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Good Habits

  
  Education
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When a new trader comes to me for advice, quite often they have suffered initial losses from their trading activities (sometimes heavy ones) and have not really had a focussed overall trading plan set out, or if they have, they’ve not followed it.

Even if you start trading with limited capital, it is important that you start ingraining good habits as early as you can. Principal amongst these is ensuring that you do not trade too large positions relative to your overall equity. 

Depending on your chosen method of trading, transaction costs can also eat into a small account, and the trading vehicle you choose to use should be carefully considered.

However, it is a well known maxim that the vast majority of new traders blow up their accounts within 6 months. This is not necessarily as a result of their method of choosing their entries and exits (although that undoubtedly helps) but more as a result of risking way too much on each trade, or in extreme cases having a complete disregard for risk.

Trading is a marathon not a sprint, and to stay in the game you need to exhibit strong risk control right from the off. The sooner you can ingrain that in your method and your mind, the better. Even the best did not necessarily get a grip on risk control early in their careers – in Market Wizards Paul Tudor Jones talks about losing 70% of his equity on a single trade relatively early in his career. It was only after that experience did he go away and implement rigorous risk control.

From having risk under control, unemotional trading decisions can be taken, improving your mindset and allowing you to follow your system with no risk of self-sabotage. Allied to a proven method for selecting entry and exit points, you will be well on the journey to trading success.

The Zurich Axioms – Forecasts Predictions And Prophets

  
  Education
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Here’s what Max Gunther, author of ‘The Zurich Axioms’ has to say:

The Zurich Axioms: ‘On Forecasts’, page 62:

Human behavior cannot be predicted. Distrust anyone who claims to know the future, however dimly.

‘Speculative Strategy’:
The Fourth Axiom tells you not to build your speculative program on a basis of forecasts, because it won’t work. Disregard all prognostications. In the world of money, which is a world shaped by human behavior, nobody has the foggiest notion of what will happen in the future. Mark that word. Nobody.
Of course, we all wonder what will happen, and we all worry about it. But to seek escape from that worry by leaning on predictions is a formula for poverty. The successful speculator bases no moves on what supposedly will happen but reacts instead to what does happen. (more…)

Forecasts Predictions And Prophets

  
  Education
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Here’s what Max Gunther, author of ‘The Zurich Axioms’ has to say:

The Zurich Axioms: ‘On Forecasts’, page 62:

Human behavior cannot be predicted. Distrust anyone who claims to know the future, however dimly.

‘Speculative Strategy’:
The Fourth Axiom tells you not to build your speculative program on a basis of forecasts, because it won’t work. Disregard all prognostications. In the world of money, which is a world shaped by human behavior, nobody has the foggiest notion of what will happen in the future. Mark that word. Nobody.
Of course, we all wonder what will happen, and we all worry about it. But to seek escape from that worry by leaning on predictions is a formula for poverty. The successful speculator bases no moves on what supposedly will happen but reacts instead to what does happen.
Design your speculative program on the basis of quick reactions to events that you can actually see developing in the present. Naturally, in selecting an investment and committing money to it, you harbor the hope that its future will be bright. The hope is presumably based on careful study and hard thinking. Your act of committing dollars to the venture is itself a prediction of sorts. You are saying, “I have reason to hope this will succeed.” But don’t let that harden into an oracular pronouncement: “It is bound to succeed because interest rates will come down.” Never, never lose sight of the possibility that you have made a bad bet.
If the speculation does succeed and you find yourself climbing toward a planned ending position, fine, stay with it. If it turns sour despite what all the prophets have promised, remember the Third Axiom. Get out.

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