Now, you ask, what does this have to do with stock and options trading? Just as in every day life and in the case of CFIT, stock and options traders must remain focused on the current trade or risk opening themselves up to any number of mistakes. These mistakes can include (but are in no way limited to)the following:
1) allowing impulsiveness to take over your trading rules, thus taking a trade that does not meet your criteria
2) not taking a trade signaled by your system because your focus is elsewhere (more…)
Archives of “exit strategy” tag
rssThe Ten Most Foolish Things a Trader Can Do
In the spirit of April Fools Day here are the ‘Ten Most Foolish Things a Trader Can Do’. In no particular order of foolishness.
- Try to predict the future movement of a stock, and stay in it no matter what.
- Risk your entire account on one trade with no stop loss plan.
- Have a winning trade but no exit strategy to get out, no trailing stop or exhaustion top signal.
- Ask for and follow the advice of others instead of trading with your own trading plan, method, rules, and system.
- Trade your emotions instead of signals: buy when you are greedy and sell when you are afraid.
- Trade your opinions, not a quantified method.
- Do not bother to do your homework on trading, just jump in and trade, you are smart, you will figure it out.
- Short the best and most expensive stocks in the stock market and buy the cheapest junk stocks.
- Put on trades you are 100% sure are winners so you do not even need a stop loss or risk management.
- Buy more of a trade that you are losing money in and sell your winners quickly to lock in small profits.
Do not trade foolishly my friend.
6 Mistakes
Mistake number one: not having any knowledge of the simple visual indications for when to enter a trade based on market behavior and common sense.
Mistake number two: not being on the right time frame at the right time for the current trading opportunity.
Mistake number three: entering trades long AFTER the real entry occurred and exiting way BEFORE the exit occurs.
Mistake number four: no trading plan or direction for a consistent entry and exit strategy.
Mistake number five: following some scam Forex system they recently bought on the internet and using dozens of “proprietary” indicators.
Mistake number six: entering and exiting trades for reasons other than their own trading method. (fear, greed, etc)
7 Scariest Things A Trader Can Do…..
- Taking a trade with NO EXIT STRATEGY that is a horror movie. It is dangerous to not have a stop loss when you enter a trade becasue if a trader thinks they bought in at a great price the price starts looking better the lower it goes, and terror of all terrors the trader adds more to the trade! It only takes one mistake letting one trade run into a huge loss and add to it to blow up an account.
- Shorting the strongest stocks in the market during a bull market is scary as they continue to go up.
- Going long a stock in a death spiral due to a business misstep or earnings decline is like riding a roller coast that generally ends up much lower when the trade is finally closed.
- “Going all in” on one trade, with this plan all it takes is one bad trade to blow up your account, those are scary odds.
- When you are losing you go from your trading plan to “plan B” “hoping” maybe even praying for a reversal. When a trade turns you religious and leads you to pray it is definitely time to get out!
- Asking for others opinions instead of following your trading plan or methodology is very scary, time for homework not tips.
- It is terrifying to watch someone fight a trend instead of follow it. The bigger they go against the trend the scarier it gets. They are trying to stand in front of an elephant walking and tell it where it should be going.
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.
Investing vs Gambling
“Investors are the big gamblers. They make a bet, stay with it, and if it goes the wrong way, they lose it all.”
Jesse Livermore
Not having an exit strategy before initiating a trading position is worse than gambling, where you realize that the chance to lose is too big, therefore you risk only money you can afford to lose. Not having a stop loss means that you are most likely risking more than you could afford to lose. As they say amateurs go out of business because of taking big losses. Professionals go out of business by taking small profits. Cut your losses short when your stop level is hit. Even more, make sure to put your stop loss order immediately after you initiate a trade. Put your stop loss at a place where the trend you are following will be over. Let your profits run by gradually lifting you profit protection stop order. In order to maximize your profits you have to be willing to give some of them back.
I” don’t believe anyone ever gets wiped out in the market because of bad luck; there is always some other reason for it. Either you were off when you did the trade, or you didn’t have the experience. There is always a mistake involved.”
18 -Wisdom One Liners for Traders
1. You will be tested mentally and emotionally this is not for the weak minded.
2. Master Traders are detached emotionally from profit or loss.
3. Boredom is the enemy of the master opportunist.
4. Haste is the enemy of great entry points.
5. Doubt is often followed by a lost opportunity.
6. The Trend will give you direction on your path.
7. Having an exit strategy prevents unnecessary pain.
8. The laws of probability give strength to your fingers.
9. Going against momentum brings forth the fools reward.
10. Better the bad trade that is unrewarding.
11. Habit is built on the principles of probability.
12. Know your exit point in the worst case scenario first.
13. The master trader is an escape artist.
14. When one knows the present they master the futures.
15. Set realistic goals and let the good times role.
16. A loss can be turned into a win when one is swift.
17. A master in day trading trades in an egoless state.
18. Times of great probability are like diamonds falling from the sky.
10 Foolish Things a Trader are Doing
- Try to predict the future movement of a stock, and stay in it no matter what.
- Risk your entire account on one trade with no stop loss plan.
- Have a winning trade but no exit strategy to get out, no trailing stop or exhaustion top signal.
- Ask for and follow the advice of others instead of trading with your own trading plan, method, rules, and system.
- Trade your emotions instead of signals: buy when you are greedy and sell when you are afraid.
- Trade your opinions, not a quantified method.
- Do not bother to do your homework on trading, just jump in and trade, you are smart, you will figure it out.
- Short the best and most expensive stocks in the stock market and buy the cheapest junk stocks.
- Put on trades you are 100% sure are winners so you do not even need a stop loss or risk management.
- Buy more of a trade that you are losing money in and sell your winners quickly to lock in small profits.
10 Foolish Things a Trader Can Do
01. Try to predict the future movement of a stock, and stay in it no matter what.
02. Risk your entire account on one trade with no stop loss plan.
03. Have a winning trade but no exit strategy to get out, no trailing stop or exhaustion top signal.
04. Ask for and follow the advice of others instead of trading with your own trading plan, method, rules, and system.
05. Trade your emotions instead of signals: buy when you are greedy and sell when you are afraid.
06. Trade your opinions, not a quantified method. (more…)
The Trading Beast
The markets are no place to be unsure of yourself and wishy-washy, it is not a place for 2nd guesses, wishing, hoping, or gambling. If you want to win in this jungle you need to be an unstoppable beast .
Complete confidence in your system and method. You do not jump around in your trading or doubt yourself, it is not about you, it is the system. Either it wins long term or it doesn’t. Either you have confidence in it or you don’t, make up your mind.
- You control risk. You do not expose yourself to being ruined because your bet size is consistently what you are comfortable with. Ten losses in a row is only a small draw down. If you are not afraid of ten losses in a row, what is stressful? NOTHING.
- You play follow the leader. You are not the lone wolf, you are going with the market not trying to predict it. Your entries and exits are based on historical patterns not your personal opinions, you are not trying to beat the market you are trying to be on its side, it always wins.
- You will not quit.Your exit strategy for your trading career? Never. You plan to never quit playing the greatest game on earth. You are a trader, that is what you do. Not quitting in most areas of life means that you eventually win big, the market is no different.
- You don’t need a guru. Your winning system is your guru. You don’t need to ask for a fish, you know how to fish. You only listen if you can learn how to catch more and bigger fish and somebody is a better fisherman than you.
The markets eat up lambs, chickens, pigs, and sloths. However beasts eat well off their prey.