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2 -Risk Quotes For Traders

  
  Education
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 Risk ManagementYou are the biggest risk. Yes, that’s right you. All of your talk of discipline, preparation, planning, all of the hours of screentime, all of the chats with trader friends–all of that isn’t worth much if you are don’t follow through and do the right thing. If you aren’t disciplined every moment of every trading day, you are not a disciplined trader. The market environment is harder than you can imagine, and it will challenge you to the very limits of human endurance. Spend a lot of time thinking about the most critical part of your trading system: you, yourself.

 Plan for risks outside the market. Everyone, from the institutional scale to the individual trader, will have outside influences challenge their market activities. Institutionally, regulatory changes and developments in market structure can dramatically change the playing field. Your investors will make mistakes–becoming fearful and exuberant at exactly the wrong times. If you’re an individual investor, you will face outside financial stresses, personal issues, health issues, etc. All of these things will have an effect on your trading that is hard to capture in the numbers, but prudent planning will allow you to navigate these challenges.

Warren Buffett Warns Amateur Investors Against This Common Mistake

  
  Education
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Today’s Smart Investor tip comes from billionaire investor Warren Buffett, who outlined the biggest mistakes amateur investors make for Adam Shell at USA Today.

The Oracle of Omaha warns investors against an incredibly common mistake: You shouldn’t try to time the market. He says it’s a mistake to predict or listen to others who predict the short-term movement of stocks. By the same token, he says you shouldn’t try to flip stocks like high-frequency traders do.

Instead, Buffett says the best thing the average investor can do is buy an index fund over time. That’s it. From USA Today: (more…)

CHANGE IS ESSENTIAL

  
  Education
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The stock market, just like life, can change on a dime.  In the market, just as in life, we must learn to adapt to change.  What separates the great trader from the rest of the crowd is his or her ability to change based on current market conditions.  In other words, NO EGO ALLOWED.  Mark Douglas, in his first book entitled The Disciplined Trader writes,

“There must be a difference between these two types of traders-the small majority of winners and the vast majority of losers who want to know what the winners know. The difference is that the traders who can make money consistently on a weekly, monthly, and yearly basis approach trading from the perspective of a mental discipline.  When asked for their secrets of success, they categorically state that they didn’t achieve any measure of consistency in accumulating wealth from trading until they learned self-discipline, emotional control, and the ability to change their minds to flow with the markets.”

We trade the current market conditions as they unfold with a plan to trade one way or the other.  To do otherwise would be to fight an undefeated foe.

Trading Plan :10 Points

  
  Education
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The Trading Plan comes first and should account for the following parameters:

1.  Entering a trade. Quantified approved entries.

2.  Exiting a trade. Predetermined Exit point BEFORE you enter a trade.

3.  Stop Placement. How will you know you were wrong about a trade? A stop loss, trailing stop, chart signal, volatility stop, time stop, or target price.

4.  Money Management. How much capital will you risk on any one trade? This is the key to position sizing.

5. Position Sizing. How much capital will you put on any one trade? Do you have rules that tell you to trade bigger or smaller based on the odds?

6.  What to Trade. What qualifies stocks to be on your watch list?

7.  Trading Time Frames. Are you going to day trade or position trade and hold for a week or more? or will you be a short term or long term trend follower?

8.  Back Testing. You need back testing either with a computer, by reviewing charts, or others research to show that your system is a winner.

9.  Performance Review. You must keep a detailed log of your trades and watch your performance to understand the wins and losses and their causes.

10.  Risk vs. Reward. Each trade must begin with the potential of winning more money than you are risking.

This is a very basic outline, I suggest expanding this to include 30 rules minimum; 10 each covering the areas of risk management, psychology, and method. If you can write this, believe it, and follow it, you will win in trading the only question that remains is when?

25 Trading Lessons From Jesse Livermore

  
  Education
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1. Watch the market leaders, the stocks that have led the charge upward in a bull market. That is where the action is and where the money is to be made. As the leaders go, so goes the entire market.

If you cannot make money in the leaders, you are not going to make money in the stock market. Watching the leaders keeps your universe of stocks limited, focused, and more easily controlled.

2. There is nothing new on Wall Street or in stock speculation. What has happened in the past will happen again, and again, and again. This is because human nature does not change, and it is human emotion, solidly build into human nature, that always gets in the way of human intelligence. Of this I am sure.

All through time, people have basically acted the same way in the market as a result of greed, fear, ignorance, and hope. This is why the numerical formations and patterns recur on a constant basis.

I absolutely believe that price movement patterns are being repeated. They are recurring patterns that appear over and over, with slight variations. This is because markets are driven by humans — and human nature never changes.

3. The market will often go contrary to what speculators have predicted. At these times, successful speculators must abandon their predictions and follow the action of the market. Prudent speculators never argue with the tape. (more…)

6 Universal principles of successful traders

  
  Education
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1). Preparation

Author Brent Penfold is in the minority believing risk management is the #1 priority in trading. Brent believes that once you get your trading system and position size in place you must use the amount you will risk on each trade to determine your risk of ruin. The book shows exactly how to figure this out using Excel. His point is that if your risk of ruin is not zero then you will eventually blow out your account. Risking 1% to 2% of your capital in any one trade usually gives you a zero percent risk of ruin but it also depends on your systems win/loss ratio. But the point is to test any system with 30 trades first then determine your risk of ruin.

2). Enlightenment

Your most important goal is to lower your risk ruin to zero. In trading, the trader with the best ability to cut losses short wins. Simple trading strategies work the best based on traditional support and resistance while trading with the trend on either retracements of break outs. The 10% of winners in the market win by treading where others fear, buying on break outs when they first occur and going short when a new low is made, or buying into the abyss when a security finds support or resistance and reverses at the end of a monster trend.

3). Developing a trading style (more…)

Anirudh Sethi's Lessons From 2008 : Part – II

  
  Education
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1)In panics there is almost nowhere to make money without taking excessive risk
2)Timing entries and exits to oversold & overbought conditions helps achieve low-risk/high-reward entries
3)There is no such thing as a safe investment
4)Markets are dysfunctional, corrupt, and have no oversight
5)To let a stock prove itself to me, prior to jumping in based on my analysis alone (more…)

Be a boss like Schloss

  
  Education
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read100Consider an investor like Walter Schloss who never aspired to be the biggest and kept his fund small but constantly just bought all the cheap stocks he could find and held them until they worked. Schloss earned about 20 percent gross for his investors for almost 50 years simply by buying cheap stocks in bad markets and holding them for long periods of time. He took advantage of the size and time advantage and made an enormous amount of money for himself and his investors.

There is a reason private equity is consistently one of the highest performing asset classes. Investors buy businesses when condition in the economy, or a specify sector, are not very good and they can buy a business at a bargain price. Investors hold them for a full business cycle or two and sell them in five years or so at a huge gain when conditions have improved substantially.

Investors could care less about the ticker tape or the candlestick pattern of a portfolio company and focus only on the business value. This is exactly the approach individual investors need to use to make money in the stock market.

Price and patience is the key to stock market profits. Buy businesses at a cheap stock price and hold them until they are no longer cheap. Ignore the bells, patterns and noise coming from Wall Street.

Your broker may not like it, but your accountant will.

3 Reasons Traders Don’t Make More Money

  
  Education
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1) Position Sizing – They don’t take their largest risk when they have their greatest feel for the market and conviction about direction. Very high confidence trades may be sized relatively small; lower confidence trades are sized too large (often to make money back from earlier losses). They are taking their biggest cuts at the plate when the ball is out of their strike zones;
 
2) Execution – They wait for markets to go up before they buy and to go down before they sell. As a result, they get in at prices that leave them unusually subject to pullbacks. Many times, particularly if the trades are sized large (see above), the heat will take them out of good trades. In short, they’re not patient about getting into positions; they chase moves, fearful that they’ll miss a profit opportunity;
 
3) Rigidity – They don’t adapt to changing markets. They look for big moves in markets with declining volatility; they trade breakouts when signs point to range conditions. They set stops and profit targets in ways that don’t adapt to shifting volatility. They expect the market to accommodate what they’re doing rather than vice versa.
 
How much money you make is a function of what you trade and how you trade it. Many traders will switch what they trade (markets, stocks, time frames), only to continue making the same mistakes outlined above. Getting into good risk/reward trades and then maximizing the risk/reward while the positions are on is a major driver of long-term trading success.

M. William Scheier, Pivots, Patterns, and Intraday Swing Trades-Book Review

  
  Education
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You can buy M. William Scheier’s book Pivots, Patterns, and Intraday Swing Trades: Derivatives Analysis with the E-mini and Russell Futures Contracts (Wiley, 2014) for a little north of $50 or, if you have money burning a hole in your pocket, can take his ten-lesson e-mini trading course for about $3,000 or buy his indicator package software (included in the price of the course) for $250. Let’s look at the cheapest alternative.
The book is divided into four parts: time frame concepts, day model patterns, repetitive chart patterns, and confluence and execution.
Scheier’s methodology combines “old school” technical analysis with a “new school” proprietary algorithm for what he calls the Serial Sequent Wave Method. In the book he focuses exclusively on the former. (more…)

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