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8 Trading Psychology Quotes

Your biggest enemy, when trading, is within yourself. Success will only come when you learn to control your emotions. Edwin Lefevre’s Reminiscences of a Stock Operator (1923) offers advice that still applies today.

  1. CautionExcitement (and fear of missing an opportunity) often persuade us to enter the market before it is safe to do so. After a down-trend a number of rallies may fail before one eventually carries through. Likewise, the emotional high of a profitable trade may blind us to signs that the trend is reversing.
  2. PatienceWait for the right market conditions before trading. There are times when it is wise to stay out of the market and observe from the sidelines.
  3. ConvictionHave the courage of your convictions: Take steps to protect your profits when you see that a trend is weakening, but sit tight and don’t let fear of losing part of your profit cloud your judgment. There is a good chance that the trend will resume its upward climb. (more…)

Control Your Emotions

1. Caution.

Excitement (and fear of missing an opportunity) often persuade us to enter the market before it is safe to do so. After a down-trend a number of rallies may fail before one eventually carries through. Likewise, the emotional high of a profitable trade may blind us to signs that the trend is reversing.

2. Patience.

Wait for the right market conditions before trading. There are times when it is wise to stay out of the market and observe from the sidelines.

3. Conviction.

Have the courage of your convictions: Take steps to protect your profits when you see that a trend is weakening, but sit tight and don’t let fear of losing part of your profit cloud your judgment. There is a good chance that the trend will resume its upward climb.

4. Detachment.

Concentrate on the technical aspects rather than on the money. If your trades are technically correct, the profits will follow.

Stay emotionally detached from the market. Avoid getting caught up in the short-term excitement. Screen-watching is a tell-tale sign: if you continually check prices or stare at charts for hours it is a sign that you are unsure of your strategy and are likely to suffer losses.

5. Focus

Focus on the longer time frames and do not try to catch every short-term fluctuation. The most profitable trades are in catching the large trends. (more…)

The Psychology Of Market Timing

The biggest enemy, when market timing the stock market via mutual funds, ETF’s, even individual stocks (or in any trading for that matter), is within ourselves. Success is possible only when we learn to control our emotions.

Edwin Lefevre’s “Reminiscences of a Stock Operator” (1923) offers advice that still applies today:

Caution Excitement (and fear of missing an opportunity) often persuades us to enter the market before it is safe to do so. After a down trend a number of rallies may fail before one eventually carries through. Likewise, the emotional high of a profitable trade may blind us to signs that the trend is reversing.

It is important to follow a tried and true timing strategy that puts you in the right position for established trends, and also gets you out of failed trends quickly to protect capital. Excitement results in losses more often than not.

Patience Wait for the right market conditions. There are times when it is wise to stay out of the market and observe from the sidelines. (more…)

Top Ten Things Traders Must Change to Survive

  1. When the market goes from bull to bear, or from an uptrend to a down trend you must change from going long to going to cash or selling short.
  2. When a market recovers from a bear market to an uptrend over taking the 200 day moving average you must go from bearish or neutral to long.
  3. New bull markets most of the time have new leaders you can’t just play the same ones from the last up trend.
  4. When you make a trade and it goes against you, then you were wrong. When your stop is hit you must change your position and get out.
  5. When you have a strong opinion about a trade but it goes the opposite of what you believe day after day you must change your mind, you were wrong.
  6. When a trade does not go the way you expected in the time frame you had planned you have to take a time stop and change to something that is moving.
  7. Each day you must change and grow as a trader and improve on your skills through continuous learning.
  8. While the market will change the principles of winning through risk management, correct trader psychology, and playing the probabilities will stay the same.
  9. The market rotates and different market capitalizations come into favor and out of favor, follow the money.
  10. Different sectors rotate in and out of favor based on the cash flow of earnings, follow the capital.

Wine and Trading

Like a fine wine the surety of a trend reversal gets better with time. The more a trend has aged, the more likely you are to get a valid reversal.

The older a trend gets the more ripe it is for falling off, and the more likely a new more robust trend will take over. A trend that is young and vigorous maybe side tracked briefly, but is not very likely to be defeated. The end of the uptrend says that the last of the big buyers are gone and the end of a down trend says that the last of the big sellers are gone and that trend has now become ripe for a take over.

Think of a trend like a young lion protecting his pride, another lion is not likely to usurp his authority. As he gets older, he is much more likely to lose his pride in defeat to a younger more energetic lion. The same is true with a trend as it gets older it becomes much more likely to be taken over. When considering whether or not to take a reversal (especially in the short term) gauge the age of the trend first. If the trend has just begin then you are not likely to have a legitimate reversal on your hand. If the trend is still very close to the trend line then it is not likely to be a valid reversal.

There are no absolutes in the market, but you do need to keep an eye out for things that put the odds the most in your favor.

Trading Psychology

Your biggest enemy, when trading, is within yourself. Success will only  come when you learn to control your emotions. Edwin Lefevre’s

 Reminiscences of a Stock Operator (1923) offers advice that still applies  today.

 Caution
 Excitement (and fear of missing an opportunity) often persuade us to enter the market  before it is safe to do so. After a down-trend a number of rallies may fail before one  eventually carries through. Likewise, the emotional high of a profitable trade may blind  us to signs that the trend is reversing.

 Patience
 Wait for the right market conditions before trading. There are times when it is wise to  stay out of the market and observe from the sidelines.

 Conviction
 Have the courage of your convictions: Take steps to protect your profits when you see  that a trend is weakening, but sit tight and don’t let fear of losing part of your profit  cloud your judgment. There is a good chance that the trend will resume its upward  climb.

 Detachment
 Concentrate on the technical aspects rather than on the money. If your trades are  technically correct, the profits will follow.

 Stay emotionally detached from the market. Avoid getting caught up in the short-term  excitement. Screen-watching is a tell-tale sign: if you continually check prices or stare at  charts for hours it is a sign that you are unsure of your strategy and are likely to suffer  losses.

 Focus
 Focus on the longer time frames and do not try to catch every short-term fluctuation.  The most profitable trades are in catching the large trends.

 Expect the unexpected
 Investing involves dealing with probabilities ? not certainties. No one can predict the  market correctly every time. Avoid gamblers? logic.

 Average up – not down
 If you increase your position when price goes against you, you are liable to compound  your losses. When price starts to move it is likely to continue in that direction. Rather  increase your exposure when the market proves you right and moves in your favor.

 Limit your losses
 Use stop-losses to protect your funds. When the stop loss is triggered, act immediately 
 – don’t hesitate.

 The biggest mistake you can make is to hold on to falling stocks, hoping for a recovery.  Falling stocks have a habit of declining way below what you expected them to.  Eventually you are forced to sell, decimating your capital.

 Human nature being what it is, most traders and investors ignore these  rules when they first start out. It can be an expensive lesson.

 Control your emotions and avoid being swept along with the crowd. Make consistent  decisions based on sound technical analysis.