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5 Frustrations of Traders & Solutions

  
  Education
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Top Trader Frustrations

  1. I cannot trade my plan!
    • You need to develop the skill to execute your trading plan under duress.
    • Use visualization exercise to see yourself successfully executing your trading plan during the day. The greater level of detail a trader uses in their visualization exercise the greater its effectiveness.
  2. I cut my winning trades too early!
    • Have profit targets
    • Take partial profits
    • Measure each day the missed profits that you could have obtained if you didn’t miss a setup, or if you didn’t cut your winning trades too early.
  3. I am not consistent with my trading
    • Establish a playbook with setups that work for you, and setups that don’t work for you.
    • Define the risk that you should take in setups based on whether they are A+, B, C setups (based on risk/reward and % win rate).
    • Track the amount of risk that you are taking on similar trades, so that the results can be properly analyzed. Risk 30% of your intraday stop loss on a A+ setup, 20% on a B setup, 10% on a C setup, 5% on a Feeler trade.
    • Do a trade review
      • Did I trade the best stocks today?
      • Did I recognize the market structure?
      • Did I push myself outside the comfort zone?
      • Things I did well
      • Things I could improve (more…)

Why Traders Keep Losing Money

  
  Education
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“Imagine a mutual fund run by several money managers. Some of these managers are relatively astute and quite attentive to market data and patterns. Others tend to take their eye off the market ball and consistently lose money. The overall performance of the fund, averaging the returns of these managers, is mediocre, as the losses of the poorly performing managers cancel out the gains of the astute ones.
 
What would you do if you were the chief executive officer (CEO) of this fund?
 
Easy, you say. You would identify the successful managers and place all the money in their hands. You would either fire the unsuccessful ones or ensure that they couldn’t make final decisions about the investment of funds.
 
Now imagine that, within yourself, there are actually several different traders, each of whom takes control of your account for a period of time each day. One or two of these traders are relatively astute; others are downright destructive. Your overall performance suffers as a result. As Chief Executive Observer of your own account, what should you do?
 
…If you harbor multiple traders within you—some careful, some impulsive, some successful, some losing—your first task is to avoid labeling these traders and instead take an Observing stance. You need to figure out why these lousy traders within you are trading! They evidently are not trading simply for the monetary reward; if that were the case, they would never overrule the successful traders within you. The chances are good that they are trading to achieve something other than a good return on equity: a sense of excitement, a feeling of self-esteem, or an imposed self-image.
 
You do not fail at trading because you are masochistic or because you love failure or feel you deserve defeat. Rather, you sabotage your trading because you have different facets to your personality, each with its own needs, each clamoring for access to the trading account. Your trading suffers because you are not always trading with the equity stake firmly in mind. In a strange way, a losing trade can be a success to that part of you that is, for example, looking for excitement—not profits—from the markets.”

The Top 5%

  
  Education
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The largest academic study ever conducted on day trading shows that most traders lose money …. even during a bull market. Only 5% of active traders were able to earn significant profits two years in a row.

Are 95% of traders dumb? Hardly. As a trading coach for more than a decade, I believe  traders are among the intelligent and motivated individuals.

Even so, most traders get fooled by news or price action and behave in ways that limit or erase profits.

Is this self-sabotage? Fear of success? A hidden wish to fail? I don’t think so. The struggles of most traders arise for a different reason: the trading environment turns our own reward-seeking and self-protective instincts against us.

Trading for a living is harder than it seems at first. You were probably not mentally or  emotionally prepared for the randomness in the market you trade.

There is a saying that goes: “Doing the same thing over and over and expecting different results is the definition of insanity.” In trading, however, it’s the very definition of normal. Let me explain.

We constantly get tricked and trapped due to random price action. Our job as traders is to behave consistently and predictably in the face of very different results than we expect. This is a skill few have practiced in daily life, where results are more directly linked to action.

 

19+1 Habits Of Wealthy Traders

  
  Education
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1. Wealthy traders are patient with winning trades and enormously impatient with losing trades. Yes, I often fell prone to that. I tend to hope too much when things are going bad. I have time stops, but tend to close positions/strategies too early when having a nice gain. Too often I hold on to exit time when losing. I’m constantly working on that bad habit.

2. Wealthy traders realise that making money is more important than being right. Yes, but always hard to realise a loss.

3. Wealthy traders view technical analysis as a picture of where traders are lining up to buy and sell.Disagree, I have never found any evidence that this actually is true.

4. Before they eneter every trade they know where they will exit for either a profit or loss. Disagree, I use time stops. I have never in my testing found any value whatsoever in using targets or stop-loss.

5. They approach trade number 5 with the same conviction as the previous four losing trades. Yes, agree, but noe easy as confidence drops the more losers I have.

6. Wealthy traders use “naked” charts. Yes, I use no traditional indicators. I only use price action.

7. Wealthy traders are comfortable making decisions with incomplete information. Yes, very true. I try to make my trading as simple as possible. I avoid reading news.The only newspaper I read is The Economist. Except from that I only read football/soccer news and investment blogs on the internet. (more…)

10 Greedy Characteristics

  
  Education
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1.  You find yourself forgetting your rules.  Which during day trading is the last thing you want to happen since your profit margins are often based on smaller movements.

2.  When reviewing your pre-market plays, every stock looks like a winner.

3.  Shortly after opening your position you see a price target that is much higher but you have no justification for the target.

4.  Trading feels stressful all of the time.  From the minute you get up in the morning, until you close your last position.  Instead of approaching trading with a calm head, you have a constant feeling of fighting and living on the edge.

5.  You stop reviewing your trades.  If someone were to ask your win/loss percentage over the last week you would have no idea; however, you would know how much money you need to make for the week.

6.  You abandon limit orders and start placing more and more trades at market.  Most of the times this will occur when you are trying to get into the position, because you can’t stand the idea of not being in on the winning trade.

7. You start to over trade.  If you normally put on 3 trades per day, you will now find yourself placing 6 or more trades per day.  This sort of behavior will run its course as the increase in trading activity while abandoning your day trading rules always points to losing money. (more…)

5 Trading Frustrations and Solutions

  
  Education
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Top Trader Frustrations

  1. I cannot trade my plan!
    • You need to develop the skill to execute your trading plan under duress.
    • Use visualization exercise to see yourself successfully executing your trading plan during the day. The greater level of detail a trader uses in their visualization exercise the greater its effectiveness.
  2. I cut my winning trades too early!
    • Have profit targets
    • Take partial profits
    • Measure each day the missed profits that you could have obtained if you didn’t miss a setup, or if you didn’t cut your winning trades too early.
  3. I am not consistent with my trading
    • Establish a playbook with setups that work for you, and setups that don’t work for you.
    • Define the risk that you should take in setups based on whether they are A+, B, C setups (based on risk/reward and % win rate).
    • Track the amount of risk that you are taking on similar trades, so that the results can be properly analyzed. Risk 30% of your intraday stop loss on a A+ setup, 20% on a B setup, 10% on a C setup, 5% on a Feeler trade.
    • Do a trade review
      • Did I trade the best stocks today?
      • Did I recognize the market structure?
      • Did I push myself outside the comfort zone?
      • Things I did well
      • Things I could improve
  4. I cannot find a profitable trading system
    • Trading is a probability game, setups don’t work all the time, so don’t keep trying and throwing away trading setups without thoroughly testing them.
    • Get exposed to lots of different setups and trade the setups that make the most sense to you and works best for you.
  5. I lack the confidence to take trades
    • Have a detailed trading plan, place orders in advance in possible.
    • Put on feeler trades with 5-10% of the risk that you normally put on. Once you start to become more comfortable you can then put on your regular trades again.

2 Ways to Fail at Trading

  
  Education
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Misunderstanding how trading works. Trading is a game of probabilities. No matter what methodology you are using—fundamental, macro or technical; highly quantitative, intuitive, seat of pants, or blend; long term, short term, daytrading—at the end of the day, the expected value of your trades has to be positive, or you aren’t going to make money. There is no free lunch. Though you may get lucky (or unlucky) on a set of trades, over a large set of trades, the Law of Large Numbers rules with an iron fist. There is no way to “game” the system. You can’t take small trades with tiny risk, you can’t sell time premium, you can’t find some magic technical pattern. Yes, all of these things can be part of a working methodology, but that methodology has to have a positive expectancy. To put it simply, it has to work. (Now, you can see that points 1-4 are really basically the same point!)

 Be overconfident. Markets punish hubris and overconfidence with remarkable consistency. (Victor Niederhoffer has written poignantly on this subject.) Overconfidence can hit in many ways. Industry statistics show that most small trading accounts lose money, so, you have to ask yourself, why will you be different? (Hint: answers like “I have a passion for markets. I was successful in this business or this sport. I’m a driven, detail-oriented person,” are probably not strong enough answers. Dig deep. Why will you succeed where so many others have tried and failed?) Overconfidence can creep in in other ways too. After a long string of winning trades, some traders are tempted to get more aggressive and increase their risk… and now they are trading too big, so bad things happen. There’s a sweet spot here—you have to have a degree of confidence, you can’t be afraid, but you have to stay humble. If you don’t, the market will make you humble, one way or another.

M. William Scheier, Pivots, Patterns, and Intraday Swing Trades-Book Review

  
  Education
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You can buy M. William Scheier’s book Pivots, Patterns, and Intraday Swing Trades: Derivatives Analysis with the E-mini and Russell Futures Contracts (Wiley, 2014) for a little north of $50 or, if you have money burning a hole in your pocket, can take his ten-lesson e-mini trading course for about $3,000 or buy his indicator package software (included in the price of the course) for $250. Let’s look at the cheapest alternative.
The book is divided into four parts: time frame concepts, day model patterns, repetitive chart patterns, and confluence and execution.
Scheier’s methodology combines “old school” technical analysis with a “new school” proprietary algorithm for what he calls the Serial Sequent Wave Method. In the book he focuses exclusively on the former. (more…)

Managing Emotions

  
  Education
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The hardest thing about trading is not the math, the method, or picking the right stock, currency, commodity, or futures contract.  The most difficult thing about trading is dealing with the emotions that arise with trading itself. From the stress of actually entering a trade, to the fear of losing the paper profits that you are holding in a winning trade, and most importantly dealing with the emotional lows of a string of losses or the highs of many consecutive wins the bottom line is how you deal with those emotions will determine your long term success in trading more than any other one thing.

To manage your emotions first of all you must trade a robust trading methodology that is profitable and you have to know that it will be a winner in the long term if you stay disciplined. You also must trade your method with proper position sizing and risk management to keep the volume down on your emotions and ego. If you have that the next step is the management of your emotions.

You must understand that every trade is not going to be a winner and not blame yourself for equity drawdowns if you are trading with discipline.

Do not bet your entire account on any one trade, in fact risking only 1% of your total capital on any one trade is the best thing you can do for your stress levels and to bring your risk of ruin to virtually zero. (more…)

Major Points on Schwager’s Market Wizards Interview with Michael Marcus

  
  Education
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MUST READMETHODOLOGY

Ride Your Winners – Never Get Out Unless the Trend Changed

  • One time, [Ed Seykota] was short silver and the market just kept eking down, a half penny a day, a penny a day. Everyone else seemed to be bullish, talking about why silver had to go up because it was so cheap, but Ed just stayed short. Ed said, “The trend is down, and I’m going to stay short until the trend changes.” I learned patience from him in the way he followed the trend.
  • During the great soybean bull market, the one that went from $3.25 to nearly $12, I impulsively took my profits and got out of everything. I was trying to be fancy instead of staying with the trend. Ed Seykota never would get out of anything unless the trend changed. So Ed was in, while I was out, and I watched in agony as soybeans went limit-up for twelve consecutive days. I was real competitive and every day I would come into the office knowing he was in and I was out. I dreaded going to work, because I knew soybeans would be bid limit again and I couldn’t get in.
  • If you don’t stay with your winners, you are not going to be able to pay for the losers.

Get Out When the Volatility and Momentum Become Absolutely Insane

  • One way I had of measuring that was with limit days. In those days, we used to have a lot of situations when a market would go limit-up for a number of consecutive days. On the third straight limit-up day, I would begin to be very, very cautious. I would almost always get out on the fourth limit-up day. And, if I  had somehow survived with any part of my position that long, I had a mandatory rule to get out on the fifth limit-up day. I just forced myself out of the market on that kind of volatility.

Take Note of Intraday Chart Points

  • I learned the importance of intraday chart points, such as earlier daily highs. At key intraday chart points, I could take much larger positions than I could afford to hold, and if it didn’t work immediately, I would get out quickly. For example, at a critical intraday point, I would take a twenty-contract position, instead of the three to five contracts I could afford to hold, using an extremely close stop. The market either took off and ran, or I was out. Sometimes I would make 300, 400 points or more, with only a 10-point risk.
  • Although that approach worked real well then, I don’t think it would work as well in today’s market. In those days, if the market reached an intraday chart point, it might penetrate that point, take off, and never look back. Now it often comes back. (more…)
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