- Refusing to define a loss.
- Not liquidating a losing trade, even after you have acknowledged the trade’s potential is greatly diminished.
- Getting locked into a specific opinion or belief about market direction. I.E. “I’m right, the market is wrong.”
- Focusing on price and the money
- Revenge-trading to get back at the market from what it took from you.
- Not reversing your position even when you clearly sense a change in market direction
- Not following the rules of the trading system.
- Planning for a move or feeling one building, then not trading it.
- Not acting on your instincts or intuition
- Establishing a consistent patter of trading success over a period of time, and then giving your winning back to the market in one or two trades.
Archives of “finance” tag
rssTwenty Rules For Traders
- 1. Forget the news, remember the chart. You’re not smart enough to know how news will affect price. The chart already knows the news is coming.
- 2. Buy the first pullback from a new high. Sell the first pullback from a new low. There’s always a crowd that missed the first boat.
- 3. Buy at support, sell at resistance. Everyone sees the same thing and they’re all just waiting to jump in the pool.
- 4. Short rallies not selloffs. When markets drop, shorts finally turn a profit and get ready to cover.
- 5. Don’t buy up into a major moving average or sell down into one. See #3.
- 6. Don’t chase momentum if you can’t find the exit. Assume the market will reverse the minute you get in. If it’s a long way to the door, you’re in big trouble.
- 7. Exhaustion gaps get filled. Breakaway and continuation gaps don’t. The old traders’ wisdom is a lie. Trade in the direction of gap support whenever you can.
- 8. Trends test the point of last support/resistance. Enter here even if it hurts.
- 9. Trade with the TICK not against it. Don’t be a hero. Go with the money flow.
- 10. If you have to look, it isn’t there. Forget your college degree and trust your instincts.
- 11. Sell the second high, buy the second low. After sharp pullbacks, the first test of any high or low always runs into resistance. Look for the break on the third or fourth try. (more…)
9 Rules by Nassim Taleb’s Risk Management
Rule No. 1- Do not venture in markets and products you do not understand. You will be a sitting duck.
Rule No. 2- The large hit you will take next will not resemble the one you took last. Do not listen to the consensus as to where the risks are (that is, risks shown by VAR). What will hurt you is what you expect the least.
Rule No. 3- Believe half of what you read, none of what you hear. Never study a theory before doing your own observation and thinking. Read every piece of theoretical research you can-but stay a trader. An unguarded study of lower quantitative methods will rob you of your insight.
Rule No. 4- Beware of the nonmarket-making traders who make a steady income-they tend to blow up. Traders with frequent losses might hurt you, but they are not likely to blow you up. Long volatility traders lose money most days of the week.
Rule No. 5- The markets will follow the path to hurt the highest number of hedgers. The best hedges are those you alone put on. (more…)
Confidence
When you feel confident, presuming you do sometimes feel confident, where do you feel it? Can you feel it in your brain or is it in your thorax (i.e. middle part of your body)? Better yet, why do I ask?
Well if you think about it, part of our mission here at Trader Psyches is to teach traders of all stripes how to use the message in Gladwell’s blink to assist in the d/m (that is decision making) process. The zillion copies it has sold prove the interest in it but the practical parts about what I read – sort of the “just do it” related to using your instantaneous impressions seem frankly impossible.
And I honestly still feel that most traders are for good reason, stuck in their heads. So, I ask this simple question – when you feel confident where does it hurt?
11 One Liners for Traders
- Buy from the scared, sell to the greedy.
- Buy their pain, not their gain.
- Successful traders are quick to change their minds and have little pride of opinion.
- I made my money because I always got out too soon. (Bernard Baruch)
- Don’t try to buy at the bottom and sell at the top. It can’t be done except by liars. (Bernard Baruch)
- Throughout all my years of investing I’ve found that the big money was never made in the buying or the selling. The big money was made in the waiting. (Jesse Livermore)
- The faster a stock has climbed, the quicker it will fall.
- The more certain the crowd is, the surer it is to be wrong. (Menschel)
- Bear markets begin in good times. Bull markets begin in bad times
- Never confuse genius with a bull market.
- Always sell what shows you a loss and keep what shows you a profit
19+1 Trading Rules For Traders
1. Forget the news, remember the chart. You’re not smart enough to know how news will affect price. The chart already knows the news is coming.
2. Buy the first pullback from a new high. Sell the first pullback from a new low. There’s always a crowd that missed the first boat.
3. Buy at support, sell at resistance. Everyone sees the same thing and they’re all just waiting to jump in the pool.
4. Short rallies not selloffs. When markets drop, shorts finally turn a profit and get ready to cover.
5. Don’t buy up into a major moving average or sell down into one. See #3.
6. Don’t chase momentum if you can’t find the exit. Assume the market will reverse the minute you get in. If it’s a long way to the door, you’re in big trouble.
7. Exhaustion gaps get filled. Breakaway and continuation gaps don’t. The old trader’s wisdom is a lie. Trade in the direction of gap support whenever you can. (more…)
3 Trading Mistakes
1) Trading Without Context – Many traders will enter positions with little more than a chart-based “setup” or a hunch that the market is heading lower. They don’t locate where the market is trading with respect to its daily range and often can’t identify where the relevant ranges are located. Is the most recent market move gaining or losing volume/participation? Are most sectors participating in the move? Without context, traders trade reflexively, not proactively.
2) Trading Without Targets – Focused on entries, traders often don’t explicitly identify where they would harvest profits. They hold trades too long, exiting in a panic after reversals, or they take profits quickly, missing opportunity. They don’t factor current volatility into estimates of how far the market could move on their time frame, and they often don’t explicitly look for targets based upon prior moves and ranges.
3) Trading Without Reflecting – The slow times of day are excellent opportunities to review trading for the day, reformulate market views, correct mistakes, and set goals going forward. Many traders, however, never stop looking for the next trade, lured by the siren’s promise of breakout. Without the benefit of reflection, they compound errors, turning mistakes into blowups and blowups into slumps.
The Disciplined Trader: Developing Winning Attitudes by Mark Douglas
Intro
- Reaching the level of success they desire as traders will require them to make at least some, if not many, changes in the way they perceive market action.
- The markets have absolutely no power or control over you, no expectation of your behavior, and no regard for your welfare.
- There are only a few traders who have come to the realization that they alone are completely responsible for the outcome of their actions. Even fewer are those who have accept the psychological implications of that realization and know what to do about it.
- The nature of the markets made it easy no to have to confront anything that otherwise might be perceived as a problem because the next trade always had the possibility of making everything else in one’s life seem irrelevant.
- I CREATED MY LOSSES INSTEAD OF AVOIDING THEM SIMPLY BECAUSE I WAS TRYING TO AVOID THEM.
- Unsuccessful Trading Behaviors
- Refusing to define a loss.
- Not liquidating a losing trade, even after you have acknowledged the trade’s potential is greatly diminished.
- Getting locked into a specific opinion or belief about market direction. I.E. “I’m right, the market is wrong.”
- Focusing on price and the money
- Revenge-trading to get back at the market from what it took from you.
- Not reversing your position even when you clearly sense a change in market direction
- Not following the rules of the trading system.
- Planning for a move or feeling one building, then not trading it.
- Not acting on your instincts or intuition
- Establishing a consistent patter of trading success over a period of time, and then giving your winning back to the market in one or two trades.
Your Trading Method-10 Points
1.“Trade What’s Happening…Not What You Think Is Gonna Happen.” – Doug Gregory
2. Go long strength; sell weakness short in your time frame.
3. Find your edge over other traders.
4. Your trading system must be built on quantifiable facts not opinions.
5. Trade the chart not the news.
6. A robust trading system must either be designed to have a large winning percentage of trades or big wins and small losses.
7. Only take trades that have a skewed risk reward in your favor.
8. The answer to the question, “What’s the trend?” is the question, “What’s your timeframe?” – Richard Weissman. Trade primarily in the direction that a market is trending in on your time frame until the end when it bends.
9. Only take real entries that have an edge, avoid being caught up in the meaningless noise.
10. Place your stop losses outside the range of noise so you are only stopped out when you are likely wrong.
The Most Dangerous Trade -Book Review
Of all the ways to make money in the financial markets, being a short seller is one of the toughest. The short seller is fighting the upward bias of the equity markets as well as the wrath of deep-pocketed, litigious individuals with vested interests in the stocks he is targeting. He has to be both a sleuth and a promoter; after all, what good is all his detective work if other investors don’t know what he uncovered and don’t join him in putting downward pressure on the stock?
In The Most Dangerous Trade: How Short Sellers Uncover Fraud, Keep Markets Honest, and Make and Lose Billions (Wiley, 2015), Richard Teitelbaum, a financial journalist, has written illuminating profiles of ten top short sellers, complete with their investing strategies. Combining interviews with well-researched back stories, he explores the highs and lows (and there are a lot of lows) of short selling.
Bill Ackman, Manuel Asensio, Jim Chanos, David Einhorn, Carson Block, Bill Fleckenstein, Doug Kass, David Tice, Paolo Pellegrini, and Marc Cohodes are the featured investors. We learn about their early years, how they ended up being short sellers, even the significance of their fund names. Why Muddy Waters, for instance? Block, trying to find a good name for his nascent firm, recalled a Chinese proverb: “Muddy waters make it easy to catch fish.”
We read about positions that worked and those that didn’t—and what these investors learned from the latter. We learn how they construct their portfolios (including long positions) and how they try to mitigate risk (sometimes with options).