To hope is to admit all faith is lost.
Archives of “faith” tag
rss15 Common Sense Rules For Traders
Common sense can be brutally honest sometimes. As traders we get so focused on the little inconsequential detaisl sometimes that we miss the world around us. I have had this discussion with too many people over the last two months that told me they were bearish on the market and were taking a beating on the “high probability” that the market would reverse. Who sets those odds by the way? Are trends more likely to reverse than persist? If so, why the hell are we studying technical analysis?
Take a look over these trading rules I stumbled across last year and see if there are any realities that surface from them. Each time I look these over it reminds me of the realities of what we do here.
1. No matter what you read about trading, until you use an approach and test it with your money on the line you will never learn how to trade. Paper Trading is NOT Trading!
2. If it were really possible to “Buy Low Sell High” or “Cut your Losses and Let your Winners Run”, then almost everyone would be making money rather than losing it.
3. Remember that there is ALWAYS someone on the other side of your trade who is using a trading technique exactly the opposite of yours who hopes to make money with his system.
4. If 90% of all traders lose money, they must be following generally accepted trading rules. The 10% who win do not!
5. You trade your beliefs and your beliefs about your system. If you have a problem with yourself, fix yourself first.
6. Impatience, Fear and Greed will make you poor. Any need to trade is rooted in greed and impatience.
7. If you really understand the markets then YOU KNOW that there is the same opportunity on every time frame, in every market, every single day.
8. Waiting for the perfect trade is “chickening out”, and caused by your lack of faith in yourself or your system.
9. Any hardwired, automated trading system sold that truly works 70 or 80 or 90 percent of the time in every market would be worth hundreds of millions of dollars and would not be for sale at any price. (more…)
Quotes from :Way Of The Turtle' by Curtis Faith
Fragile Traders vs. Anti-Fragile Traders
Reading Nassim Taleb’s newest book Anti-Fragile really got me thinking about how traders are broken.
Traders can become fragile and be broken in several ways:
- They can quit because they believe that trading successfully is impossible.
- They can lose half their account or all of their account and just give up.
- They can become emotionally traumatized by one huge loss or a string of losses and just not be able to trade any more due to the pain going forward.
- A trader can lose faith in them self as a trader.
- A trader can lose faith in their system.
- A trader can trade too big and blow up their account, they want to trade, they believe they can make it back but have no money.
A trader can become anti-fragile they can benefit from adversity at times by:
- Having 100% confidence that they will be in the 10% percentile of consistently winning trades, it is just a matter of time.
- They do not give up after losing the majority of their very first account they just accept it as paying tuition and start again this time with faith they will win.
- The anti-fragile trader trades small, their emotions do not bleed into their trades, each trade is just 1 of the next 100. They risk 1% of capital per trade.
- The successful trader identifies themselves as a successful trader, losing trades do not change who they are.
- The trader believes that time is on their side and draw downs are just temporary, short term losses do not change the trader’s belief in long term success.
- Successful traders know that their trading account is their life blood, guarding it against big losses is their #1 priority.
Fragile traders are inevitably broken, anti-fragile traders are not only not broken but benefit from circumstances by learning, growing, and becoming more resolved to win. Adversity makes them stronger.
The Perfect Trader
The Perfect Trader is patient with entries and exits, they are focused on what works not personal opinions. They do not worry about missed trades, the Perfect Trader does not boast while winning and does not become depressed while losing. They are never too proud to admit when they are wrong and exit their trade. They do not give unsolicited advice to other traders because they know everyone trades their own system and their own plan. They are not angered by the market action with losses because they take full responsibility for all their trades. They keep a detailed record of all their trades to learn from winners and losers. They love trading and never stop learning and getting better. The Perfect Trader always protects their capital through risk management, always trusts in their methods, always has faith in themselves and method, and always perseveres.
Justification Mode
“The ego is not your friend as a trader. The ego wants to be right, it wants to predict, and it wants to know secrets. The ego makes it much more difficult to trade well by avoiding the cognitive biases that hinder profits.” – Curtis M. Faith
That quote came to mind this morning when having a conversation with a fellow trader who I think is in what I call “justification mode.”
Justification mode is when traders (or investors) find themselves having to justify poor performance on something that seems logical and which helps comfort and protect their ego without having to own up and face a big mistake.
In this trader’s case, like a lot of people it seems he went and stayed short when the market rolled over last month. Although he won’t admit it to you now, I know from our prior emails he was sucked in by the infamous “death cross” and, in spite of a strong reversal, has now refused to reverse his short (and losing) positions. In fact, his ego is so involved with this short-trade that he’s recently doubled down when the market refused to roll over even using lots of leverage to prove his point. Now he’s in a painful position of being trapped between owning up to the mistake and taking the painful loss or doing what so many tend to do – find a way simply to justify his actions and let a growing loss have the potential to wipe him out entirely.
In our conversation this morning, this trader kept talking about “the market is in a trading range” and “ready to roll over.” That’s fine and well as long as the price action confirms that view, but it hasn’t yet. As I asked him this morning, “Can you afford simply to stay wrong just to protect your ego?” He didn’t know how to respond. In fact, it became clear that he didn’t even realize that his ego was becoming such a strong influence over his entire market analysis. I suspect, as he does as well now after talking to me, that if this trader’s positions were different, for example aggressively long the market instead of short, this same trader would not be seeing a “trading range” or a market “ripe for reversal.” Instead, he would see nothing but more upside potential. This is why human traders, with human egos, are often at a significant disadvantage.
Trust me, at one point or the other, we’ve all done this. I know I have been in justification mode many times even when I didn’t even realize it until much later on. However, over time, I’ve learned to spot to tell tale signs that I’ve fallen trap to this and then have learned to take immediate corrective steps to right the ship. Moreover, as many of you also know, at all times I also trade in a way that makes sure that when I do make mistakes (which are often) that they NEVER have the potential to wipe me out. When your ego gets so involved in your trading, the potential for catastrophic losses are tremendous which is why we’ve all have to learn and know when we’ve fallen into justification mode. (more…)
Think Like A Fundamentalist & Trade Like A Technician
Someone once said that to trade successfully, you must think like a fundamentalist but trade like a technician. Do you agree?
A: Yes, I agree with it. Understanding the context and fundamentals, even when you trade the technicals can be helpful as long as you’re able to separate the two when needed. The problem is that many traders will have a bias toward one discipline over the other and will justify poor technicals with faith for the fundamentals. How traders handle these conflicts that arise from time to time and how flexible they are based on market conditions will make a huge 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.
Trading Quotes from Trading Books
“There is only one side to the stock market; and it is not the bull side or the bear side, but the right side”
Comparing Paper Trading vs. Real Trading
“Are you a good shot?” “I can snap the stem of a wine glass at twenty paces” “That’s all well, but can you snap the stem of a wine glass while the wine glass is pointing a loaded pistol straight at your heart?”
“A man must believe in himself and his judgement if he expects to make a living at this game. That is why I don’t believe in tips. If I buy stocks on Smith’s tip, I must sell those stocks on Smith’s tip. I am depending on him”
“Speculation is a hard and trying business, and a speculator must be on the job all the time or he’ll soon have no job to be on”
“The more I made, the more I spent. This is the usual experience with most men. No, not necessarily with easy-money pickers, but with every human being who is not a slave of the hoarding instinct. Some men, like old Russell Sage, have the money-making and the money-hoarding instinct equally well developed, and of course they die disgustingly rich”
“If a stock doesn’t act right, don’t touch it; because being unable to tell precisely what is wrong, you cannot tell which way it is going. No diagnosis, no prognosis. No prognosis, no profit”
“The big money was not in the individual fluctuations but in the main movements-that is, not in reading the tape but in sizing up the entire market and its trend” (more…)
Trading with No Regrets
Trading is really not as much of a numbers game as it is a mind game. Winning or losing in the long term will come down to whether you quit or keep going on your trading journey. Trading is not for everyone, there is no easy money in the markets. You will fight for your dollars, you will make money by doing the uncomfortable you will lose money when you think you are in a trade that just can’t lose. The emotional and mental pain will be unbearable if you do not believe in yourself and your method. If you are trading with no plan, no rules, and no system or method you will tend to be very hard on yourself for every losing trade. It was your decision that made you lose money, you will beat yourself up, and feel stupid. You will have 100% accountability for your mistake.This will not work.
What you must do is transition the accountability from yourself to your system or method. You must trade a proven methodology that will win based on the market action not your personal actions. You can not control odd out of left field events. You can not help it if you trade a trend or a pattern and suddenly it loses. All you can do is take trades with great probabilities that match your beliefs about the market and if they are losers then you can’t blame yourself you can only cut your losses and look for the next trade that meets your parameters.
When you can shrug off a loss with no emotional or mental pain and move on to the next one you are at the next level. All you can control is your entry parameters, risk management, position size, exit, and mind set, the market determines whether you win or lose, not you. You must have self confidence and faith in a proven method, take your trades let the market separate the winners from the losers.