- Not honoring your original stops. Big losses make winning systems losing ones.
- Quit trading it during drawdowns. All systems have losing streaks, the key is to manage risk and stick to it until the system has time to play out with profits as the market becomes conducive to your system’s method.
- Lack of discipline, drifting from taking defined entries and exit signals to your own opinions is hazardous.
- Trading too big, no system can survive huge positions sizing that makes the first string of losses the last.
- Style drift is deadly, slowly changing your trading system during active trades is not good. Research has to happen after hours when the market is closed and backtested before changes are made.
- If you can’t mentally and emotionally deal with the equity curve of your trading style then you can’t trade it long term. You can’t quite during losing streaks or get too excited during winning streaks.
- You have to believe that your method will work over the long term, confidence comes from research, backtesting, and homework.
- Don’t trade someone else’s system, build your own. Custom to fit who you are by using the principles that you believe in and work.
- Trading too big during losing streaks ruins the potential of winning, don’t try to get back the blood the market took from you instead try to stop the bleeding by trading smaller and smaller until a new winning streak emerges.
- Straying from the trading plan and making one big, bold, can’t miss trade and blow up all your previous profits. Don’t let greed make you do something stupid, stick to the plan.
Archives of “economics” tag
rssThe Bible of Technical Analysis Edwards & Magee- Some Things Never Change
“It has often been pointed out that any of several different plans of operation, if followed consistently over a number of years, would have produced consistently a net gain on market operations. The fact is, however, that many traders, having not set up a basic strategy and having no sound philosophy of what the market is doing and why, are at the mercy of every panic, boom, rumor, tip, in fact, of every wind that blows. And since the market, by its very nature, is a meeting place of conflicting and competing forces, they are constantly torn by worry, uncertainty, and doubt. As a result, they often drop their good holdings for a loss on a sudden dip or shakeout; they can be scared out of their short commitments by a wave of optimistic news; they spend their days picking up gossip, passing on rumors, trying to confirm their beliefs or alleviate their fears; and they spend their nights weighing and balancing, checking and questioning, in a welter of bright hopes and dark fears.
Furthermore, a trader of this type is in continual danger of getting caught in a situation that may be truly ruinous. Since he has no fixed guides or danger points to tell him when a commitment has gone bad and it is time to get out with a small loss, he is prone to let stocks run entirely past the red light, hoping that the adverse move will soon be over, and there will be a ‘chance to get out even,’ a chance that often never comes. And, even should stocks be moving in the right direction and showing him a profit, he is not in a much happier position, since he has no guide as to the point at which to take profits. The result is he is likely to get out too soon and lose most of his possible gain, or overstay the market and lose part of the expected profits. (more…)
Bruce Lee on Stock Trading
If Bruce Lee was a trader I believe this would be his advice:
If you let the market show you the way you will win.
Do not trade your opinions about what the market will do next, instead always ask the questions:
What is the chart saying? Where is support and resistance?
Is the market trending or range bound? At what price level will I know that it has changed?
Where is all the capital flowing? What keeps going up day after day?
If I enter a trade at what price level will I know I was wrong?
Can I quickly admit I am wrong about a trade and move on to the next one?
Water is so versatile it can be ice in the winter and steam in extreme heat. Traders do well to be a bull in a bull market and a bear in a bear market.
Water can wear through a rock if it is a strong river. You can win in the markets if you keep trading the right method over and over again.
Water takes the form of whatever you put water into. Traders should trade for the market conditions that they find themselves in.
Water can only be reduced to its core elements hydrogen and oxygen but it can not be truly destroyed. If you only risk 1% per trade your account can experience a draw down in capital but it to can not be destroyed.
George Soros quotes
The Hungarian-born financier will therefore no longer be able to move markets. But many of his aphorisms and apothegms will long continue to apply. Here are some of the best.
When I see a bubble forming I rush in to buy, adding fuel to the fire. That is not irrational.”Well, you know, I was a human being before I became a businessman.”Markets are designed to allow individuals to look after their private needs and to pursue profit. It’s really a great invention and I wouldn’t under-estimate the value of that, but they’re not designed to take care of social needs.”
The financial markets generally are unpredictable. So that one has to have different scenarios… The idea that you can actually predict what’s going to happen contradicts my way of looking at the market.”Japan – National CPI for March: 1.6% y/y (vs. 1.6% expected) & the rest of this data
Japan inflation data:
National CPI y/y for March, 1.6%
- expected 1.6%, prior was 1.5%
National CPI y/y excluding Fresh Food for March, 1.3%
- expected 1.4%, prior was 1.3%
National CPI excluding Food, Energy y/y for March, 0.7%
- expected 0.7%, prior was 0.8%
Tokyo CPI y/y for April, 2.9%
- expected 3.0%, prior was 1.3% (Note: the ‘expected’ is much higher than the prior due to the introduction of the higher sales tax rate on April 1 …. note we get Tokyo inflation figures for April, with national figures are for March)
Tokyo CPI excluding Fresh Food y/y for April, 2.7% (this is a 22-year high … but, of course, skewed by the sales tax hike)
- expected 2.8%, prior was 1.0% (ditto) (more…)
Trader Types and Personalities
- Scalpers
- High energy, short attention spans.
- Usually former athletes, tennis and hockey players make the best traders.
- Able to play both offense and defense simultaneously, and able to think a few steps ahead of the game.
- Spreaders / Option Traders
- Quick and flexible thinkers, able to look at numbers and figure risk and value instantaneously.
- Not in the market to take risk, methodically search for mathematical anomalies and lock in profits immediately.
- Position Traders
- Energy level almost nonexistent.
- Put on passive positions, ride the winners, cut losers.
- As a position trader, your brains are working all the time, and you keep looking for an informational edge that might drive the market one way or the other.
Top 17 Quotes from Buffett's Letter
- “I needed no unusual knowledge or intelligence to conclude that the investment had no downside and potentially had substantial upside.”
- “You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well.”
- “Keep things simple and don’t swing for the fences.”
- “When promised quick profits, respond with a quick ‘no.'”
- “If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility.”
- “Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard.”
- “Forming macro opinions or listening to the macro or market predictions of others is a waste of time.”
- “It should be an enormous advantage for investors in stocks to have those wildly fluctuating valuations placed on their holdings — and for some investors, it is.”
- “Owners of stocks…too often let the capricious and irrational behavior of their fellow owners cause them to behave irrationally as well.”
- “In the 54 years (Charlie Munger and I) have worked together, we have never forgone an attractive purchase because of the macro or political environment, or the views of other people. In fact, these subjects never come up when we make decisions.” (more…)
17 Trading Rules
1. Trade needs to fit like a leather glove. 100% your terms or pass. Follow your instincts!!
2. A complete trade plan consists of entries, STOPS, and profit targets. Set a hard stop immediately for ½ position and watch other half for better exit.
3. Stick to plan and cut losers immediately! You can ALWAYS re-enter.
4. Respect your max daily loss and liquidate all positions immediately if/when hit.
5. Focus on only 1 position during the first 30 minutes for complete, undivided attention.
6. Never long a stock that is red on the day until after half time and very, very selectively (<10%).
7. Treat every trade like it is your only trade of the day/month/year.
8. Add to winners by recycling shares. Cover 1/2 into washes and re-short 1/4 on pops but reduce size each time.
9. Take a considerable timeout before switching bias from short to long.
10. Avoid shorting day 1 on low floaters – only para scalps with cover into following wash.
11. Wait for the back side of move to bring the hammer down when shorting.
12. Focus on the meat of the move, not trying to top and bottom tick everything.
13. If you have given back ¾ of daily profits, call it quits. You should never turn a green day to red.
14. Just had a monster day (good or bad)? Take tomorrow off.
15. NEVER say NEVER! Even shit can fly high if thrown hard enough.
16. Be very cautious when dip buying (small size, tight stops) – especially near potential back side.
17. 3 day rule. Better to bring the heat after day 3 of big moves.
The Difference Between A Good And A Bad Trader: What Brain Imaging Reveals
The age old question: what is the difference between a good trader and a bad trader… aside from the P&L at the end of the day of course.
While luck has always been a major component of the equation, figuring out just what makes one trader successful, while another blows all his funds on a trade gone horribly bad has always been the holy grail of behavioral finance. Because if one can isolate what makes a good trader “ticks, that something can then be bottled, packaged and resold at a massive markup (and thus, another good trade) in the process making everyone the functional equivalent of Warren Buffett.
Or so the myth goes. Alas, the distinction between the world’s only two types of traders has been a very vague one.
Until now. (more…)
DON’T TRADE EVERY DAY
Do not trade every day of every year. Trade only when the market is clearly bullish or bearish. Trade in the direction of the general market. If it’s rising you should be long, if it’s falling you should be short.
Jesse Livermore
This is a corollary of trade only when you have an edge. Don’t take part in the market unless you have an edge. And for most trading strategies, the edge comes from market trends.
In a bull trend, the market tends to rise. A trading edge is possible if you look to buy.
In a bear trend, the market tends to fall. If you are looking to sell, you might gain a trading edge.
When the market has no clear tendencies, it’s much harder to gain an edge. If that’s the case, be sure not to overtrade.
Remember that you are a trader, not a worker. A worker shows up for work every day. A trader shows up only when there’s money to be made.