There are things that make you win in the stock market over the long term and then there are things that make you lose quickly even in the short term. The key to trading success is learning the difference quickly and doing what really works not what you emotions or opinions tell you to do.
If you want to win then you must create your own trading plan and follow it, if you want to lose just trade whatever you want whenever you want based on your own opinion.
If you want to win then you must control your risk carefully with only 1% or 2% of your capital at stake in every individual trade, if you want to lose then just trade huge position sizes, put all your chips on the table.
If you want to win plan your entries and exits before you enter a trade then follow them, if you want to lose ask for everyone’s opinion and just make decisions based on other people.
If you want to win cut your losses short and let your winners run, if you want to lose hold your losers and hope that they come back and sell your winners quickly to lock in gains.
If you want to win trade only the best high quality stocks in the market, if you want to lose trade the junk and hope for a miracle come back.
If you want to win then build complete confidence for your system through chart studies and back testing, if you want to lose trade with no idea of if what you are doing even works.
If you want to win go with the current trend of the market, if you want to lose fight the trend and trade against it.
If you want to win then go long the hottest stocks in a bull market, if you want to lose short the hottest stocks in a bull market.
Do what makes money not what you feel like doing.
Archives of “finance” tag
rssSucceeding At Trading By Not Trading
One important performance variable that isn’t tracked often is the variability in a trader’s risk-taking. Opportunities are not distributed perfectly evenly over time: some markets offer more opportunity, some less. As a result, the skilled trader will vary risk-taking as a function of the opportunity set: sometimes trading actively and in size, other times pulling back from trading. What traders refer to as “overtrading” is the result of an inability to regulate decision-making by opportunity set: taking risk when rewards are quite uncertain.
“When are you mostly out of markets?” is a question I like to ask. The ability to not trade is itself a performance edge when it helps traders hang onto their gains during times of market uncertainty. This is yet another area where having a full and rich personal life becomes important to trading success. If all you have to sustain you psychologically is your trading, it is going to be difficult to not trade. If you have a full and rich life outside of trading, then it is much easier to take risk when rewards justify the effort—and put trading aside otherwise.
It’s great to have a passion for trading; better to have a passion for successful trading. And sometimes that means engaging in other passions and refraining from marginal trades.
Wisdom from William Eckhardt
1. What is the state of the market?
2. What is the volatility of the market?
3. What is the equity being traded?
4. What is the system or the trading orientation?
5. What is the risk aversion of the trader or client?
Regardless of how you trade or invest … you better have those answers in advance of betting real money.
5 Points for Discretionary Traders
1) A discipline of pre-market preparation: All emphasize the importance of process and preparation: sticking to what you do best and being prepared for fresh opportunity–and threat–each market day.
2) Selectivity: All have some methods for screening stocks and focusing on a core group that offer opportunity. Often, these screens focus on stocks that are trading actively, that show good movement, and that are setting up for directional price moves because of earnings reports, breakout patterns, etc.
3) Patience: This follows from the first two. The experienced traders emphasize risk management and waiting for high quality trades, rather than overtrading. All stress understanding the current market environment and adapting to it.
4) Diversification: These traders don’t focus on one or two opportunities, but look at a range of promising shares and setups and trade more than one thing at a time. All the proverbial eggs are not in one basket.
5) Simplicity: My sense is that the traders are focused on understanding what is happening now, not predicting what will happen in the future. If I had to guess, I’d say that they are talented in detecting the flow of activity in and out of shares and are riding moves as they are getting under way. They don’t appear to be researching deep value and holding for long periods to wait for that value to be realized.
“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.
Why 90 % Traders Lose Money ?Read These 20 points
They risk too much to try to make so little.
- They trade with the probabilities against them.
- They think trading is easy money.
- Instead of focusing on learning how to trade they focus on getting rich.
- They blow up due to improper position sizing.
- With no understanding of the mathematical risk of ruin they are doomed after the first long string of losing trades.
- Blindly following a guru that leads them down the road of destruction.
- They don’t do their homework.
- They trade opinions not robust systems.
- They go looking for ‘trades’ instead of a methodology. (more…)
Clever take on how fraudulent the banking system and Wall Street was and still is 15 Lessons from the Movie The Big Short
15 Trading Lessons from the The Big Short
- It’s possible to be right about a market move, but your timing can be too early.
- If you trade too big, you can lose all your capital before you have the time to be proven right.
- AAA agency ratings are more to make their clients who sell bonds happy than to protect investors.
- In markets that are not liquid, you can get in trouble by being right but your assets not reflecting it with a big move.
- When there is no risk of ruin to bankers and mortgage brokers they will risk the ruin of their companies and the world economy in pursuit of quick and easy money.
- When there is little ‘skin in the game’ bankers and mortgage brokers take risks that they are not held accountable for.
- Macro traders have to be able to take a lot of heat and losses on their positions before they are right.
- Hedge fund investors want consistent returns on their money and not drawdowns. They are quick to pull their money out during a losing streak.
- You want to have a large risk/reward ratio on your trades. Betting $1 for a chance to make $20 is a good trade.
- There is a lot of fraud in the financial world.
- Financial fraud is almost never prosecuted in the banking world.
- The SEC has little oversight in the banking industry.
- Bailouts can cause you to lose on a trade you would have made money on.
- You have to take your profits off the table while they are available.
- “Whenever you find yourself on the side of the majority, it is time to pause and reflect.” – Mark Twain
5 Characteristics of less Successful Traders
1) The less successful traders are anticipating market movement and trading accordingly. The highly successful traders are identifying asset class mispricings and trading off those.
2) The less successful traders are trading particular instruments and pretty much stick to those. The highly successful traders recognize that any combination of trading instruments can be considered an asset class and appropriately priced (and gauged for mispricing).
3) The less successful traders think of their market as *the* market. The highly successful traders focus on interrelationships among markets that cut across nationalities and asset classes.
4) The highly successful traders place just as much emphasis on understanding markets as predicting them. The less successful traders don’t ask “why” questions.
5) The less successful traders are convinced they have proprietary information of value that they must not disclose to anyone. The highly successful traders use their proprietary information to selectively share with other highly successful participants, thereby gaining a large informational edge.
If I had to use one phrase to capture the essence of the highly successful traders, it would be analytical creativity. These traders are creative in their thinking about markets and rigorous in their pursuit of this creativity.
Markets: They Trend, They Flow, They Surprise
Markets go up, down, and sideways. They trend. They flow. They surprise. Have markets changed? Not only have markets changed, they will continue to change. Check your history books. If you have a valid market philosophy, learning to accept that change and flow with it is your greatest asset. No matter how ridiculous market moves appear at the beginning, and no matter how extended or irrational they seem at the end, following trends is the rational choice in a chaotic, changing world.
That thinking leaves trend followers as generalists when it comes to their trading strategy and that’s not easy to accept for many. The dominant trend within universities is ever-narrower specialization. A higher premium is placed on deep knowledge within a single field (read: fundamental expertise in one market), versus broad wisdom across multiple fronts.3
For example, one trend following practitioner started trading trends in 1974—making hundreds of millions in profits and perhaps billions for clients. The major strategic elements of his trend following trading systems have never changed. He was blunt: “The markets are just the markets. I know that is unusual sounding.” (more…)
Short Term Trading and Day Trading Is No Nostrum
Consider an excerpt from Trend Following:
When you trade more or with higher frequency, the profit that you can earn per trade decreases, whereas your transaction costs stay the same. This is not a winning strategy. Yet, traders still believe that short-term trading is less risky. Short-term trading, by definition, is not less risky, as evidenced by the catastrophic blowout of Victor Niederhoffer and Long Term Capital Management (LTCM). Do some short-term traders excel? Yes. However, think about the likes of whom you might be competing with when you are trading short term. Professional short-term traders, such as Jim Simons, have hundreds of staffers working as a team 24/7. They are playing for keeps, looking to eat your lunch in the zero-sum world. You don’t stand a chance.
Unfortunately, the flaws in day trading are often invisible to those who must know better. Sumner Redstone, CEO of Viacom, was interviewed recently and talked of constantly watching Viacom’s stock price, hour after hour, day after day. Although Redstone is a brilliant entrepreneur and has built one of the great media companies of our time, his obsession with following his company’s share price is not a good example to follow. Redstone might feel his company is undervalued, but staring at the screen will not boost his share price.