1.No one Knows with 100% certainty whether the trade will be profitable or not
2.No one knows how much money will be made or lost on a trade
3.If the Trader does not control the profit outcome and does not know with 100% which trades will work ,then a the trader should spend 100% percent of his time concentrating on the only element of the trade he can control-the risk of the trade.
” There is only one side of the market and it is not the bull side or the bearside, but the right side.” – Jesse Livermore
Being a stubborn perma-bull instead of a flexible trader.
1) Capacity for Prudent Risk-Taking – Successful young traders are neither impulsive nor risk-averse. They are not afraid to go after markets aggressively when they perceive opportunity;
2) Capacity for Rule Governance – Successful young traders have the self-control needed to follow rules in the heat of battle, including rules of position sizing and risk management;
3) Capacity for Sustained Effort – Successful young traders can be identified by the productive time they spend on trading–research, preparation, work on themselves–outside of market hours;
4) Capacity for Emotional Resilience – All young traders will lose money early in their development and experience multiple frustrations. The successful ones will not be quick to lose self-confidence and motivation in the face of loss and frustration;
5) Capacity for Sound Reasoning – Successful young traders exhibit an ability to make sense of markets by synthesizing data and generating market and trading views. They display patience in collecting information and do not jump to conclusions based on superficial reasoning or limited data.
John Hussman writes:
I’ve long been fascinated by the parallels between Chess and finance. Years ago, I asked Tsagaan Battsetseg, a highly ranked world chess champion, what runs through her mind most frequently during matches. She answered with two questions – “What is the opportunity?” and “What is threatened?”
He adds:
The final minutes of a Chess game often go something like this – each side has exhausted most of its pieces, and many pieces that have great latitude for movement have been captured, leaving grand moves off the table. At that point, the game is often decided as a result of some seemingly small threat that was overlooked. Maybe a pawn, incorrectly dismissed as insignificant, has passed to the other side of the board, where it stands to become a Queen. Maybe one player has brought the King forward a bit earlier than seemed necessary, chipping away at the opponent’s strength and quietly shifting the balance of power. Within a few moves, one of the players discovers that one of those overlooked, easily dismissed threats creates a situation from which it is impossible to escape or recover.
Hussman lays out a great case for trend following–even though that is not his intent.
“Really good traders are also capable of changing their mind in an instant. They can be dogmatic in their opinion and then immediately change it. If you can’t do that, you will get caught in a position and be wiped out.” -Steve Clark
The greatest traders have a huge conviction about their edge and trading method after confirming its ability to create long term profits. It is hard for many new traders to grasp that great traders are able to change their opinion about a trade in a manner of minutes for many reasons. Unlike other professions that are paid to be right,it costs traders if they will not admit they are wrong quickly. In a mechanical system stops must be taken when they are hit, in a discretionary system price movement is the dictator and the trader must be the slave. If you are short a stock and resistance is broken through and closed above with power, then you are wrong, you are now short a break out. If you buy support and the stock plunges far below where you expected the bounce then the stock has broken the range and may be in a down trend. (more…)
It is never easy…and those that promise you that are not telling you the truth.
Perseverance is one of the Best Traits to Have When Trend Following!
Trend following is a marathon. There will always be those that say it is over!
It takes losses in the stock market to make future great traders and learning from mistakes is one of the best teachers.
Have a trading plan….and more importantly…Make sure you follow your own rules!
