“One of the greatest challenges in trading is dealing with ambiguous information. The market is always sending mixed information to various degrees. We can also see this ambiguity in the commentary from the market pundits in the media. Each pundit chooses (consciously and/or subconsciously) to focus or emphasize one thing over another thing. I came across the following quote recently by Robert Gates addressing a group at the CIA in 1991: ‘the most difficult task that falls to us in intelligence is to see the world as it is, not as we – or others – would wish it to be.’ I talk about this all the time, using different words: ‘we don’t see the market as it is; we see it as we are.’ What do I mean by that? Our thoughts, feelings, hopes, expectations, and beliefs (both conscious and subconscious) create a personal filter that we see the market through. And that filter forms the basis for our entry and exit decisions. That’s just the way it is. It’s part of being human. And this filter not only impacts how you see the market, even your choice of instrument, time frame, trading style, etc, are influenced. Traders who are self-aware, who understand their own biases, their fears and hopes and what triggers them are in a better position to profit from the market. Going one step further, traders who are self-aware and who are honest with themselves are in an even better position. And taking another step, traders who are self-aware, honest, and have the courage and willingness to do the work to incorporate their own personal trading psychology into their plan are in the best position. What kind of trader are you?”
Archives of “finance” tag
rss6 Trading Behaviours For Traders
1) Fresh Ideas – I’ve yet to see a very successful trader utilize the common chart patterns and indicator functions on software (oscillators, trendline tools, etc.) as primary sources for trade ideas. Rather, they look at markets in fresh ways, interpreting shifts in supply and demand from the order book or from transacted volume; finding unique relationships among sectors and markets; uncovering historical trading patterns; etc. Looking at markets in creative ways helps provide them with a competitive edge.
2) Solid Execution – If they’re buying, they’re generally waiting for a pullback and taking advantage of weakness; if they’re selling, they patiently wait for a bounce to get a good price. On average, they don’t chase markets up or down, and they pick their price levels for entries and exits. They won’t lift a market offer if they feel there’s a reasonable opportunity to get filled on a bid.
3) Thoughtful Position Sizing – The successful traders aren’t trying to hit home runs, and they don’t double up after a losing period to try to make their money back. They trade smaller when they’re not seeing things well, and they become more aggressive when they see odds in their favor. They take reasonable levels of risk in each position to guard against scenarios in which one large loss can wipe out days worth of profits.
4) Maximizing Profits – The good traders don’t just come up with promising trade ideas; they have the conviction and fortitude to stick with those ideas. Many times, it’s leaving good trades early–not accumulating bad trades–that leads to mediocre trading results. Because successful traders understand their market edge and have demonstrated it through real trading, they have the confidence to let trades ride to their objectives.
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Core Philosophy
“The essential element is having a core philosophy. Without a core philosophy you’re not going to be able to hold on to your positions or stick with your trading plan during really difficult times. You must fully understand, strongly believe in, and be totally committed to your trading philosophy.”
– Richard Driehaus
How does one confirm an effective core philosophy? Here is one simple test. Imagine a wealthy businessman — a friend of the family perhaps — will give you $5 million to manage upon reasonable convincing, over the course of a light lunch, that you have a viable strategy for profiting in markets.
Without notes or power point, could you sell this person on your methodology, explaining in plain English what it is and why it works? Could you confidently defend against devil’s advocate criticisms?
If the honest answer is “no,” work hard on making it “yes” and your core philosophy will emerge…
13+1 Habits For Traders
1. Have a plan before you initiate a trade. A detailed trading plan is your blueprint to success. It will help you define you as a trader, the way you trade, will help you find, execute and manage trades with ease and most importantly will help you put the education puzzle together.
2. Always analyze all closed trades, winners and losers. Having a trading journal will help you identify what works for you and what not; it will funnel you in the right direction. It is by far the most helpful method of personal trading introspection.
3. Maintaining a positive trading attitude will improve your money management and risk management skills. A negative trading mentality will alter your thinking and mindset. Your attitude will determine whether or not you are profitable with your trading. Your attitude is more important than your market knowledge and even your level of experience. It is important how you react to the market and not what the market will do to you.
4. Controlling Emotions. Emotional swings and emotional stresses impact your mental state of mind and will affect your trading decisions. When you trade with emotions you don’t trade clearly and rationally. Some books talk about separating your emotions from trading. But how is this possible? To even try to separate emotions is like fighting a losing battle, taking control over them that is a different story. Trading involves the most emotional COMMODITY in the world which is….money. Money outlasts hate, love, greed and anything else you can ever imagine. The only way to control your emotions as a trader is to have a solid trading plan.
5. Trade in the zone –Focus is key in trading. Make sure you are do not have any distractions around, no internet browsing, no phone answering, no kids playing, it should be just you and the charts. Let the charts speak to you and they will tell you what to do. (more…)
All Type of Traders Are Trying To Catch Trend Only
Long term trend followers are trying to be right about the long term trends in the markets they trade using mechanical systems.
Buy and hold investors are trying to be right about the stock market indexes and mutual funds being in a long term trend over their lifetime.
Value investors believe that under priced stocks will reverse and trend higher over the long term based on the cheap price they are getting based on a companies fundamentals.
Day traders are trying to capture the trend that happens in one day’s time frame.
Swing traders bet that the trend reverses off support or resistance levels and give them a profit.
Can Slim traders are trading the trend of a hot growth stock out of a base price range or cup with handle pattern
Bear are betting that the trend reverses and something goes down in value and they make money.
Call buyers are trying to capture an up trend, call sellers want to profit from a down trend.
Put buyers are trying to capture a down trend, put buyers want to profit from an up trend.
Traders buying long option strangles are betting on a trend either way bigger than what is priced in, Strangle sellers are betting the trend will be less than what is priced in.
All trading methods are simply an effort at trend identification and capturing profits by entering at a high probability moment and exiting with profits in place.Being on the right side of the trend in your time frame is what a successful trading method is all about.
THE BEST TRADERS ARE HUMBLE
When an ordinary man attains knowledge, he is a sage; when a sage attains understanding, he is an ordinary man.
– Anonymous
With some technical trading knowledge and experience, you become a trader.
But when you become consistent and profitable, you feel ordinary again. This is because you’ve grown aware of the great uncertainty you face in the markets.
You’ve gained a strong appreciation of risk. In fact, your respect for risk is so deep that you would feel humble. And in that sense, you will feel ordinary.
80% of trading is behavioral
80% of trading is behavioral, maybe only 20% is based on the other things that a trader does. Like much of personal finance it is not the math but the behavior that makes all the difference. Most people’s problem with being broke does not lie in their budget it is due to their behavior of spending too much money becasue they lack self control. The inability to say no to yourself in the present is what leads to most of the problems that we encounter at a future time. You can’t out earn stupid and you can’t budget away a lack of self control or work ethic. The same applies to trading.
Wanting to be a trader is only the beginning, once you make that decision you have to do the work to learn how to create a winning trading system. Having a robust trading methodology is still by far not enough it has to be expressed in a trading plan that also controls risk and fits your personalty. Even then, a trading plan is not enough you still have to follow it with discipline consistently for it to work out for you in the long term and make you profitable. But wait, there’s more…. you have to have the passion and perseverance in the market to shake off a losing streak and draw down and keep going. A great trading method is useless if you quit before you give it a chance to hit the big winning streak. (more…)
10 Reasons Trading is So Difficult ,Why Only 5% Traders Across Globe Mint Money
- You can back test a system as much as you want but when you start trading it the profitability will be determined by the market conditions not past price history. What looks great on paper can lose on a lot of consecutive trades right at the start.
- Your stop can be hit and then the market go in the direction you were positioned for.
- Sometimes that pullback that you are waiting for to buy never comes until the trend is over.
- Sometimes every momentum signal you buy will be a loser for a long time.
- Many times the market whipsaws you in a position for absolutely no reason you can understand.
- Sometimes your biggest position sizes are losing trades and your smallest position sizes are the winners.
- There is no ‘market’ you are trading against a herd of people all making decisions for many different reasons, and they are not predictable.
- You can feel foolish under performing buy and holders during straight up bull markets when you’re trading in and out.
- Some trading lessons can’t be learned they have to be experienced with real money.
- Money is made and kept based on the math of probabilities, risk, and reward not because a trader is the smartest but because they are the most flexible and adaptable.
Anti-Fragile Trader
The Anti-Fragile Trader is someone that puts on very small position sizes in low probability trades, but shifts huge amounts of risk to the trader on the other side of the trade. The methodology of the anti-fragile trader is to bet on the eventual blowup of the traders making high risk trades for a small premium.
The favorite tool of the Anti-Fragile Trader is the out-of-the-money option contract. For pennies on the dollar, they can control huge amounts of assets. While they expire worthless the majority of the time, when a random Black Swan event hits the market affecting the option contract, they can return thousands of percent on capital at risk, and makeup for all the past losses.
The creator of the anti-fragile concept, Nassim Nicholas Taleb, traded long option strangles, betting on both directions to capture any huge trend event up or down. A company being purchased and rocketing up, or a disaster and a company stock sent crashing, was hugely profitable for Taleb. He also bought option contracts on futures markets. The key is very tiny bets on these trades versus total account equity. Tiny losses and tremendous wins was what made the system profitable. (more…)
Don’t Marry Hot stocks, Just Date Them
- Hot stocks are only good when they are in up trends, when the party is over you have to break up with them.
- Hot stocks are great to trade in and out of but you don’t want to turn them into a life long investment.
- A good stock might look great on the outside with it’s price action but it may not have the best fundamentals for getting serious with.
- Hot stocks are great for the short term but for the long term you want a solid investment.
- Be careful with hot stocks they may look great on the outside but they can break your heart at any moment.
- A hot stock can be a lot of fun for awhile but they can be a lot of drama when no one wants them anymore.
- As long as a hot girlfriend is very popular she will be happy but when no one wants to date her she goes into a downward spiral. This applies to hot stocks as well.