Archives of “discipline” tag

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Ten Ways to Trade With an Edge

  
  Education
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An edge is an advantage that a trader has over his competitors, allowing him to generate and retain profits from other traders . There can be many types of  trading edges through risk management, psychological management, and through better trading methods.

Here are a few:

  1.  A selective trader that only trades the best set ups, trends, and stocks has the advantage of waiting for the fat pitch and not just swinging at every ball thrown his way.
  2. Simply using correct position sizing can put you in the top 10% of traders simply by not blowing out your account and staying in the game by maximizing winners and minimizing losers..
  3. Risking no more than 1% of your capital per trade brings your risk of ruin down to almost zero and allows the trader to survive losing streaks. You have the edge of being around to have a winning streak later on.
  4. Only taking trades with a risk-to-reward of 3 to 1 or better gives the opportunity to have bigger winners than losers in the long run which is needed to be profitable. 
  5. Trading in the direction of the trend in your time frame gives you an edge over those losing money by fighting the trend.
  6. Having the discipline to follow a trading plan gives you an edge over those that trade based on fear and greed. (more…)

Poker/Trading Similarities

  
  Education
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pokertrading

  1. Actual winning/losing of a trade is unimportant.
  2. Each well executed trade, win or lose, is a victory.
  3. Each poorly executed trade is a defeat (even if you make money).
  4. Each move or action lacking discipline can eventually cost much more money than the original trade in the form of monetary/emotional loss.

My Trading Lessons for Traders

  
  Education
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Read….When ever you are Free.

  • Prepare, be confident & be decisive

  • Follow my trading rules without exception

  • Plan every trade with profit exit, stop exit and risk/reward ranking

  • Trade only when you have time AND you have an edge

  • Formulate and write down a trading/investing plan

  • Exit a position at my stops and not “hope” it will recover tomorrow

  • Trade the market I actually see, not the one I think I will see

  • Focus more on what’s actually happening rather than what I wish would happen

  • Learn to prevent my skepticism and opinion over the economy from keeping me from making good trades

  • Have a plan every day to trade the market and to not let my opinions of the market interfere with my trading

  • Concentrate on rule based trade management and not the outcome of the specific trade

  • Follow price action as opposed to listening to the fundamental “experts”

  • Listen to the market signal rather than market noise

  • Don’t be afraid of making mistakes

  • To pay more attention to technical signals to determine purchase/sell points rather than emotion & personal reasoning

  • Have more confidence in my trade ideas and believe in myself more often

  • Do not have a bias but instead let the charts be the guide

  • Have the discipline and fortitude to stick to my trade plans

  • To improve my organization of stock lists and automation of stock alerts

  • Do not over-leverage

  • Select only the most favorable setups

  • Try not to over analyze every potential trade

  • Lose less when I am wrong

  • Spend less time reading words and more time reading charts

  • Stick with winners and sell the losers

  • Allocate 2-3 hours each day & 5 hours every weekend to finding attractive setups

  • Increase position size and be in the market more (more…)

    • Good Vs. Great Trading

      
      Education
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    Good traders are able to identify opportunities in the market, plan trades, execute trades, and manage trades at a reasonable level. A good trader identifies the opportunity, plans the trade, and executes the trade. He takes his losses with discipline. One might think that great traders are similar to good traders but just better. The reality is that great traders are distinctly different from good traders. The difference is not merely a difference in measure but a difference in kind.

    Great trading is actually much closer to gambling. One of the key differences between great trading and good trading is that great traders don’t just play the odds: great traders play the unknown. The market simply isn’t predictable enough – enough of the time — to allow for the type of returns that great traders seek. So, great traders are much more likely to be going out into that unknown space. This seeking out the unknown always involves a cost. The cost for greatness is the potential for loss, even significant loss. A great trader will typically take more risks. The risks could involve taking trades with higher uncertainties (less confirmation), higher risk per trade (giving a trade more room), and in general just a higher level of risk. This increased level of risk taking is balanced by increased trading skill.

    The problem with trading just trading well is that the game, the trading game, is really close to a zero sum game, even when played perfectly. The focus on limiting risk tends to ignore the reality that every business has to make a profit to survive. The problem with trying to avoid risks is that it tends to push the game to such a competitive level such that the trader must trade at a near perfect level just to break even and nobody can trade perfectly forever. Eventually mistakes are made and losses occur. Great traders are more creative. They move laterally and find creative solutions. Great traders don’t really compete against others. It is more of a dance. Instead of playing the games against others, they make up their own game. (more…)

    A Book of Five Rings by Miyamoto Musashi

      
      Education
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    A Book of Five Rings (or Go Rin No Sho) was written by the samurai legend, Miyamoto Musashi, in 1645. I read this text several years ago and while the central theme is ‘strategy’, the lessons that left a lasting impression concerned ‘true understanding’ and the importance of practice; of practising one’s arts, one’s discipline, one’s techniques. Practising until third nature becomes second nature, becomes first nature. In this age, when knowledge is plentiful and experience lacking, I believe there is much to be learned from Musashi’s wisdom:

    The Kendo student practises furiously, thousands of cuts morning and night, learning fierce techniques of horrible war, until eventually sword becomes “no sword”, intention becomes “no intention”, a spontaneous knowledge of every situation. The first elementary teaching becomes the highest knowledge, and the master still continues to practise this simple training, his everyday prayer.

    Study this book; read a word then ponder on it.  If you interpret the meaning loosely you will mistake the Way.

    If you merely read this book you will not reach the Way of strategy.  Absorb the things written in this book.  Do not just read, memorise or imitate, but so that you realise the principle from within your own heart, study hard to absorb these things in to your body.

    “To know the times” means to know the enemy’s disposition in battle.  Is it flourishing or waning? By observing the spirit of the enemy’s men and getting the best position, you can work out the enemy’s disposition and move your men accordingly.  You can win through the principle of strategy, fighting from a position of advantage.

    …the way to understand is through experience.

    You must bear this in mind.

    Practise this well.

    You must research this well.

    You must appreciate this.

    You must train constantly.

    You must consider all this carefully.

    Study this well.

    You must train hard to understand it.

    With detailed practice you should be able to understand it.

    If you train well enough you will be able to strike accordingly.

    You must train repetitively.

    Learn this well.

    Plan the Trade, Trade the Plan

      
      Education
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    This is where all the thinking in trading comes into play, while writing your trading plan. Once you have created your rules to trade by, you become more systematic and logical in your thought process for executing successful trades. Your personal trading plan will include every step of the trade from identifying to exiting your trade. By having your setup written down in your plan, you will have a better chance of using patience and discipline to wait for your entry. Otherwise, you will use emotions to enter trades and we all know where that will get you. After entering your trade, you will have more confidence because you have back-tested your strategy and know that it has a successful track record and will give you that extra edge over your competition. Identifying your entry strategy will help you execute your strategy in an efficient manner with no hesitation. There will be no guessing or wondering what to do once your setup is identified, you just click and go. Your risk management is also pre-defined so your initial protective stop is set on entry and you know when you will be moving your protective stop to breakeven after the market moves in your direction by a certain amount. Of course, our price target is also known in advance and how we will exit the market at this target. Will we have a set price target, a trailing stop, a time stop, etc.?

    20 Lessons From Stock Market Wizards

      
      Education
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    3994-1Most of you have probably heard of this book and some may have read it. For the benefit of those who have not read it or heard of it, Stock Market Wizards is basically a book that consists of interviews with 15 top stock traders in America. These top traders come from a myriad of backgrounds and have varied interests- from mathematician, historian, scientist, to those with an interest in photography and even farming. But they have quite a few things in common when it comes to trading:
    DISCIPLINE
    LOSS CONTROL
    HARD WORK

    Most of the traders interviewed were quite forthcoming, but a few were reluctant to talk about their strategies (even past strategies that worked but is now no longer used) for fear that disclosure would render its effectiveness. Of the 15 traders, only Mark Cook and John Bender are options trader. By the way, Mark Cook’s story is one of my favourite and he is also the guy that likes to farm.
    I am interested to read about these traders, not simply because they are top traders, but also because many of them encountered major failures and lost tons of money before they become successful in trading. The path to success is never easy and this book really keeps me inspired. I think in future if I meet with setbacks in my trading journey, This is 4th time ,I had completed reading this book.

    Here’s my 20 lessons from Stock Market Wizards (more…)

    Manage risk in the markets and in life.

      
      Education
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    No question that there is volatility in the markets right now. Too much volatility can lead to an increase in stress, especially if your trading involves holding positions longer than 5 minutes. Stress is part of the business so we have to adapt to it, both physically and mentally, or fade away. For some it is easier than others to find an activity to unwind and release some stress. Hitting the batting cages, taking in a movie, attending a sporting event, going for a jog or simply reading a good book are some examples.

    I’d argue that those who have a difficult time taking a break from the trading world and thus the accompanying stress are also poor managers of risk. Having risk in the market is a given. Not having discipline to manage that risk is where they fail. We’ve all had that gut feeling that X is going to happen and a loss will occur, it’s part of the business. Those that take that loss, learn from it and move on are those that are able to escape the markets when needed.

    Those that choose to not manage risk in the market fail to manage risk in life. Instead of taking the edge off at the local watering hole they stay there ’til last call, neglecting other duties in life. Instead of spending the weekends with family and friends to recharge they pore over charts, financial statements and twitter looking for the next holy grail. Always chasing, never catching.

    15 Mistakes by Traders

      
      Education
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    1) Always wants to be in the game .. more time means less money
    2) Wants money quickly .. you can’t control the market 
    3) Finds it very inexact – which system – how much to risk – there are no hard and fast rules .. 
    using a positive expectancy system with a clear edge will work out over a period of time if risk is proportionate
    4) Finds it boring to trade small
    Since no trade is a sure thing and even with positive expectation, it is possible to have a string of 10 consecutive lossees. It is important to risk less to give probabilities a chance to work in your favour
    5) Wants immediate gratification – can’t wait
    You don’t control the market
    6) Keeps looking for new indicators/systems – the sure system
    There is no definiteness..
    7) Keeps trying new indicators
    Nothing works all the time
    8) Keeps switching between different techniques – he wants the techniques to work 100% of the time
    Nothing works all the time.. Instead stick with a few proven systems and trade them all the time
    9) Very Adventurous
    You are here to make money and not for thrills
    10) Wants to make big money overnight.. Multiple positions – excess leverage
    Since you can never be sure if the next trade is a winner or if the next 10 trades are losers, why would you want to risk too much (more…)

    A GOOD Trader WILL:

      
      Education
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    Excerise
    (EXERCISEEEE ! 🙂 )

    1. Always wait for the setup: No Setup-NO Trade.

    2.Knows that THE BEST trades work almost right away.

    3.Never takes a big loss. If it doesn’t ‘feel’ right. Remove it!

    4.Always perfecting his craft

    5.Is patient with winning trades:Impatient with trades that fight back.

    6.Knows that DISCIPLINE is the key to winning at everything!

    7.Never gets emotionally attached to trades, trading, losses or profits.

    8.Will always trade with the size that makes him unemotional

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