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Trading Wisdom

  
  Education
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This (Trading) is not a job where you get paid by the hour. You get paid for doing the right thing”

-“Forget that your money is at stake. Money in trading account is just a tool for making money. Preserve your tool. You need it to make money”

-“Don’t let the outcome of one trade alter your trading discipline. One trade doesn’t make a system…”

-“Trading is a game of probabilities. You don’t have to be right every time. You just have to follow your rules”

-“You decide your fate; the market doesn’t”

-“Pure followers of stock pickers will never be around…Learn or you are bankrupt”

-“Be aggressive in trending market and conservative in choppy market”

“Take home runs when you can, but don’t beat yourself up about missing a few. One trade should never make or break your account”

Being disciplined

  
  Education
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This is probably the most recurrent concept mentioned in trading literature, but what does it mean exactly? “Discipline is any training intended to produce a specific character or pattern of behaviour, especially training that produces moral, physical, or mental development in a particular direction”*, i.e.: to be disciplined you need a specific set of rules to follow. Without rules, discipline is an empty concept!! In order to be disciplined, a trader first needs to set the rules that he will need to follow. Here we come back to the necessity of first working out a methodology, and then applying the rules to make the most out of it. This is usually called the “Trading Plan” and it is the foundation of any successful trader. Many would-be traders find it hard to write down a specific trading plan since it is very far from the typical “easy money” illusion that many people have about trading. Being able to articulate a precise, step-by-step plan is the result of intensive (more…)

3 most critical aspects of trading

  
  Education
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  1. Discipline
  2. Timing
  3. Stock selection

Discipline alway is on top. Be accountable to yourself. Treat your money as if it was entrusted to you by whomever you most love, respect, fear… whatever works.

Have a reason to make every trade. Be able to verbalize that reason. As importantly, have a reason to exit a trade. You hear “cut your loses and let your winners run”….That is so true. I so often have seen traders get our of good positions because they have achieved their “target price” “target of profit”….I say this is bad thinking. If the trade REMAINS a trade you would put ON at the time you “achieve target”, why in the world would you take it off? To me, it is as important to have a reason to get out of a trade as to get in. Anyone can say to themselves they have a reason to exit a losing trade…”cut your losses”..Why then is it so hard for so many to have a real reason to get our of a winner?

It should be, and is, easy. It just takes DISCIPLINE. If you give back X% of your profit; if the market changes, if the group starts to get weak, whatever. You have to have your disciplines and stick to them. Make your own rules, and stay consistant to them.

I hope that all this typing can result in just one positive thought to just one person here. I have gone to so many “brainstorming” meetings in my career. I have listened to a million opinions, statements and arguments. I go though because I KNOW that if I pick up one single constructive thought I will have spent my time wisely. and believe me, they are few and far between. But I can remember single sentences said years ago in long boring meetings. Those senteces have added up to serve me well.

Timing should be easier for new traders to learn. Just be patient and buy or short at the price you pre-determine. Don’t chase.

Stock selection…this is a bit tougher. I could write a hundred pages on this issue. But not being so inclined, have standards. Volume, percent of average volume, relative strength, news, whatever you are comfortable with. Know what your quote provider can tell you other than quotes alone. Look for trades, but don’t be impulsive. Sometimes not making a trade is a great trade.

Get Out When You’re Wrong

  
  Education
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wrong1Successful 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.

12 Difference between Losers & Winners Traders

  
  Education
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1.       Losers trade against the trend, but winners trade the impulsive wave of the current trend.

2.       Losers have no money management because they aim quick profit; but winners target steady profits by risking 2 or 3% of their investment.

3.       Losers don’t set stop loss order expecting to be faster then the market in case of reversal; winners know that any time news can make the price reacts suddenly. Therefore use protective stop loss in case of news release.

4.       Losers have no trading plan, they emotionally jump in and out of the market when the price moves; winners build solid entry and exit plans.

5.       Losers cut early their winning trades and let losses run and wipe out their account; but winner s cut quickly their losses. When the trade is positive, they set the stop loss to the break even to protecting their profit. Otherwise, they open to 2 lots to closing the first lot when the stop loss value is reached and let the second winning trade run with a trailing stop from the breakeven until it is touched.

6.       Losers do trade many strategies at the same time, but have mastered none of them; winners master one successful strategy and move to the other.

7.       Losers think the market or the broker is against them, winners don’t fight against the market they try to understand it; they know how to choose between brokers with objective criterions.

8.       Losers think Forex is gambling; but winners develop skills, discipline, self control, and patience, they work hard for being successful traders. Winners learn from their mistakes and constantly improve their main trading strategy.

9.       Losers perform emotional trading after the release of alarming news, winners respect their trading plans.

10.   Losers do overtrading, they even trade at the daily pivot point; winners trade the best opportunities at support or resistance according to the price reaction.

11.   Losers can trade a bad risk reward opportunity; winners aim good risk reward with ratio such as 1/3 or 1/4. A won trade protects their portfolio from several small losses.

12.   Losers use any strategy or expert advisor without back testing it; but winners know that long term profitability is one of the key of Forex trading success. Winners don’t focus on the percentage of winning trades.

15 Types of Traders-Challenges Specific to Each one

  
  Education
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1)Strategic Trader :This type of trader has a great chance of success but is (a ) likely not to recognize emotional mistakes ,(b ) lean toward perfectionism  ,and (c ) have a strong desire to be right

2)Planning Trader :Again ,this type of trader has an excellent chance of success.Your major challenge is the desire for excitement and the need to be right.You easily could become bored with trading and do things to lessen the boredom and thus limit your profits.

3)Detailed Trader :The detailed trader has a good chance of success,but you could be so into details of what you are doing that your miss the big profits.

4)Administrative Trader :You may be overly critical of yourself but not recognize mistakes that are right in front of your eyes.Furthermore ,under stress your may question your commitment to trading because your don’t find it satisfying.An administrative trader also has a good chance of success.

5)Facilitative Trader :This kind of trader has an above average chance of success.However ,you could have a problem with logic and ideas because you are always finding something new.Furthermore ,you may need external confirmation of your ideas ,beliefs ,and systems.

6)Innovative Trader :You have an above -average chance of success.However ,you probably want external confirmation for everything you do and have a strong need for a mentor.Furthermore ,you may  tend to abandon a good system prematurely if it goes against you because of your emotional reactions.

7 )Value-driven Trader :You have an above -average chance of success in trading but find that you must do things your way.In addition ,discipline ,follow -through ,and attention to details will always be a problem for you.You also may find trading boring and do things to fulfill your need for excitement.

8)Independent Trader :You are driven by logic and could easily reject systems that work well because you don’t understand them logically.Furthermore ,your trading could dominate your time and leave you socially isolated.That said ,you have a good chance of success if you apply yourself.

The remaning 7 types have a much more difficult time becoming successful in trading arena. (more…)

Trend following..

  
  Education
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Trendfollowing-The objective of the trend follower is to employ discipline to offset biases in order to extract signals from prices to the exclusion of other information. In fact, this has greater similarity to a statistical or engineering problem than to a finance problem. Because prices are surrounded by or filled with noise, trend following is a form of price smoothing. You eliminate the noise to obtain a clearer signal. It also can be thought of as a filtering problem. You throw out the excess information that may be associated with trades that are not driving the trend signal.

10 Secrets of Trading

  
  Education
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A ROBUST METHOD: Much like a casino you must have an edge in your trading. Your system must be a robust one with the odds on your side either through many more wins than losses with equal capital at risk or small losses and big wins over a long period of time.

CONFIDENCE: You must have the confidence in your method that it is a winner in the long term through proper research or back testing. You also must have confidence in yourself to execute the plan.

DISCIPLINE: A trader must have the discipline to take their predetermined entries and exits. The trader is the weakest link in trading no method works with out the discipline to execute it in a live market.

TRADING PLAN: A trader has to have a plan on what they will trade, how much they will trade, the time frame they are trading on and rules that they will follow for entries and exits.

EMOTIONAL CONTROL: The winning trader must have the ability to not make decisions based on emotions. Winning traders still feel emotions but have the ability to stay on their trading plan instead of making decisions based on fear or greed in the heat of market action.

RISK/REWARD: The best trades to take have the potential to win $3 for each $1  risked. With this ratio a trader can lose on two trades our of three and still make money. This is a defined edge and keeps the trader looking for only the best instruments to trade and taking the best entry points as part of their system.

EGO CONTROL: The destruction of many traders is when they believe they do not need risk management or rules and that they are smarter than the market and begin taking trades based purely on their opinions instead of principles, price action, and chart action. Good traders are humble traders.

RISK OF RUIN: The best traders understand the best way to ensure their survival in trading is with only putting 1% of their total trading capital at risk in any one trade either through great entries with tight stop losses or trading smaller position sizes. Nothing will determine a trader’s success more than their ability to survive a string of 10-15 losses in a row.

MASTER YOUR OWN METHOD: Trader know thyself, know who you are, the trading method that fits your personality and risk tolerance and become a master of that method. Do not wander around when it gets tough, be faithful to your edge. Be the best that you can be at what you are whether you are a day trader, trend follower, option trader, momentum trader, chart reader, technical analyst, or fundamentalist. I know of traders that got reach with any of these methods but do not know any that got rich trading multiple methods.  Pick one, master one.

PERSEVERANCE: Even with all the elements in place there will be rough months and even rough years for almost all traders. Sometimes right at the beginning of a new traders first plunge into the market the price action can act completely contrary to profits for that traders method. All the traders that ended up rich have one thing in common, they did not quit trading until they became rich.


Five Fatal Flaws

  
  Education
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If you’ve been trading for a long time, you no doubt have felt that a monstrous, invisible hand sometimes reaches into your trading account and takes out money. It doesn’t seem to matter how many books you buy, how many seminars you attend or how many hours you spend analyzing price charts, you just can’t seem to prevent that invisible hand from depleting your trading account funds.

Which brings us to the question: Why do traders lose? Or maybe we should ask, ‘How do you stop the Hand?’ Whether you are a seasoned professional or just thinking about opening your first trading account, the ability to stop the Hand is proportional to how well you understand and overcome the Five Fatal Flaws of trading. For each fatal flaw represents a finger on the invisible hand that wreaks havoc with your trading account.

The killer flaws? They are:

Fatal Flaw No. 1 – Lack of Methodology
Fatal Flaw No. 2 – Lack of Discipline
Fatal Flaw No. 3 – Unrealistic Expectations
Fatal Flaw No. 4 – Lack of Patience
Fatal Flaw No. 5 – Lack of Money Management

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