Being in the flow happens effortlessly. It is something that just overtakes you and consumes your every being. It’s a wonderful feeling occuring only in activities that you enjoy very much. In my case, trading is one of those activities. Here’s how Mihaly Csikszentmihalyi describes it: Flow is being completely involved in an activity for its own sake. The ego falls away. Time flies. Every action, movement, and thought follows inevitably from the previous one, like playing jazz. Now that’s something to strive for!
Archives of “ego” tag
rssNicolas Darvas
Great links with Nicolas Darvas interviews
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That line, “[He] buys when he feels that informed buyers are getting in,” made me chuckle. It should read “He buys when he suspects that uninformed fools are piling in.”
An Interview With Nicolas Darvas in 1974:
| Don’t forget I too went through a period of learning from 1953 to 1958 where I lost a substantial amount of capital before I worked out what worked and then was lucky enough to time it in the 1958-1960 bull market.” |
Wisdom from Worthy Individuals
“I measure what’s going on, and I adapt to it. I try to get my ego out of the way. The market is smarter than I am so I bend.” – Martin Zweig
“To be a money master, you must first be a self-master” – J. P. Morgan
“Our greatest glory is not in never falling, but in rising every time we fall.” – Confucius
“Buy that which is showing strength – sell that which is showing weakness.” – Richard Rhodes
“The rule of survival is not to “buy low, sell high”, but to “buy higher and sell higher.” – Richard Rhodes
“Be patient. Once a trade is put on, allow it time to develop and give it time to create the profits you expected.” – Richard Rhodes
“Be impatient. As always, small loses and quick losses are the best losses.” – Richard Rhodes (more…)
10 Steps to Profitable Trading
- 1. Manage Risk: Learn to trade a manageable portion of you portfolio (I recommend to risk less than 2% of you overall portfolio equity on each trade). Always establish a risk/reward ratio before making a trade. Without the ratio, how do you know your risk?
- 2. Understand Position Sizing: All traders must learn to know “how much” to trade on each position. Do not overtrade or you will runt he risk of ruin. Position sizing is rule number one of managing risk.
- 3. Cut Losses: Do not allow losses to run wild. You must learn to cut losses and understand that losses are a part of the game, a large part of the game. Check you ego of winning at the door. We are here to make money, not go undefeated. Play sports if you want to keep score with a record rather than your bankroll.
- 4. Learn when to Sell: You must learn when to sell. Selling is more important than buying as it ties directly to risk management. Use stops if you haven’t yet developed the discipline to get out at your predetermined stop or profit goal.
- 5. Average up in Price: I will never hesitate to add shares in a stock that is moving higher (see Mastercard) but I always avoid averaging down. Remember, cut losses and never throw good money after bad because we know that’s a quick way to the poorhouse.
- 6. Have Patience: It takes years to master trading as an advanced skill; even then, you are never done learning or adapting.
- 7. Buy 52-week Highs, not 52-Week Lows: Don’t be afraid to buy stocks making new highs. The garbage sits at the bottom of the market along with poor earnings, weakness and further downward pressure. Buy strength and the momentum moving higher. Stocks are typically priced at the levels they trade for good reason. This applies to most premium items in life.
- 8. Ignore the Talking Heads: Do not listen to the stories, gossip and rumors flying around on network television, stock forums or the major financial newspapers. It a surefire route to bad information and clueless advice. Do your own research; you’ll come out much further ahead. This applies to crappy blogs and internet sites as well.
- 9. Understand Technical Analysis: Fundamental analysis is a solid part of my trading system but technical analysis brings in the dough. You must learn, understand and use technical analysis on a daily basis. Fundamental analysis tells me what and technical analysis tells me when, where and how.
- 10. Control Emotions: Enough said – You must control your emotions or the game is over!Understand you!
Five Trading “Don’ts”
Trading can be complicated to learn. Many traders spend hours every day on their charts, yet still find success elusive. Part of the difficulty can arise when little attention is paid to the mental side of the game. Developing a mental edge is just as important as possessing a technical trading edge. Here are five common mental “wrong steps” that can quickly derail your trading. These can blindside you no matter how good your technical skills. This brief discussion regarding these trading “don’ts” offers an introduction to trading psychology and some sensible solutions:
What Not to Do
- Have an opinion. One sure way to find yourself trading against the market is to have a market opinion. Trading with a rigid belief about what the market will do next can limit your ability to see what the market is actually telling you.
- Have someone else’s opinion. Adopting some market guru’s market opinion is actually worse than having your own. Market gurus are notoriously inaccurate in their predictions. Embracing another’s market judgment prevents you from learning to read the market on your own. Besides, it’s doubtful the guru will be texting you to let you know when his or her opinion has changed.
- Make your opinion public. Putting your bias into a chat room or forum thread makes it public. Making something public gives it a psychological life of its own. It’s hard to back off an opinion once you have announced it to others.
- Let your ego get involved. Everyone wants to be right. In trading, learning to accept being wrong and the losses associated with being wrong is a big part of the game. This is no place for big egos.
- Ride a loser. Still wanting to be right? Having a bias, making it public, and getting your ego involved will cause you to hold losers far longer than you should.
What to Do
- Anticipate. Avoid having an inflexible bias. Identify areas where the market might turn, break out, or continue, and think through what that would look like. Anticipate the alternative ways the market may trade. When you see the market trading as anticipated, you already know what to do.
- Keep your own counsel. Avoid gurus. Jesse Livermore viewed trading as a “lone-wolf” business, and it is. Learn to read the market and make your own decisions.
- Avoid the forums while trading. Use the good ones as a source of education, but refrain from making your trades public.
- Check your ego. Be aware of when you want to be right. Ask yourself, “What is more important, being right or making money?” Then, make the correct decision.
- Cut losses short. Use hard stops and be merciless with losing trades. When the market turns against you, exit.
Trading is a business
Trading can be mastered if you concentrate your efforts on how you will react to price rather than desiring to predict it. Reacting is a business decision, predicting is an ego play.
Traders want to make money. Losses in the long run don’t matter. Forecasters (prophets) want to be right (ego). And that’s all that they are concerned about.
Don’t decide anything (ego), let the market do that job for you (business).
Like any other business you have a business plan and the financial portion of that plan is the most important.
In this business your inventory is stocks, bonds, futures or options. Like any other business you define what an acceptable loss is on an item and what is an acceptable profit for the risk undertaken. Like any other business if the item of inventory doesn’t do what you expected it to do, you put it on sale and liquidate it to raise capital to purchase inventory that will do what you want it to do. Your acceptable loss is your stop. Your money management system tells you how much that is. Your mark up is dependent upon your trading system and trading style. It doesn’t make any difference if you are a day trader or an investor. Like any business, some turn their inventory 10 times a day, some 20 times a year and some only twice a year. Your trading style and inventory volatility will tell you what your turnover rate will be.
Trading is a business and if you treat it as anything else you will be a loser.
Control in Trading
New traders may get lucky for awhile and bad traders may win big in the short term but in the long term the market gives every trader exactly what they have earned. While traders can win in the long term with many different types of robust trading methods a trader with no self control will not even survive long, they will not be able to make a plan and follow it, they will let fear and greed over take their mind and end up with large losses and the belief “trading is just too hard” but trading is not hard what is hard is self control, discipline, focus, and keeping the ego in check.
What a trader can control:
- Their entry.
- Their exit.
- Their trading plan.
- Their emotions.
- Their ego.
- Their method.
- Their position size.
- Whether to trade or not to trade.
- How much you are willing to risk per trade.
- Themselves.
What a trader can not control.
- Market movements.
- Volatility.
- The trend.
- Whip saws.
- Political decisions.
- News Headlines.
- Macro economics.
- Every other traders decisions.
- The future.
- The past.
One key to trading is to only focus on what you can control, do not worry and stress about what you can not control, and most importantly, be able to know the difference.
10 Points For Successful Trading
Trading Methodology:
- Winning system-Only trade tested systems with a positive expectancy in the long term.
- Faith– Your system has to allow you to trade your beliefs about the market.
- Risk/Reward-Never trade unless your profit expectations are greater than your capital at risk.
Trader Psychology:
- Discipline-You have to keep trading your method even when it doesn’t work for a given time period.
- Ego-Admit when you are wrong.
- Emotions-Trade the math not your emotions.
Risk Management:
- Risk of Ruin-Never risk more than 1% of your total account capital on any one trade.
- Position Sizing-Use your capital at risk to understand the right amount to trade based on the securities volatility.
- Capital at risk: Never put more than 6% of your total capital at risk at any given time on all positions.
- Trailing stops- Always have an exit strategy to lock in your winners.
Learning From Mistakes
The ability to learn from mistakes is an important part of the skill development process. In addition, those who trade well tend to adopt a “perpetual student” mentality toward the markets which also helps keep their ego in check.
However, learning from mistakes you make is not as simple as it sounds. Equally important and challenging is figuring out which mistakes offer a lesson and which mistakes are just a routine part of trading. For example, sometimes I run into traders who think that in every losing trade there is a lesson to be learned and that’s simply not true unless you see a specific pattern repeated in other unsuccessful trades. As any experienced trader will tell you, a trader can make all of the right moves and their analysis may be 100% correct, but that doesn’t guarantee a successful and profitable trade. Perfection and trading well do not go hand in hand and not all unsuccessful trades offer a lesson to be learned. It is in the ready identification of patterns when making mistakes that you see within the more experienced and high performers.
Ego
Separate your ego from your trading. The market does not care what college you went to or how many kids you have to feed. Take profits when you have them and NEVER think you are smarter than the market. As they say, “humble yourself or you will be humbled.”