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Be Flexible-5 Points to Win in Trading

  
  Education
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Flexibility for the trader  to move with price action is the key to successful trading. You can be rigid with your rules and risk management but you must be flexible when it comes to how the future plays out in price action for any market or stock. It is not those that predict the future that make a lot of money in trading but those that react to what is actually happening that are able to profit from price action.

  1. The ability to change your mind and reverse your trade in the other direction when proven wrong  is a powerful trait.
  2. The ability to admit you are wrong and take your stop loss can save your account.
  3. Put your ego aside and look at what is happening not what you believe should happen.
  4. Trade price action not your opinions.

  5. Always realize the markets are bigger than you are, they are always right.

Trading Rules & A Trading Plan

  
  Education
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There is a saying if you do not know where you are going…how will you get anywhere. There is some what of an analogy with trading and having rules and a trading plan. When you follow trading rules which match your personality along with your trading plan, you are on a path to just let the probabilities occur. Every facet of your trading needs to be thought out. It is not easy developing a trading plan with rules…however once you have it in place & accept the fact that any trade is 50/50 & does not have to work…your edge over time could possibly provide you a rising equity curve.

When you have trading rules & you follow it……you reduce the anxiety and stress levels. You know you need to follow your plan because the only certainty when trading is complete uncertainty. If you think you know where any market is going and do not put on a protective stop…Good luck and would bet you will encounter a huge shock one day.

Part of your trading rules are what to buy or sell

How much to buy or sell

When to get out with a profit or loss… (more…)

Trading on Sentiment: Book Review

  
  Education
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We all know that sentiment is a critically important ingredient in the pricing of tradable assets. But it is extremely difficult to move from this general and somewhat amorphous principle to a trading/investing edge. Richard L. Peterson takes up this challenge inTrading on Sentiment: The Power of Minds Over Markets (Wiley, 2016).
Peterson is the CEO of MarketPsych, a firm that in 2011 joined forces with Thomson Reuters to produce the Thomson Reuters MarketPsych Indices (TRMI), sentiment data feed covering five asset classes and 7,500 individual companies that Thomson Reuters distributes to its clients. As the Thomson Reuters website explains, these indices use “real-time linguistic and psychological analysis of news and social media to quantify how the public regards various asset classes according to dozens of sentiments including optimism, fear, trust and uncertainty.”
Odds are that, unless you’re a bank or hedge fund employee, you won’t have access to TRMI. Peterson’s book is the next best thing, although you have to realize that if you want to incorporate sentiment (not some proxy for sentiment) into your trading decisions and can’t do big data analysis yourself, you’re working with one hand tied behind your back.
Trading on Sentiment is divided into five parts: foundations, short-term patterns, long-term patterns, complex patterns and unique assets, and managing the mind.

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Hedge Fund Market Wizards – Joe Vidich

  
  Education
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A critical distinction of all great investing books is that every time you re-read them, you find insights that you somehow missed the previous times. Recently I had the opportunity to re-read some of the chapters in Hedge Fund Market Wizards. The section about equity traders is my favorite one, so I delved into it again. In this post, I am featuring some interesting observations from Jack Schwager’s conversation with Joe Vidich:

1. Position sizing is a great way to manage risk

The larger the position, the greater the danger that trading decisions will be driven by fear rather than by judgment and experience.

If you are diversified enough, then no single trade is particularly painful. The critical risk controls are being diversified and cutting your exposure when you don’t understand what the markets are doing and why you are wrong.

It is really important to manage your emotional attachment to losses and gains. You want to limit your size in any position so that fear does not become the prevailing instinct guiding your judgment. Everyone will have a different level. It also depends on what kind of stock it is. A 10 percent position might be perfectly okay for a large-cap stock, while a 3 percent position in a highflying mid-cap stock, which has frequent 30 percent swings, might be far too risky.

2. Charts are extremely important.

One of the best patterns is when a stock goes sideways for a long time in a narrow range and then has a sudden, sharp up move on large volume. That type of price action is a wake-up call that something is probably going on, and you need to look at it. Also, sometimes whatever is going on with that stock will also have implications for other stocks in the same sector. It can be an important clue. (more…)

Traders Should Have These 5 Qualities

  
  Education
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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.

2 -Risk Quotes For Traders

  
  Education
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 Risk ManagementYou are the biggest risk. Yes, that’s right you. All of your talk of discipline, preparation, planning, all of the hours of screentime, all of the chats with trader friends–all of that isn’t worth much if you are don’t follow through and do the right thing. If you aren’t disciplined every moment of every trading day, you are not a disciplined trader. The market environment is harder than you can imagine, and it will challenge you to the very limits of human endurance. Spend a lot of time thinking about the most critical part of your trading system: you, yourself.

 Plan for risks outside the market. Everyone, from the institutional scale to the individual trader, will have outside influences challenge their market activities. Institutionally, regulatory changes and developments in market structure can dramatically change the playing field. Your investors will make mistakes–becoming fearful and exuberant at exactly the wrong times. If you’re an individual investor, you will face outside financial stresses, personal issues, health issues, etc. All of these things will have an effect on your trading that is hard to capture in the numbers, but prudent planning will allow you to navigate these challenges.

Warren Buffett Warns Amateur Investors Against This Common Mistake

  
  Education
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Today’s Smart Investor tip comes from billionaire investor Warren Buffett, who outlined the biggest mistakes amateur investors make for Adam Shell at USA Today.

The Oracle of Omaha warns investors against an incredibly common mistake: You shouldn’t try to time the market. He says it’s a mistake to predict or listen to others who predict the short-term movement of stocks. By the same token, he says you shouldn’t try to flip stocks like high-frequency traders do.

Instead, Buffett says the best thing the average investor can do is buy an index fund over time. That’s it. From USA Today: (more…)

CHANGE IS ESSENTIAL

  
  Education
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The stock market, just like life, can change on a dime.  In the market, just as in life, we must learn to adapt to change.  What separates the great trader from the rest of the crowd is his or her ability to change based on current market conditions.  In other words, NO EGO ALLOWED.  Mark Douglas, in his first book entitled The Disciplined Trader writes,

“There must be a difference between these two types of traders-the small majority of winners and the vast majority of losers who want to know what the winners know. The difference is that the traders who can make money consistently on a weekly, monthly, and yearly basis approach trading from the perspective of a mental discipline.  When asked for their secrets of success, they categorically state that they didn’t achieve any measure of consistency in accumulating wealth from trading until they learned self-discipline, emotional control, and the ability to change their minds to flow with the markets.”

We trade the current market conditions as they unfold with a plan to trade one way or the other.  To do otherwise would be to fight an undefeated foe.

Trading Plan :10 Points

  
  Education
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The Trading Plan comes first and should account for the following parameters:

1.  Entering a trade. Quantified approved entries.

2.  Exiting a trade. Predetermined Exit point BEFORE you enter a trade.

3.  Stop Placement. How will you know you were wrong about a trade? A stop loss, trailing stop, chart signal, volatility stop, time stop, or target price.

4.  Money Management. How much capital will you risk on any one trade? This is the key to position sizing.

5. Position Sizing. How much capital will you put on any one trade? Do you have rules that tell you to trade bigger or smaller based on the odds?

6.  What to Trade. What qualifies stocks to be on your watch list?

7.  Trading Time Frames. Are you going to day trade or position trade and hold for a week or more? or will you be a short term or long term trend follower?

8.  Back Testing. You need back testing either with a computer, by reviewing charts, or others research to show that your system is a winner.

9.  Performance Review. You must keep a detailed log of your trades and watch your performance to understand the wins and losses and their causes.

10.  Risk vs. Reward. Each trade must begin with the potential of winning more money than you are risking.

This is a very basic outline, I suggest expanding this to include 30 rules minimum; 10 each covering the areas of risk management, psychology, and method. If you can write this, believe it, and follow it, you will win in trading the only question that remains is when?

Cut your losses short, no questions asked

  
  Education
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The majority of unskilled investors stubbornly hold onto their losses when the losses are small and reasonable. They could get out cheaply, but being emotionally involved and human, they keep waiting and hoping until their loss gets much bigger and costs them dearly.”

William O’Neil

The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading… I know this will sound like a cliche, but the single most important reason that people lose money in the financial markets is that they don’t cut their losses short.”

Victor Sperandeo

Some people say, “I can’t sell that stock because I’d be taking a loss.” If the stock is below the price you paid for it, selling doesn’t give you a loss; you already have it.

William O’Neil

When I became a winner I went from ‘I figured it out, therefore it can’t be wrong’ to ‘I figured it out, but if I’m wrong, I’m getting the hell out, because I want to save my money and go on to the next trade.’”

Marty Schwartz

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