn ten things to be a successful trader:
- How to manager your risk per trade.
- What systems and methods really make money over the long term.
- What system fits your personality and beliefs about the market.
- How much heat you can you handle. How big can you trade with out emotions taking over?
- You must learn how the market actually works, trends, flows, and functions.
- Learn to focus only on what makes money in the market, everything else is noise.
- Discover who the greatest traders of all time were and study how they operated.
- Find out what the best books on trading are and read them.
- Study the charts of the stocks you are trading to understand how it works with trends, support, resistance, and moving averages.
- Practice paper trading, simulated accounts, and trading small positions of real money until you have mastered your trading plan. (more…)
40 Trading Lessons
1. Trading is simple, but it is not easy.
2. When you get into a trade watch for the signs that you might be wrong.
3. Trading should be boring.
4. Amateur traders turn into professional traders once they stop looking for the “next great indicator.”
5. You are trading other traders, not stocks or futures contracts.
6. Be very aware of your own emotions.
7. Watch yourself for too much excitement.
8. Don’t overtrade.
9. If you come into trading with the idea of making big money you are doomed.
10. Don’t focus on the money.
11. Do not impose your will on the market.
12. The best way to minimize risk is to not trade when it is not time to trade.
13. There is no need to trade five days a week.
14. Refuse to damage your capital.
15. Stay relaxed.
16. Never let a day trade turn into an overnight trade.
17. Keep winners as long as they are moving your way.
18. Don’t overweight your trades.
19. There is no logical reason to hesitate in taking a stop.
20. Professional traders take losses because they trust themselves to do what is right. (more…)
TRADING QUOTES
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
Fear
- ‘Never let fear of striking out, get in your way’: Babe Ruth.
Perspectives
- ‘It’s tough to make predictions, especially about the future,’ – Lawrence Peter ‘Yoggi’ Berra.
- “go as far as you can see, and when you get there , you will see further.” –
- anonymous
- ‘Don’t worry what others think… They don’t do it very often’ – Courtesy of Mark Carstens.
- “A little learning is a dangerous thing, but we must take that risk because a little is as much as our biggest heads can hold.” – George Bernard Shaw.
- “Those who cannot remember the past are condemned to repeat it” – George Santayana.
- “Glory is fleeting but obscurity is eternal” – Napoleon
- ‘A long term investment is when I break even.’ – Courtesy of David Wong. (more…)
5-Costly Trading Mistakes
1. Undercapitalized. If the trader does not have the adequate capital to trade with, then money, not learning how to trade, will be the primary focus. Few, if any, ever succeed trading scared money.
2. Overtrading. The idea is to make money and keep it, not give it all back because of recklessness. There is no such thing as being perfect when it comes to trading. Overtrading will easily prove just how imperfect you are.
3. Trading Too Many Markets. Learn to be a specialist because in trading it is best to put all your eggs in one basket while knowing how best to watch and protect that basket very closely.
4. Believing You Are Invincible. Few activities teach humility as well as trading. Seasoned traders respect the risk while novice traders treat success as their birthright.
5. Lack of Dicipline. You have to have a game plan when trading. Failure to have a plan betrays your lack of discipline and feeds your desire to trade off the cuff. Trading this way is a recipe for disaster. Just ask someone who has tried it.
4 More Rules to Trade
1. Average Winners Not Losers. It is not “don’t frown, average down”; it is applying the discipline to cut losers short and adding to winners that separates the successful from the unsuccessful. If you have a winning stock then add to it. If you have a losing stock then get rid of it. 2. Never Let a Winner Turn Into A Loser. Greed is the cause of this mistake. Let the market tell you when to exit a trade, not whether you have a profit or not. “If your trade is acting well, as defined by key indicators, and the market activity is supporting your position, stay in. If not, its go time!” Do not let a good profit vanish into thin air because you want more than the market is willing to give. 3. Never Mix Disciplines. If you day trade then day trade and do not let a day trade turn into a swing trade. If you swing trade do not let your swing trade turn into an investment. Follow the rules based on the discipline of your time frame. 4. Never Try To Trade Back A loser. In other words, each trade is a new one and should not be used to win back money lost in the last trade. Always trade in the present not in the past where too many emotional and psychology factors can affect the current trade. Revenge does not pay in or out of the market. |