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NINE Trading Quotes For Profitable Traders

  
  Education
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1. Pick a trading methodology. This is a particular way of approaching the markets, based on belief, practice, and study. Some popular methods are: trend following, momentum trading, breakout trading, swing trading, scalping, and day trading. Leave randomness behind and embrace a specific method.

2. Choose a specific timeframe and filter out the noise of extraneous price action. If traders use the daily chart with end of day prices, then they don’t have to watch every price tick, all day long. Traders can make (or lose) money trading weekly, daily, or intraday, but they must focus on their own timeframe.

3. Use a trading system. This gives traders specific entry and exit signals based on their own edge, from back testing price data, chart studies, and chart patterns. This systematic approach can remove the random nature of individual trades, and put them inside a framework.

4. Have a trading plan. This gives traders a blueprint to execute a trading system in real time. It helps them mitigate risk by pre-planning their entries and exits, position sizing, maximum risk exposure, stop losses, trailing stops, and profit targets.

5. Reduce the risk of ruin. Through proper position sizing and the use of stops, traders may limit the size of their losses. Don’t hesitate to exit trades when proven wrong. (more…)

Peter Lynch's Interview-Video

  
Analysis, Education, Video
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[ooyala_video_embed ec=xzcDE2aToIfa39eSMWdNEabn430CPd7H][/ooyala_video_embed]
 

Legendary investor Peter Lynch (formerly of Fidelity’s Magellan Fund) sat down for a rare interview with Charlie Rose.  In it, he talks about philanthropy, what makes good management, and more.
Lynch notes that he’s now working with some young analysts but the only investing he’s doing now is for himself and for charity. 
He joked that he was a “bottom down” investor.  He likes to invest in the second or third inning of a story, noting that you could have bought Walmart (WMT) ten years after it went public and still done extremely well on that investment.
He identified the three C’s in investing: complacency, concern, and capitulation.  He said complacency is the worst one. (more…)

What is the probability of…

  
  Education
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  • A sideways market?
  • A trending market?
  • A trend continuing;
  • A trend reversal?
  • Getting stopped out of a trade?
  • Winning a trade?
  • Breaking even?
  • Losing a trade?

All questions that need to be answered if you are to have confidence in your trading system.  For it is confidence that allows you to profit from the markets.

Ridiculous notion?  Perhaps.  But true nonetheless. 

You see, despite our civilized veneer, we are still animals that react to fear, the most powerful of emotions.  And it is fear that supercedes our thoughts when we trade.

To circumvent fear, you should develop trading plans, trade according to plan, and analyze your trades in a trading journal.  As do this, you will build a database that will create statistical patterns of your trades.  This can be studied and help you to predict the outcome of future trades. (more…)

24 Mistakes done by 90% of Traders

  
  Education
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  • EGO (thinking you are a walking think tank, not accepting and learning from you mistakes, etc.)MISTAKE-UPDATE
  • Lack of passion and entering into stock trading with unrealistic expectations about the learning time and performance, without realizing that it often takes 4-5 years to learn how it works and that even +50% annual performance in the long run is very good
  • Poor self-esteem/self-knowledge
  • Lack of focus
  • Not working hard enough and treating your stock trading as a hobby instead of a small business
  • Lack of knowledge and experience
  • Trying to imitate others instead of developing your unique stock trading philosophy that suits best to your personality
  • Listening to others instead of doing your own research
  • Lack of recordkeeping
  • Overanalyzing and overcomplicating things (Zen-like simplicity is the key)
  • Lack of flexibility to adapt to the always/quick-changing stock market
  • Lack of patience to learn stock trading properly, wait to enter into the positions and let the winners run (inpatience results in overtrading, which in turn results in high transaction costs)
  • Lack of stock trading plan that defines your goals, entry/exit points, etc.
  • Lack of risk management rules on stop losses, position sizing, leverage, diversification, etc.
  • Lack of discipline to stick to your stock trading plan and risk management rules
  • Getting emotional (fear, greed, hope, revenge, regret, bragging, getting overconfident after big wins, sheep-like crowd-following behavior, etc.) (more…)

Legacy of Benjamin Graham- Video

  
Analysis, Education, Video
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  1 Comments

Last week I stumbled across this excellent video about Graham which includes old clips from his investment classes as well as some of his former students (including Warren Buffett, Rob Brandes and Irving Kahn) giving interviews about the effect the legendary investor had on them:

Richard Donchian’s Trading Rules (Father of TrendFollowing)

  
  Education
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Richard Donchian developed a plan in 1934 (no, that is not a typo) that he soon published as a set of guidelines. The majority of those guidelines are still relevant to every investor today:

  1. Beware of acting immediately on widespread public opinion. Even if correct, if will usually delay the move.
  2. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases.
  3. LIMIT LOSSES, ride profits – irrespective of all other rules.
  4. Light commitments are advisable when a market position is not certain.
  5. Seldom take a position in the direction of an immediately preceding three-day move. Wait for one-day reversal.
  6. Judicious use of stop orders is valuable aid to profitable trading.
  7. In a market in which upswings are likely to equal or exceed downswings, a heavier position should be taken for the upswings for percentage reasons – a decline from 50 to 25 will net only 50% profit, whereas an advance from 25 to 50 will net 100%.
  8. In taking a position, price orders are allowable. In closing a position, use ‘market’ orders.
  9. Buy strong acting, strong background (markets) and sell weak ones, subject to all other rules.

(more…)

The High Priests of Finance

  
  Education
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Finance even has its own high priests in the form of the analysts and fund managers who promise their clients heavenly rewards if only they listen to their advice. They preach regular sermons in the form of brokers’ notes and quarterly reports, and they house themselves in vast cathedral-like buildings that dominate the skyline. Each day also has its canonical hours as traders pray for profitable opportunities at the European, American and Asian market openings. Finance has its annual calendar, too, marked with festivals known as results seasons in which the lucky participants receive their temporal (rather than spiritual) dividends.

And like any self-respecting religion, finance has its doctrinal schisms as well. Active fund managers are a bit like the medieval Catholic church, offering eternal salvation to those willing to pay the appropriate sum, which are known in modern parlance as performance fees rather than indulgences. The active-investment sect has its elaborate rituals and language, with a liturgy (“information ratios” and “alpha generation”) as baffling to the layman as the Latin mass was to the medieval peasant. Clients are supposed to listen to their presentations in a reverential hush, trusting that all the mumbo-jumbo will deliver superior results. The passive fund managers, or index-trackers, are akin to early Lutherans. Investors have no need for priestly intermediaries between them and the market, say the index-trackers. All they require is the full text of those companies that are included in the benchmark. (more…)

1 Thing Critical To A Trader's Success

  
  Education
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I think more than anything it has to be discipline. Because as important as finding a suitable methodology, developing a strategy, sound risk management, and position sizing is, it will be for nothing if you don’t have the discipline to consistently execute it and follow your rules.

Discipline is an integral part of all trading, whether systematic or discretionary, day trading or buy-and-hold, across all asset classes. I don’t believe you can be consistently successful without it.

Risk control based on risk per trade, risk control based on sector, risk control based on total portfolio.

You must know how much you can lose on a given trade, and the maximum loss to your entire portfolio at any one time. Only then can you take the necessary measures to manage these risks.

Almost equally important is correct trading psychology. Being able to accept trades that do not work. Staying focused and strong in the complete uncertainty of trading.

Because even the best trading system will have losing periods and this is when you need to remain discipline and continue executing your trades.

A trader must have many different ingredients to be successful in trading, but what is absolutely critical is that you must love the type of trading you do.

Many people think they have a passion for trading but the reality of trading; watching charts, managing risk all day, is not as exciting as many believe. If you are a day trader then you must actively enjoy this process.

If not, you must find another form of trading (or profession) that suits your style. That might be swing trading, automated trading, systems trading, whatever. But what you must have is passion!

3 Mistakes -Traders are Doing (101% It's All Mindset )

  
  Education
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If you agree with me that not a lot changes in the markets you won’t mind that I site an old study and will see the benefit of this little reminder of mine.

In 1974 Blair Stewart completes a study of 8,922 brokerage customer accounts.

The following mistakes are found:

1) Speculators showed a clear tendency to cut profits short, while letting their losses run.

2) Speculators were more likely to be long than short, even though prices generally declined during the 9 years of the study.

3) Longs bought on weakness, and shorts sold on strength, indicating they were price-level rather than price-movement traders.

If you are currently struggling in your trading you might like to consider these three well repeated mistakes and develop a plan that you can follow so as not to fall foul of them.

Hope & Fear

  
  Education
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In trading most new traders allow hope and fear to dictate their trading. They have a losing trade and instead of selling it and getting out they instead hope it will come back to even allowing the loss to grow. Another error  for new traders is that when they have a winning trade they fear that the profit will disappear so they sell for a small gain and miss the big trend in their favor. When hope and fear controls the trader they end up with big losses and small gains. A formula for ruin.
Instead the rich trader is fearful of losses getting bigger so they sell quickly when losing, risking a maximum of 1% of their capital on any one trade. Rich traders are able to think clearly and trade rationally knowing exactly what they are risking, when their stop is hit, they get out. This enables them to keep all their losses small.
When a trade is immediately a winner for a rich trader they hope it will run 100 points in their favor. Rich traders enable this to be possible with a trailing stop, they do not get out of a winning trade until a key price reversal has happened that tells them that the trend is actually reversing.
Rich traders are fearful of losses growing bigger and hope that their winners will continue on a monster trend. This mindset allows  them to be on the right side of trends and avoid any huge losses. This is why the best traders in the world are trend followers and win consistently. Do you want to join their club? Then do not let fear and hope dictate your trading decisions use them correctly.

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