Learning to accept losses as part of the game and cutting them short is the single most important step towards becoming consistently profitable. It sounds simple, but in reality is extremely difficult for everybody. Why? Because we’ve been taught that giving up is for losers and we should fight till last breath. I certainly agree that you should not give up quickly, but only if you can influence the end result. Let me be clear, the stock doesn’t know that you own it and it doesn’t care that you cannot afford to lose the money. The market will strip your last cloth if you don’t know how to manage risk. You have to understand and accept your power. You cannot move the market. You cannot tell him where to go and how fast. This is why so many people, who are successful as entrepreneurs and engineers, have troubles breaking even in the capital markets. It takes a special kind of person. Someone, who can forget his ego and concentrate on what actually works. Very few people are able to reach that level and to distinguish their trading life from their personal life.

Trading or investing is a skill that can be learned. There are two ways to learn a new skill in general. Through the school of hard knocks and through the mentorship of others that have the gift of teaching. To become a successful trader, you need to somehow implement both approaches. Nothing can replace personal experience. You can hire the best mentors in the world to teach you and purchase the most expensive equipment and trading software, but this is not going to help you to build a new skill. Skill building is subdued to eternal physical laws. There are a hundred billion neurons in your brain. For every skill that you possess (speaking a language or driving a car), there is a certain combination of connections between some of your neurons. To build a new skill, you need to build a new net of connections. This is why every beginning is hard, this is why big changes do not happen overnight. You have to establish new connections, which takes hard work via repetition and visualization. (more…)

The Stock Trader's Steps to Success

Mark Douglas, in his classic book on trading behavior entitled THE DISCIPLINED TRADER: DEVELOPING WINNING ATTITUDES, describes what he believes are the three steps to a trader’s ultimate, long term success.  The following steps have very little to do with technical anaysis and everything to do with the trader’s mental resources.  Douglas explains that the “more sophisticated you become as a trader, the more you will realize that trading is completely mental.  It isn’t you against the markets, it’s just you” (204).  So, if it is just you what are the steps?

1.  STAY FOCUSED ON WHAT YOU NEED TO LEARN.  The trader needs to stay focused on mastering the steps to achieving his goals and not the end result, knowing that the end result, money, will be a by-product of what he knows and how well he can act on what he knows.   A big part of what the trader needs to learn is how to accept missed opportunities.  “Except for the inability to accept a loss, there isn’t anything that has the potential to cause more psychological damage than a belief in missed opportunities.  When you release the energy out of the belief that it is possible to miss anything, you will no longer feel compelled to do something, like getting into trades too early or too late.” (205).

2.  LEARN HOW TO DEAL WITH LOSSES:  Douglas outlines two trading rules for dealing with losses both of which are designed to help the trader deal with any threat of pain and confront, head on, the inevitability of a loss.  The first is to predefine what a loss is in every potential trade.  By predefine Douglas means “determine what the market has to look like or do, to tell you that the trade no longer represents an opportunity” (206).   Secondly, “execute your losing trades immediately upon perception that they exist.  When losses are predefined and executed without hesitation, there is nothing to consider, weigh, or judge and consequently nothing to tempt yourself with” (207). 

3.  BECOME AN EXPERT AT ONE MARKET BEHAVIOR: Simplicity and focus is the mother of success.  “You need to start as small as possible and then gradually allow yourself to grow into greater and greater amounts of market information.  What you want to do is become an expert at just one particular type of behavior pattern that repeats itself with some degree of frequency. To become an expert, choose one simple traing system that identifies a pattern.  Your objective is to understand completely every aspect of the system.  In the meantime, it is important to avoid all other possibilities and information” (209).

Three simple steps yet ironically it is in the simplicity that traders find the most difficulty.  Trading is not difficult, we make it so.  Remember this the next time you enter a trade. 

Dear Readers & Traders………..Don’t miss to read this Book !!101% it should be in your Library.-Technically Yours ,Anirudh Sethi

5 Principles of Leadership and Trading

What are these principles?

  1. Knowing why you are in the trading business

You can start by asking yourself:

  • Why are you in the trading business?
  • What was your initial attraction to trading?
  • Are you thinking about it as a business or a hobby?
  • Are you passionate about your trading?
  • Does trading feel like a lot of work?
  • What are your trading goals?
  • Are you enjoying the journey or just focusing on the end result?
  • What do you want to get out of trading?
    • Money
    • Excitement
    • Challenge
    • Power
    • Other things (more…)

Speculation and Trading vs. Gambling

When does trading become gambling? There is a very thin line. I maintain that most traders ARE gamblers. They use markets as a substitute for a casino.

1. IF you enter trades without a clear trading plan, you just might be a gambler.

2. IF you trade just to be trading, you just might be a gambler.

3. IF your bored and enter a trade, you just might be a gambler.

4. IF you look at potential profit before assessing potential loses, you just might be a gambler.

5. IF you have no impulse control, you just might be a gambler.

6. IF you have no methodology, you just might be a gambler.

7. IF you rely on others for your trading decisions, you just might be a gambler.

8. IF you do not take full responsibility for your trading outcomes, you just might be a gambler.

9. IF you increase your risk due to losses, you just might be a gambler.

10. IF you do not use stop losses or do not adhere to them, you just might be a gambler.

And my all time favorite

11. IF you get an adrenaline rush when your entering trades, you just might be a gambler.

In summation I would like to say that I do enjoy casino gambling as a form of entertainment. I strive to over come the house’s edge when I do gamble. Gambling is entertainment and trading is a business and should be approached as a business enterprise. IF your using the markets as a gambling outlet, be my guest. Traders that approach trading with a positive expectancy WILL take all your money. They will send you stumbling out into the night, cross-eyed and mumbling to yourself. Be smart. You can either feed the trading gods or feed your head. Do the work and get educated before risking one thin dime. Employ laser like focus in your trading and use iron discipline. The end result can be well beyond your wildest expectation.

100% You will lose Money

You are entering a position out of EMOTIONS or ANTICIPATION at wrong price level in a WRONG scrip with GREED or HOPE with no pre-entry exit in the place – even worst, once in a trade, riding the position with HOPE without STOP LOSS even if it goes against the entry – adding more to average down in the entirely wrong trade – at last running out PATIENCES and out of FRUSTRATION booking huge LOSS.

Even the position is in PORFIT there is no STOP LOSS or pre-entry EXIT in place – exiting the position abruptly in FEAR booking just a small profit with FEAR that market may take this small profit too – these random small profits unable to compensate earlier big losses!

To cover big losses you try more and more RANDOM trades and above process continues – end result it challenges your EGO and creates more FEAR, more AGONY – cycle continues with small profits and big losses – until account is wiped off.

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