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Let the market make the decisions, not your ego.

The rules are not hard to understand. Recognizing a profit from a loss is simple. If the rules are easy to grasp and a profit is distinguishable from a loss, where does the problem lie? What makes it so hard to apply the rules? There is something within each of us that has a power over our minds that prevents our acting according to what we have agreed is the proper course of action. That something is present in all of us and is very powerful, more powerful than anything I know. Let’s call it ego. Until we learn to get rid of our ego, we will never make money in the market consistently. Those who haven’t identified the ego’s ways will eventually be destroyed in the market because of their ego’s tendencies. It is just that powerful. The market rewards those who have subdued their egos. Those who rid themselves of their egos are rewarded greatly. They are the superstars of their fields. In the market, rewards come in the form of profits. In the world of art, masterpieces are the results. In sports, the players are all-stars and command enormous salaries. Every pursuit has its own manifestation of victory over the ego.

What Not to Do-What to Do

What Not to Do

  1. 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. 
  2. 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.
  3. 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. 
  4. 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.
  5. 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

  1. 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.
  2. 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.
  3. Avoid the forums while trading. Use the good ones as a source of education, but refrain from making your trades public.
  4. 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.
  5. Cut losses short. Use hard stops and be merciless with losing trades. When the market turns against you, exit.

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

  1. 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. 
  2. 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.
  3. 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. 
  4. 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.
  5. 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

  1. 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.
  2. 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.
  3. Avoid the forums while trading. Use the good ones as a source of education, but refrain from making your trades public.
  4. 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.
  5. Cut losses short. Use hard stops and be merciless with losing trades. When the market turns against you, exit.

Better to be Profitable Than Right

The ultimate goal of a futures trader should be to have overall trading success by being profitable. There is no single-best path one can take on the destination to trading success and profitability. However, there are a few general trading tenets to which all successful traders have subscribed. One such trading tenet is “losing your ego” when trading futures.

Mark Cook, a well-respected trader and trading educator from rural Ohio, for many years has stressed that traders need to lose their egos before getting into trading futures markets. He is also an advocate of survival in futures trading. One must survive in this challenging arena before one can succeed. I enjoyed listening to Mark at a trading seminar a few years ago. He even used to wear bib-overalls (with no shirt) at some of his trading seminars – just to drive home the point that trading futures is not easy and that ultimate success takes a lot of hard work.

My good friend and respected trader and educator Glen Ring also espouses the notion, and may have even coined the phrase, “it’s better to be profitable than right in futures trading.” Those who know or have talked to Glen know he, too, is a no-nonsense, no-hype trader who takes a yeoman’s approach to the business. When asked what direction a specific market “will” go in the future, Glen is never afraid to say, “I don’t know,” before he adds that, “successful trading is not a business of predictions but one of probabilities based on past price history.” (more…)

Flexibility in Markets

Persistence is a key. Always keep looking for new trading ideas.

Knowing when to quit is another key. If you’re wrong, admit it and move on. Managing risk is the name of the game.

But flexibility, in my opinion, is the toughest one. Just because you’re long and get stopped out, doesn’t mean you can’t turn around and go short it if the market tells you it’s a good idea. In fact, my favorite trades are when traditional charting patterns don’t work out the way the book says they should. Turning around and doing the opposite, a lot of times, offers the best risk/reward.

And most importantly, you can’t marry your ideas. If the market proves you wrong, pay attention. No egos remember? I came in a few weeks ago looking to short treasury bonds on a breakdown. And they ripped right in my face. So what?

It’s not about being right, it’s about making money.

Be flexible

Mistakes

Another mistake many investors make is that they allow themselves to be influenced by what other people think. I made this mistake myself when I was still learning how to trade. I became friends with a broker and opened an account with him. We played this game called “bust the other guy’s chops when his stock is down.” When I had a losing stock position, 1 was embarrassed to call him to sell the stock because I knew he would he would ride me about it. If a stock I bought was down 5 or 10 percent, and I thought I should get out of it, I found myself hoping it would recover so 1 wouldn’t have to call him to sell it while it was down. Before I knew it, the stock would be down 15 or 20 percent, and the more it fell, the harder it became for me to call. Eventually, I learned that you have to ignore what anybody else thinks.Many people approach investing too casually. They treat investing as a hobby instead of like a business; hobbies cost money. They also don’t take the time to do a post-trade analysis on their trades, eliminating the best teacher: their results. Most people prefer to forget about their failures instead of learning from them, which is a big mistake.

They let their egos get in the way. An investor may put in hours of careful research building a case for a company. He scours the company’s financial reports, checks Value Line, and may even try the company’s products. Then, soon after he buys the stock, his proud pick takes a price dive. He can’t believe it! He makes excuses for the stock’s decline. He calls his broker and searches the Internet, looking for any favorable opinions to justify his position. Meanwhile, he ignores the only opinion that counts: the verdict of the market. The stock keeps sliding, and his loss keeps mounting. Finally, he throws in the towel and feels completely demoralized – all because he didn’t want to admit he had made a mistake in timing.

 

Accept you will make many mistakes

Those who learn how to minimize the damage when they are wrong and who readily own up to the mistakes they make will do far better over the long haul. Making mistakes is a part of this game, but knowing how to handle them is everything. Likewise, if you attach your ego to your portfolio’s performance you are destined for failure. The market absolutely loves to kill those with big giant egos and who look for the markets as a place to prove how smart they are. Markets chew and spit out these folks routinely for good reason and they will continue to do so at every available opportunity.

Better to Be Profitable Than Right

ego” when trading futures.Mark Cook, a well-respected trader and trading educator from rural Ohio, for many years has stressed that traders need to lose their egos before getting into trading futures markets. He is also an advocate of survival in futures trading. 
One must survive in this challenging arena before one can succeed. I enjoyed listening to Mark at a trading seminar a few years ago. He even used to wear bib-overalls (with no shirt) at some of his trading seminars—just to drive home the point that trading futures is not easy and that ultimate success takes a lot of hard work. 
My good friend and respected trader and educator Glen Ring also espouses the notion, and may have even coined the phrase, “it’s better to be profitable than right in futures trading.” Those who know or have talked to Glen know he, too, is a no-nonsense, no-hype trader who takes a yeoman’s approach to the business. When asked what direction a specific market “will” go in the future, Glen is never afraid to say, “I don’t know,” before he adds that, “successful trading is nota business of predictions but one of probabilities based on past price history.”  (more…)

Finicky Traders are Good Traders

In trading focus is crucial. You have to know who you are as a trader and exactly what your method and trading plan is, and you must follow it.  In trading discipline makes money, focus makes money, monster stocks make money, while risk management allows you to keep the money that you have made. You could say you must be finicky  to be a good trader.

Here are the areas to be finicky about:

  1. A good trader is picky about the methodology they decide to trade, they study diligently to see what works  before they begin trading.
  2. Be very picky about the stocks you trade, only trade the very best monster stocks long and only short the absolute biggest junk stocks.
  3. Being picky about your entry point is crucial, stick with your plan, buy only when the odds are in your favor for winning.
  4. You can not just trade any amount of stock, you have to be picky about the quantity of shares you trade and base it on your risk management guidelines.
  5. Be very picky about who you follow on twitter, look for a teacher not a stock picker, beware of big egos. (more…)

4 Trading Mistakes

  • Don’t over-leverage yourself or have all of your money tied into one position. Keeping cash on hand is okay as a trader. These days brokers are offering extremely competitive margin requirements for day trading futures, but low margins can be a wolf in sheep’s clothing.
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  • Don’t trade to trade. Understand that there are 3 positions you can take as a trader: a long position, a short position and a position to NOT be in a position. There will be plenty of trading opportunities that will come along. Don’t give money to the markets simply because you are bored!
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  • Avoid trading a strategy without having a good understanding of how the strategy works. What is the typical winning percentage? What is the largest drawdown? In general, high winning percentage strategies have smaller average profits per trade. Lower winning percentage strategies might not have as many winners, but when you are a winner, you typically win big. If you expect your strategy to bring big profits without losses, you can also expect a check made out to “REALITY” to come your way any day. 
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  • Don’t get cocky after a few wins. The market WILL humble you and make fools out of those with egos.