Archives of “disciplines” tag

rss

3 most critical aspects of trading

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #
  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.

Rules of Trade

  
  Education
#  #  #  #  #  #  #


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.

  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. 

4 Rules for Traders

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #

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. 

7 Psychological habits

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

1. Overconfidence and optimism

Most of us are way too confident about our ability to foresee the future, and overwhelmingly too optimistic in our forecasts.

This finding holds across all disciplines, for both professionals and non-professionals, with the exceptions of weather forecasters and horse handicappers.

Lesson: Learn not to trust your gut.

2. Hindsight

We consistently exaggerate our prior beliefs about events.

Market forecasters spend a lot of time telling us why the market behaved the way it did. They’re great at telling us we need an umbrella after it starts raining as well, but it doesn’t improve our returns. We’re all useless at remembering what we used to believe.

Lesson: Keep a diary, revisit your thinking constantly.

3. Loss aversion

We hurt more when we sell at a loss than we feel happy when we (more…)

Learning to Trade from a Legend-Victor Niederhoffer

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Study horse racing books. The odds against winning at a parimutuel racetrack are overwhelming. Yet some touts have systems that produce a profit (against all odds). Can you apply any of these horse racing principles to your trading?

• Write down trading prices (by hand). There were a ton of computers in Victor’s trading room. Yet Victor made me do price analysis by hand. He felt there was enormous virtue about getting close and comfortable with trading figures.

• All markets are related. Learn what a move in bonds does to gold. And to S&P futures or the Japanese yen. Don’t trade markets in isolation

• Only make a trade when the odds are at least 60% in your favor.

• Don’t take losses to heart. I lost $20,000 on a Friday, the first day I traded real money for Victor. I wiped out my trading account. After stewing over my losses all weekend, I offered to resign and refund my losses. Victor refused my resignation and put $20,000 back in my trading account.

• Don’t take wins to heart. I remember making a lot of money following (I thought) Victor’s instructions while he was away. When Victor returned, he was not impressed by the fact the firm made money. He told me that I had traded erroneously and was lucky to have survived my trades.

• Be a mentor. Victor was generous with his time and advice. Despite the fact that several employees exploited his generosity, Victor continued to help new traders.

•  Get out when the trade is over. All trades have a beginning and end (based on time and price). Get out whether you’re winning or losing when the time or price has been met.

• Write down your moves. Learn from your mistakes.

• Learn concentration and game strategy from champions in other disciplines (such as ping-pong and checkers).

5 Qualities of the Top Super Traders

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

1. A belief that you create your results in life.
Most people don’t understand this concept. They repeat the same mistakes over and over again because they blame their mistakes on external factors. For example, if you blame your bankruptcy in one of my marble games on the person who pulled the 5R marble against you, you are not taking responsibility for your position sizing error of risking 20% (or more!) of your equity on a single trade. Consequently, you’ll repeat this mistake over and over again and there will always be someone to blame for pulling the 5R marble against you.
Conversely, top traders are constantly determining how they produced their results and working to correct their mistakes. They create their reality.
2. The interest and desire to really understand yourself.
You cannot understand how you create your own results if you don’t know yourself intimately. I believe that most people live their lives like the automatons in the movie, The Matrix. They just do their thing, not realizing how much they have been programmed by their culture, and their family and friends rather than understanding that they always have a choice in everything.
The great traders I know continually study and challenge themselves, their thinking, their actions, and their reactions.
3. Discipline to continually work to improve yourself.
Top traders often have a passion to work on themselves. A good trader will probably complete the Peak Performance Course once or twice and internalize many aspects of it. A top trader, or a potential top trader, will go through the course many times and develop a discipline that involves spending 1-4 hours each day working on improving himself or herself. (more…)

Evidence Based Trading

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #

The late Ayn Rand emphasized that philosophy was the most practical of disciplines: it governs the ideas that lie behind all we do and think. The philosophical premises we assume affect how we approach trading.
A beautiful example of this is David Aronson’s new book, “Evidence-Based Technical Analysis”. It’s a well-written, thought-provoking text, with many practical examples of how to conduct data analysis in an objective way.
Starting with the premise that knowledge consists of statements that are found to be true, Aronson, writing in the positivist tradition of philosophy, excludes subjectivity as knowledge. He explains:
“The most important consequence of TA adopting the scientific method would be the elimination of subjective approaches. Because they are not testable, subjective methods are shielded from empirical challenge. This makes them worse than wrong. They are meaningless propositions devoid of information. Their elimination would make TA an entirely objective practice.” p. 148
This is bound to rub many traders the wrong way, but it’s an important challenge. What is knowledge? How do we know what we know in the markets? How can we demonstrate that knowledge is such, and not illusion? (more…)

Evidence Based Trading: Why Philosophy Matters

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

A beautiful example of this is David Aronson’s new book, “Evidence-Based Technical Analysis”. It’s a well-written, thought-provoking text, with many practical examples of how to conduct data analysis in an objective way.

Starting with the premise that knowledge consists of statements that are found to be true, Aronson, writing in the positivist tradition of philosophy, excludes subjectivity as knowledge. He explains:

“The most important consequence of TA adopting the scientific method would be the elimination of subjective approaches. Because they are not testable, subjective methods are shielded from empirical challenge. This makes them worse than wrong. They are meaningless propositions devoid of information. Their elimination would make TA an entirely objective practice.” p. 148

This is bound to rub many traders the wrong way, but it’s an important challenge. What is knowledge? How do we know what we know in the markets? How can we demonstrate that knowledge is such, and not illusion?

Once we start with the premise that all knowledge consists of explicit propositions that can be tested for truth, we necessarily are led toward trading that is rule-based and rigorously backtested.

Is there another, *valid* form of knowledge and trading? Can we prove that?The late Ayn Rand emphasized that philosophy was the most practical of disciplines: it governs the ideas that lie behind all we do and think. The philosophical premises we assume affect how we approach trading.

4 More Rules to Trade

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #

 

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. 

Go to top