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Trading Discipline

  
  Education
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Trading DisciplineEmotions are probably the biggest obstacle any trader has to overcome. Many traders become losers because they can’t follow a plan. They see a couple of losses, get excited, abandoned the plan and start to take wild shots at the market.

Traders who develop a sound set of trading rules that match their financial situation with their objectives, and then stick with those rules, increase their chances of becoming big winners. Trading discipline can be more important than your trading system.

Discipline means you must become mechanical in making trades when certain price actions occur. You must shut off your emotions, and not accept one trading signal over another. Disciplined traders let profits run and keep losses short by following rigid guidelines. (more…)

5 Facts for Speculators & Traders

  
  Education
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1) It’s not by making large profits that money is made over time. It’s by consistently keeping losses small in relation to profits. 
2) Making Money and Being Right are at opposite ends of the performance spectrum, and — very surprisingly to most — most professional traders admit their primary job is to minimize losses, NOT focus on being right. Why? Minizing losses (well over 50% of the time losses can’t be avoided) ensures their average winner will be greater in relation to the average loser. 
3) No one knows FOR SURE how much profit any trade is likely to make. Fortunately, it is possible to know THE INITIAL RISK a trader is willing to lose. 
4) Projection of future prices are only a BEST GUESS, never a 100% certainty. 
5) Top traders only control three things all the time: Initial Risk, Exits, and EMOTIONS…  

A lesson on Ego and Risk

  
  Education
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ego-riskMost traders drawn to risk management focus on the external “how to” aspect of trading, vs. the inner aspect of emotions and psychology. This is where trouble begins.
• In the school model, one’s self-esteem is tied to being right. Avoiding mistakes, especially public mistakes becomes paramount. But in trading, one can be wrong in most choices and experience regular “outlier” events in the course of trading the markets. Traders must somehow learn that they will miss out or be incorrect regularly and still have a shot at great success. 
• Traders need to have a survival plan. Know when you will get out of a trade before you get in.
• If you don’t take the small loss today, your capital and trading career may not survive tomorrow.
• The most successful traders surrender their egos to not knowing the frequency or magnitude of any trend. They quiet their mind and follow their inner voice.
• Most of the world can’t keep their losses small. Professional traders and investors who’ve been around for decades are usually those who play the best defense. 

8 Skill Every Traders must have

  
  Education
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  • Passion. The best investors I’ve seen truly love what they do. It’s the only way they are able to put in the time needed to become great.
  • Experience. The pros have seen it all. They’ve been through all sorts of market cycles. Long periods of sideways choppiness, uptrends, and downtrends. And not just the short term 15-20% corrections but the big 50% corrections too.
  • Adaptability. Markets change. And the strategies that were working in one market may eventually deteriorate. Good traders will change their methodology to match the new market conditions.
  • No ego. None. If you go into trading with an ego the market will eat you alive. The elite investors are able to admit when they’re wrong. They even embrace it. Being wrong quickly means they can move on to being right faster.
  • Emotionless. This goes hand in hand with ego. Along with pride, investors face a daily trio of emotions of hope, fear, and greed. The worst investors allow their emotions to control their trading; the best avoid any emotional attachment at all. (more…)

Four Trading Fears

  
  Education
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“Ninety-five percent of the trading errors you are likely to make—causing the money to just evaporate before your eyes—will stem from your attitudes about being wrong, losing money, missing out, and leaving money on the table. What I call the four primary trading fears.” -Mark Douglas (Trading int he Zone)

As Mark Douglas points out in his great book about trading psychology is that the majority of traders lose because of wrong thinking, misplaced emotions, and wanting to be right. We know fear and greed drive the market prices far more than fundamentals do. However fear makes traders do the wrong things at the wrong time. Here are four great examples of fear over ruling sound trading strategies.

Here are more thoughts about these four fears:

The fear of being wrong: Traders fear being wrong so much they will hold a small loss until it becomes a huge loss. Even adding to the loss in the hopes of it coming back and getting to even. Don’t do this, holding on to a loser after it hits your predetermined stop loss is like being a reverse trend trader. Do not be afraid of being wrong small be afraid of being wrong BIG.

The fear of losing money: New traders hate to lose money, they do not quite understand yet that they will lose 40%-60% of the time in the long term. We should come to expect the small losses and wait for the big wins patiently. Many times traders fear this so much that they have a hard time taking an entry out of fear of losing. If you can’t handle the losses as part of the business, you can’t trade.

The fear of missing out: The opposite of the fear of losing money is the fear of losing potential profits. This causes traders to watch a stock go up and up, miss the primary trend, then not being able to take it any more and get in late just in time for the trend to reverse and lose money. Trade at your systems proper entry point do not chase a stock because you are afraid to miss out on some profits.

The fear of leaving money on the table: When your trailing stop is hit get out of the trade. If your rules tell you to get out after a parabolic run up and stall then exit. You must be disciplined on taking money off the table while it is there. Being greedy for that last few dollars when your system says to sell could lead to major losses of paper profits. Let your winners run but when the runner gets to tired to continue: bank your profits.

Every mistake a trader can make

  
  Education
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MISTAKES-TRADERSSymptoms:

  1. Trading with “scared” money

  2. Trading from a state of desperation and fear
  3. Ruled by emotions and unable to take a loss
  4. Changing her trading plan often
  5. Trying to be perfect
  6. Looking for medication to deal with emotional issues over trading
  7. Adopting a trading technique (scalping one futures contract) that is beyond her level of trading competence
  8. Attached to the outcome of each trade
  9. Not committed to the process of learning to trade—using trading as a temporary “stop-gap” source of income until something else becomes available.

  10. Acting out personal dramas in the financial markets

7 Things for Traders

  
  Education
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The definition of man·age:number7

  • To direct or control the use of; handle.
  • To exert control over.
  • To make submissive to one’s authority, discipline, or persuasion.
  • To direct the affairs or interests of.
  • To succeed in accomplishing or achieving, especially with difficulty; contrive or arrange.

1. Traders must be great risk managers.

“At the end of the day, the most important thing is how good are you at risk control.” -Paul Tudor Jones

2. Traders must manage their own stress.

 Trade position sizes that keep your stress level manageable, if you can’t talk calmly to someone while trading you are trading too big.

3. Traders have to be able to manger their emotions, we have to trade our plan not our greed or fear

“There is nothing more important than your emotional balance.” – Jesse Livermore (more…)

7 Points for Traders

  
  Education
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  1. You don’t choose the stock market; it chooses you.  A little bit of early trading success can have a profound effect on a person’s soul.  If it does choose you, you’ll have to accept that your life and investing will become forever connected.
  2. Your methodology must provide an unshakeable foundation that you believe in totally, and you must have the conviction to trade based upon it.   If your belief is tentative or if you don’t have complete faith in your methodology, then a few bad trades will destabilize and erode your confidence. 
  3. A calm mindset that can focus on the execution and not on the outcome is what produces profits.  It takes total emotional control.  You must maintain your balance, rhythm and patience.  You need all three to stay in the game.
  4. The markets are always conniving with ingenious techniques to get you to lose your patience, to get you frustrated or mad, to bait you to do the wrong thing when you know you shouldn’t.  A champion doesn’t allow the markets to get under his skin and take him out of his game.
  5. Like a great painting, all good trades start with a blank canvas.  Winning traders first paint the trade in their mind’s eye so that their emotional selves can reproduce it accurately with clarity and consistency, void of emotions as they play it out in the markets. (more…)

Four Basic Traits of Successful Investors

  
  Education
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1. They look at objective indicators. Removing the emotions from the investing process, they focus on data instead of reacting to events;Four Stages
2. They are Disciplined:  The data drives decision making with pre-established rules. External factors do not influence them;
3. They have Flexibility:  The best investors are open-minded to new ideas, or revisiting previous thoughts;
4. They are Risk adverse: Not always obvious to investors, it is a crucial part of successful investing.

TIMING ENTRIES AND EXITS

  
  Education
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1. Forget the news, remember the chart. No one is smart enough to know how news will affect price in every case.  The chart already knows the news is coming.

2. Execute positions based on numbers, time, and volume, not emotions.  This discipline forces the trader to distance himself from reckless gambling behavior. 

3. Remember that participants in the markets echo similar patterns over and over again based on the infallible rules of human behavior allowing the trader to take advantage of potentially profitable trades while minimizing losses. 

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