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Traders Make Decisions based on Probabilities

  
  Education
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Most traders take price swings personally. They feel very proud when they make money and love to talk about their profits. When a trade goes against them they feel like punished children and try to keep their losses secret. You can read traders’ emotions on their faces.

Many traders believe that the aim of a market analyst is to forecast future prices. The amateurs in most fields ask for forecasts, while professionals simply manage information and make decisions based on probabilities. Take medicine, for example. A patient is brought to an emergency room with a knife sticking out of his chest – and the anxious family members have only two questions: “Will he survive?” and “when can he go home?” They ask the doctor for a forecast.

But the doctor is not forecasting – he is taking care of problems as they emerge. His first job is to prevent the patient from dying from shock, and so he gives him pain-killers and starts an intravenous drip to replace lost blood. Then he removes the knife and sutures damaged organs. After that, he has to watch against infection. He monitors the trend of a patient’s health and takes measures to prevent complications. He is managing – not forecasting. When a family begs for a forecast, he may give it to them, but its practical value is low. (more…)

Short Selling

  
Analysis, Education
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Recommended books on short-selling:

1) How to Make Money Selling Stocks Short by William O’Neil (Wiley, 2005) – [Technical, Swing & Position Trading]
2) Sell & Sell Short by Dr. Alexander Elder (Wiley, 2008) – [Technical, Day Trading]
3) The Art of Short Selling by Kathryn Staley (Wiley, 1997) – [Fundamental]
4) Sold Short by Manuel Asensio (Wiley, 2001) – [Fundamental]
5) Sell Short: A Simpler, Safer Way to Profit When Stocks Go Down by Michael Shulman (Wiley 2009) – [Macro]

The best way to become an effective short seller is by making it a habit of studying hundreds and even thousands of charts every week. Train your eye to see the setups, the accompanying volume, how the MA’s line up, etc. The only way to do this is with practice. Short-selling can become very profitable due to the simple fact that stocks drop faster than they rise (in most cases) and for me, it typically only takes about 1-3 days to make a decent profit of 10% or more.

Trade only the best setups to increase your odds. I do recommend the use of stop losses above key resistance areas due to the fact that losing short positions can cause serious damage if left unattended.

Quotes from :Dr Alexander Elder's best seller Trading For A Living

  
  Education
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Proper money management is essential for successful trading.

A disciplined trader cuts his losses short and outperforms a loser who keeps hanging on and hoping.

As soon as you buy, place a stop-loss order.

Greed and fear destroy traders by clouding their minds. The only way to succeed in trading is to use your intellect.

The goal of a successful trader is to make the best trades. Money is secondary. If this surprises you, think how good professionals in any field operate. Good teachers, doctors, lawyers, farmers and others make money – but they do not count it while they work. If they do, the quality of their work suffers.

Serious traders place stops the moment they enter a trade.

We all like to hope that a trade will succeed – and a stop is a piece of reality that prevents traders from hanging on to empty hope.

Learning to place stops is like learning to drive defensively.

A stop is not a perfect tool but it is the best defensive tool we have.

Book Review :Sell & Sell Short

  
Analysis, Education
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Sell and Sell Short (Wiley Trading) by Alexander Elder

If you are searching for a book on trading stocks then look no further, this is it. I have been a successful trader for years and read over 160 books on trading,and in my opinion this is one of the very best. Alexander Elder actually read the change in the market from bull to bear in late 2007 and was able to get this books first edition released in early 2008 when it was needed most.

While as the title suggests it teaches when to sell your stocks for profits, and also does the best job I have seen on explaining short selling and when technical indicators show to short. This book is a complete book for any trader. The main lessons of this book is when to lock in profits and exit a trade using a target, and how to double your potential for profits by not only buying stocks, but also selling stocks short and buying them back at a lower price for profit. Professionals sell short because while overall the stock market drifts upward, when a stock falls it falls over
twice as fast as it rises. I sell short and it is a powerful tool when used correctly. This book will show you when it is appropriate to short.

Dr. Alexander Elder is the only author I am aware of that integrates trading psychology, money management, technical analysis and keeping a trading journal into one book. These four factors will determine whether you are successful in the market or not, even more than the trading method you choose.

You will learn the three great divides in trading:

technical vs. fundamental
trend vs. counter trend
discretionary vs systematic
The author follows a discretionary, technical approach trading counter trend for the most part. However what you learn in this book can be applied to any type of trading. The authors own technical approach uses prices, volume, exponential moving averages (13 day, 26 day), envelopes, MACD, and force index. Limit your tools to no more than five, more is less, any more just causes confusion. The main method you will learn in this book is using the moving averages as a technical base for agreed upon value and buying at the lower edge of the envelope and selling at the high edge of the envelope when you have favorable MACD and force index agreement, or buying at value between the EXP MAs.

If you are going to be a trader you must follow the money management suggestions
in this book. NEVER risk more than 2% of your total equity on a trade, and if you lose 6% of your equity in a month you must stop, clear your head and start back next month. If you follow the 2% rule from the book, it will be a major life lesson in your trading and save you a ton in equity draw downs and will almost completely eliminate your risk of ruin. (more…)

Forecasting the Market

  
  Education
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Amateurs attempt to make a forecast while professionals manage information to make decisions based on probabilities. Dr. Alexander Elder compares this to a Doctor that received a patient with a knife stabbed in his chest. The family will ask, “will he survive?” and “when can he go home?” But the Doctor is not forecasting, he must prevent the patient from dying, remove the knife, saturate the organs and carefully watch for an infection. He monitors the health trend of the patient and takes measures to prevent any complications. He is managing, not forecasting. To profit in trading you do not need to forecast the future, you need to derive from the market whether the bulls or bears are in control. You need to practice money management techniques for long term survival.

You trade against the sharpest mind in the ocean-like markets. Mental discipline is an undivided part of trading. Please remember the following points:

Understand you are in the market for the long term, that you want to be a trader in even 20 years from now

Develop your trading strategy, either technical or fundamental analysis. If “x” happens then “y “is therefore likely to take place. You may need different tools for trading a bull or a bear market

Develop a money management plan, with the first goal being long term survival. Secondary goal is steady money growth and third goal would be high profits. Successful traders do not concentrate on the profit itself but maintaining successful trades regardless of the earned amount.

Winners feel, think and act different than losers. Look inside yourself, eliminate the illusions and change the way you have been thinking and acting. Changing is hard but could pave the way to becoming a successful trader.

Weekend -Trading Quotes

  
  Education
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Trading Journal

“Show me a trader with good records, and I’ll show you a good trader.”

– Dr. Alexander Elder


“The fruits of your trading or investment success will be in direct ratio to the honesty and sincerity of your own effort in keeping your own records, doing your own thinking, and reaching your own conclusions. You cannot wisely read a book on ‘ how to keep fit’ and leave the physical exercise to another. “

– Jesse Livermore


Risk Management

“Risk comes from not knowing what you’re doing.”

– Warren Buffet

 

Money Management

“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”

– George Soros


“If you have an approach that makes money, then money management can make the difference between success and failure… … I try to be conservative in my risk management. I want to make sure I’ll be around to play tomorrow. Risk control is essential. “

– Monroe Trout


“Every winner needs to master three essential components of trading; a sound individual psychology, a logical trading system and good money management. These essentials are like three legs of a stool – remove one and the stool will fall, together with the person who sits on it. Losers try to build a stool with only one leg, or two at the most. They usually focus exclusively on trading systems. Your trades must be based on clearly defined rules. You have to analyze your feelings as you trade, to make sure that your decisions are intellectually sound. You have to structure your money management so that no string of losses can kick you out of the game.”

– Dr. Alexander Elder


“The most important advice is to never let a loser get out of hand. You want to be sure that you can be wrong twenty or thirty times in a row and still have money in your account. When I trade, I’ll risk perhaps 5 to 10 percent of the money in my account. If I lose on that trade, no matter how strongly I feel, on my next trade I’ll risk no more than about 4 percent of my account. If I lose again, I’ll drop the trading size down to about 2 percent. I’ll keep on reducing my trading size as long as I’m losing. I’ve gone from trading as many as three thousand contracts per trade to as few as ten. “

– Randy McKay


“All traders make mistakes, great traders, however, limit the damage.”

– Unknown


“My trading style blends both the risk-oriented and conservative personality of my personality. I take the risk-oriented part of my personality and put it where it belongs to : trading. And, I take the conservative part of my personality and put it where it belongs to money management. My money management techniques are extremely conservative. I never risk anything approaching the total amount of money in my account, let alone my total funds. “

– Randy McKay


“I’m more concerned about controlling the downside. Learn to take the losses. The most important thing about making money is not to let your losses get out of hand. “

– Marty Schwartz


“I’m always thinking about losing money as opposed to making money. Don’t focus on making money, focus on protecting what you have.”

– Paul Tudor Jones (more…)

Traders Make Decisions based on Probabilities

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

Most traders take price swings personally. They feel very proud when they make money and love to talk about their profits. When a trade goes against them they feel like punished children and try to keep their losses secret. You can read traders’ emotions on their faces.

Many traders believe that the aim of a market analyst is to forecast future prices. The amateurs in most fields ask for forecasts, while professionals simply manage information and make decisions based on probabilities. Take medicine, for example. A patient is brought to an emergency room with a knife sticking out of his chest – and the anxious family members have only two questions: “Will he survive?” and “when can he go home?” They ask the doctor for a forecast.

But the doctor is not forecasting – he is taking care of problems as they emerge. His first job is to prevent the patient from dying from shock, and so he gives him pain-killers and starts an intravenous drip to replace lost blood. Then he removes the knife and sutures damaged organs. After that, he has to watch against infection. He monitors the trend of a patient’s health and takes measures to prevent complications. He is managing – not forecasting. When a family begs for a forecast, he may give it to them, but its practical value is low. (more…)

Books on short-selling

  
  Education
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1) How to Make Money Selling Stocks Short by William O’Neil (Wiley, 2005) – [Technical, Swing & Position Trading]
2) Sell & Sell Short by Dr. Alexander Elder (Wiley, 2008) – [Technical, Day Trading]
3) The Art of Short Selling by Kathryn Staley (Wiley, 1997) – [Fundamental]
4) Sold Short by Manuel Asensio (Wiley, 2001) – [Fundamental]
5) Sell Short: A Simpler, Safer Way to Profit When Stocks Go Down by Michael Shulman (Wiley 2009) – [Macro]

The best way to become an effective short seller is by making it a habit of studying hundreds and even thousands of charts every week. Train your eye to see the setups, the accompanying volume, how the MA’s line up, etc. The only way to do this is with practice. Short-selling can become very profitable due to the simple fact that stocks drop faster than they rise (in most cases) and for me, it typically only takes about 1-3 days to make a decent profit of 10% or more.

Trade only the best setups to increase your odds. I do recommend the use of stop losses above key resistance areas due to the fact that losing short positions can cause serious damage if left unattended.

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