The tricky thing about playing to our strengths is that it is often our strengths, applied across situations uncritically, that can hold us back. The dark side of strengths are sometimes called derailers, because of their potential for interfering with progress and derailing success.
Consider the following examples:
1) The diligent hard worker who periodically burns out and fails to maintain valuable friendships and personal relationships;
2) The process-oriented trader who develops good trading habits, but fails to innovate and expand those habits;
3) The trader who processes information very well through teamwork and social interaction, but who falls prey to consensus thinking;
4) The caring manager who has great relationships with employees, but avoids conflict and does not effectively uphold work standards;
5) The trader who is passionate about markets and learning about trading and who loses money by overtrading.
In each case, a strength carries the seed of its own undoing: what powers us down the track can also derail us. (more…)
Archives of “financial markets” tag
rssYou are not your Trade
Systems don’t need to be changed. The trick is for a trader to develop a system with which he is compatible. -Ed Seykota
Traders can make psychological mistakes when trading that can end a trading career very fast. Here are a few examples:
- They take on more risk than they can deal with, stress takes over and they start making bad decisions.
- They become married to a trade, they become stubborn and ignore their stop losses, wanting to be “right” they wait while losses mount.
- Their egos take over their trading. They are more concerned about proving how smart or clever they are than making money. They begin to be more concerned with bragging about their winners than managing their losing trades. It becomes an ego trip that will not end well.
- Their system does not match them, someone who likes fast paced action should not be a long term growth investor and someone who loves investing in growth stocks they believe in should not day trade.
- A trader loses many times in a row so they change systems right before the big pay off. If you have a proven system trade it for the long term benefits.
Here are some solutions: (more…)
5 Frustrations of Traders & Solutions
Top Trader Frustrations
- I cannot trade my plan!
- You need to develop the skill to execute your trading plan under duress.
- Use visualization exercise to see yourself successfully executing your trading plan during the day. The greater level of detail a trader uses in their visualization exercise the greater its effectiveness.
- I cut my winning trades too early!
- Have profit targets
- Take partial profits
- Measure each day the missed profits that you could have obtained if you didn’t miss a setup, or if you didn’t cut your winning trades too early.
- I am not consistent with my trading
- Establish a playbook with setups that work for you, and setups that don’t work for you.
- Define the risk that you should take in setups based on whether they are A+, B, C setups (based on risk/reward and % win rate).
- Track the amount of risk that you are taking on similar trades, so that the results can be properly analyzed. Risk 30% of your intraday stop loss on a A+ setup, 20% on a B setup, 10% on a C setup, 5% on a Feeler trade.
- Do a trade review
- Did I trade the best stocks today?
- Did I recognize the market structure?
- Did I push myself outside the comfort zone?
- Things I did well
- Things I could improve (more…)
POSITION ENTRY
Why not buy at the bottom of the cup? The Risk is Higher
- The objective is not to buy at the cheapest price when the probability of the stock having a huge move may be only so-so.
- The objective is to buy at exactly the right time — the time when the chances are greatest that the stock will succeed and move up significantly.
- I found through our detailed historical studies that a stock purchased at this correct “pivot point,” if all the other fundamental and technical factors of stock selection are in place, will simply not go down 8% (your protective sell rule), and has the greatest chance of moving substantially higher. So ironically, if done correctly, this is your point of least risk.
- On the day the stock breaks out, its trading volume should increase at least 50% above its average daily trading volume.
Pyramid your initial buy
- After your initial purchase (50% of your full position), identify a price area at which you will add a small amount as a follow-up buy if it continues to perform well.
- I usually add more once a stock is up 2.5% to 3% from my first buy (32.5% of your full position).
- If the stock advances 2% or 3% more, you may complete your position (17.5% of your full position).
- Then stop buying that stock. You’ve got your basic position in the stock during its first 5% advance. Sit back and give it some time and room to grow.
Confidence in trading
The Oxford English Dictionary gives the definition of confidence as “The feeling or belief that one can have faith in or rely on someone or something”.
In relation to trading, confidence therefore is having:
- the belief in your ability to succeed as a trader;
- the belief that whatever method you use for selecting entries and exits will help generate a positive expectancy;
- the patience to wait for the right opportunities to present themselves;
- the discipline to follow your rules;
- the ability to keep taking suitable signals, when your criteria is met, even when suffering a run of losses.
7 Reasons Why Traders Lose Money ?
- Blaming outside forces for poor trading results is an incredibly destructive behavior. High frequency traders, market makers, and irrational markets, give an undisciplined trader license to make reckless trades. The less responsibility taken for results, the more destructive they can be with an account.
- Trading with no plan and making decisions based on feelings, is a really bad idea. Letting opinions and predictions be a guide to entries, and emotions be a guide to exits, guarantees maximum destruction of trading capital.
- Trade first and learn how to trade later. Traders who don’t spend time educating themselves before trading will learn the hard way, and give their trading capital to other traders as tuition.
- Focusing on ego and the desire to be right, instead of profitability and big losses, will quickly destroy a trader’s account.
- Traders that fight the trend and disagree with the actual price action will give their trading capital to those that follow the trend.
- Trade without discipline and risk management and a trader will be destroyed regardless of their trading system or method.
- If a trader doesn’t diversify their life with strong relationships, fun, peace, and health, their trading results become too entangled with their self worth. This can lead to mental and emotional ruin.
Avoiding Punishment is the mistake-Reminiscences of a Stock Operator
This chapter gives several examples of different peoples method of placing their trades, and uncovers the difficulties that many people have in following a trading method. Much of the difficulties lie in the behavior pattern of avoiding punishment. A speculator may make mistake and know that he is making them, but not why. He simple calls himself names and lets it go at that.
Mistakes are always around if you want to make a fool of yourself. Mistakes are part of the human condition, and should not cause lost sleep. But being wrong – not taking the loss – that is what does the damage to the pocketbook and to the soul.
Trading Commodities rather than stocks partakes more of the nature of a commercial venture than trading in stocks does. Commodities are governed by one law in the long run, supply and demand. Fundamental information is more concrete than in Stocks, where the investor must guess about many influences.
Technical analysis, or tape reading, works exactly the same for stocks as for cotton or wheat or corn or oats. Still, the average trader from Missouri everywhere will risk half his fortune in the stock market with less reflection than he devotes to the selection of a car. Today the popular analogy is that most people spend more time planning their vacation than they spend planning for their retirement. (more…)
A Useful Stock Market Dictionary
I just finished reading Jason Zweig’s new book “The Devil’s Financial Dictionary” and boy is it good. If you’ve ever been overwhelmed by all the jargon used in finance and economics then this is right up your alley. Jason offers up a witty, brilliant and most importantly, useful collection of honest definitions. It’s a collection of all the things most people think about these words, but are too afraid to actually say. For instance:
ACCOUNT STATEMENT, n. A Document from a bank, brokerage, or investment firm that is designed to be incomprehensible to the CLIENTS, thereby preventing them from asking impertinent questions like “Who set my money on fire?” You might be able to recognize your balances and recent transactions on an account statement, although that will be easier if you earn a PhD in cryptography first.
EFFICIENT MARKET HYPOTHESIS, n. A theory in financial economics believed only by financial economists. In theory, the market price is the best estimate at any time of what securities are worth; it immediately incorporates all the relevant information available, as rational investors dynamically update their expectations to adjust to the latest events. In practice, however, investors either ignore new information or wildly overreact to it, regardless of how relevant it is. Even so, that doesn’t make beating the market easy, because you must still outsmart tens of millions of other investors without incurring excess trading costs and taxes. As behavioral economists Meir Statman puts it, “The market may be crazy, but that doesn’t make you a psychiatrist.”
FEE, n. A tiny word with a teeny sound, which nevertheless is the single biggest determinant of success or failure for most investors.
Investors who keep fees as low as possible will, on average, earn the highest possible returns. The opposite may be true for their financial advisors, although that is still not widely understood.
Nassim Taleb’s Risk Management Rules
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…)
7 Things Every Trader must have
1) Strategy – There are so many different strategies: value, growth, momentum, short selling, etc. Find one that fits your personality and do your best to master it. The fastest way to learn is to study success. In other words, find someone who is successful at the strategy you like, and then mimic them with your own style. Another key is to recognize when the market environment is not conducive to your strategy, and make the proper adjustments.
2) Confidence – If you don’t have confidence, you have very little chance of succeeding. This doesn’t just apply to trading, it applies to EVERYTHING in life (business, athletics, relationships, etc.). With regards to trading, you have to believe in what you are doing and not be afraid to make mistakes. The key is to learn from them, make adjustments, and constantly reevaluate your progress.
3) Product Focus – There are so many different trading vehicles: futures, commodities, currencies, stocks, bonds, options, etc. It’s ok to dabble in a few things at first, but eventually you need to find out what product works best for you, focus on it, and MASTER it. As they say, don’t be a “jack of all trades and master of none.”
4) Know Your Time Frame – You must find a time frame that fits your personality. If you are too nervous, maybe short-term trading isn’t for you. Everyone wants to make tons of money in the market really fast, but keep in mind that is not a healthy approach. Most people with this mindset tend to be “boom and bust” traders. They make a bunch of money and eventually blow up. If you are truly passionate about trading and hope to be in the game for a long time, I recommend focusing on a slow and steady approach. (more…)