In the trading world, you will either make money or lose money on any given trade. All that matters in the end is making more money when you’re right than you lose when you’re wrong. Knowing this, traders have learned to accept failure as part of the game, but they also use the information they acquire from their mistakes as a learning tool. Frequently, what they learn from losing money is more valuable than what they learn when they make money”
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Why traders wins & loses
Why traders wins
1. Develop specific procedures.
2. Have a defined operational methodology.
3. Understand how your trading system works.
4. Be sufficiently capitalized.
5. Don’t take quick profits.
6. Begin using a system after it draws down.
7. Be willing to accept consecutive losses.
8. Don’t think too much.
9. Don’t set specific price target.
10. Don’t believe the tight stop loss myth.
11. Play your own game-avoid the news.
Why traders loses
1. Lack of defined methodology.
2. Poor self control and discipline.
3. Information overload.
4. Riding losses.
5. Taking profit quickly.
6. Poor understanding of system basics.
7. Lack of consistency.
8. Too emotional and suggestible.
9. Too close the makes.
10. Can’t accept more than a few consecutive losses.
Dont Take Too Much Risk
One of the most devastating mistakes any trader can make is risking too much of their capital on a single trade. One thing is certain in trading and that is if you lose all your capital you are out of the game. Why risk so much you could be prevented from continuing? There is a saying in poker than going all-in (risking all your chips) works every time but once. This is true of trading.
If you risk all your account on every trade it only takes one loser to wipe you out (and no trading method is 100% accurate), so you will be out of the game at some point it is only a question of time.
In general, we only risk 1-3% of the available capital allocated to a system on any individual trade. This is calculated using the size and, the difference between our entry price and our maximum stop price, and the amount of capital allocated to the system. With the win probability and ratio of size of winning trades to losing trades we are almost certain never to lose all of our trading capital. In fact, the chance of us hitting our maximum drawdown for the year is tiny. (more…)
Fast Easy Money
You know, it never stop puzzling me, why people think the stock market is a place for fast easy money.
If you had read Livermore, the guy’s puzzled too.
Let me quote an excerpt from Richard Smitten’s How to Trade Like Jesse Livermore
Livermore believed that the game of speculation is the most uniformly fascinating
game in the world. But it is not a game for the stupid, the mentally lazy, or the person of inferior emotional balance, or for the get-rich-quick adventurer. They will die poor.
Over a long period of years, he rarely attended a dinner party including strangers when someone did not sit down beside him and inquire after the usual pleasantries:
“How can I make some money in the market?”
In his younger days, he went to considerable pains to explain all the difficulties faced by the trader who simply wishes to take quick and easy money out of the market; or through courteous evasiveness, he would work his way out of the snare.
In later years, his answer became a blunt “I don’t know.” (more…)
Chess and Trading
As an avid fan of the game of the KINGS, I have never paid attention before between the amazing similarities between chess and trading, until I read a BRUCE PANDOLFINI book called “Every move must have it’s purpose”
This is an amazing game that is not fully devoted to trading but to the concepts of business and chess and how they look alike.
Understanding the concepts is basic in chess or trading. Concepts are more important than theory.
Let me do a quick lecture about those concepts.
The first concepts he points is “Play the board not the opponent”. This is an amazing concept and clearly fits any trader and their psychology. The board is the chart and the opponent in this case is our own emotions. A player must focus on the board and his game only. Same the trader.
The second concepts is “ Don’t ignore a good hunch” This can clearly applies to the traders especially like me, who trades intuitive. Many times You do not have an entry setup that fits your rule but it doesn’t violate either but You know there is a big move coming, I can not explain it butyou feel the move and you take it and voila clink$$.You may not understand it because we try to rationalize but our right side of the brain is telling us “this is correct”. Go for it.
Third concept “Play with a plan”.We need to have an edge, a methodology and stay with it. In chess if you do not have a strategy you are going to be massacred. Same in the markets. Move your pieces in a nonsensical way and you are out of the game in less than 12 moves. (more…)
20 Poker Quotes -Traders Must Read
Poker is one of the very few casino games that’s like trading. Unlike other games where the casino keeps the odds in their favor, in poker there are many ways to get an edge over other players at the poker table. The way you play the odds can give you an edge, folding on bad hands quickly and playing the best hands only give you an advantage. Managing risk per hand can keep you in the game while others blow out. Sticking with the odds instead of letting emotions take over is another big advantage over other players. I have a buddy that plays well in poker tournaments and it is odd how we can talk about the same elements of strategy that matches both endeavors. Both poker and most financial markets are zero sum games where money flows from those who do not know how the game works to those who do.
- “Living in the past is a Jethro Tull album, not a smart poker strategy.” -Richard Roeper
- “The beautiful thing about poker is that everybody thinks they can play.” -Chris MoneyMaker
- “If there weren’t luck involved, I would win every time.” — Phil Hellmuth
- “If you can’t spot the sucker in the first half hour at the table, then you are the sucker.” — Matt Damon in Rounders
- “The cardinal sin in poker, worse than playing did cards, worse even than figuring your odds correctly, is becoming emotionally involved.” -Katy Lederer
- “You cannot survive without that intangible quality we call heart. The mark of a top player is not how much he wins when he is winning but how he handles his losses. If you win for thirty days in a row, that makes no difference if on the thirty-first you have a bad night, go crazy, and throw it all away.” -Bobby Baldwin
- “When we play, we must realize, before anything else, that we are out to make money.” -David Sklansky
- “Poker may be a branch of psychological warfare, an art form or indeed a way of life – but it is also merely a game, in which money is simply the means of keeping score.” -Anthony Holden
- “The real things to know is that folks will stand to lose more than they will to win. That’s the most important percentage there is. I mean, if they lose, they’re willing to lose everything. If they win, they’re usually satisfied to win enough to pay for dinner and a show. The best gamblers know that.” -Pug Pearson
- “Poker reveals to the frank observer something else of import—it will teach him about his own nature. Many bad players do not improve because the cannot bear self-knowledge.” -David Mamet
4 Elements Required to Trade Successfully
There are 4 elements you must master:
- Idenifying support and resistance. If you are trading in the middle of the range, you will be more suseptible to what seem to be reversals, but are actually just noise in between a trading range. Do not enter if your stock has moved more than 5 percent above support or the breakout point.
- Identifying volume patterns. If you buy a dip on high volume, there’s a higher probability of getting caught in the midst of a reversal. Same goes for low volume breakouts.
- Set appropriate stops, based on support, resistance and percentage of your trading portfolio. Even if you take the appropriate cautions, you can still get reversed. It shouldn’t hurt when you do.
- Do not trade scared. Trust your analysis and risk parameters.
It has taken me time to master these four elements to trading, and at times I still fall into my old habits. The key is to constantly assess both the technical and mental aspects of your game. There are 4 elements you must master:
- Idenifying support and resistance. If you are trading in the middle of the range, you will be more suseptible to what seem to be reversals, but are actually just noise in between a trading range. Do not enter if your stock has moved more than 5 percent above support or the breakout point.
- Identifying volume patterns. If you buy a dip on high volume, there’s a higher probability of getting caught in the midst of a reversal. Same goes for low volume breakouts.
- Set appropriate stops, based on support, resistance and percentage of your trading portfolio. Even if you take the appropriate cautions, you can still get reversed. It shouldn’t hurt when you do.
- Do not trade scared. Trust your analysis and risk parameters.
It has taken me time to master these four elements to trading, and at times I still fall into my old habits. The key is to constantly assess both the technical and mental aspects of your game.
Three Essential Components Of Trading
These essentials are three legs of a stool – remove one and the stool will fall together with the person who sits on it.
Losers try to build a stool with only one leg, or two at the most. They usually focus exclusively on trading systems.
Your trade must be based on clearly defined rules.
You have to analyze your feelings as you trade, to make sure that your decisions are intellectually sound.
You have to structure your money management so that no string of losses can kick you out of the game.
Every winner needs three essential components of trading: a sound individual psychology, a logical trading system and a good money management.
The Right Approach to Losses
First of all, understand that losses are a necessary part of any risk taking activity. The goal should always be to blunt the impact of losses as opposed to eliminating the losses altogether. There is a distinct difference between minimizing the impact of losses versus minimizing the number of losses. If the money you are risking stands between you and hunger, think twice before placing it on the line. Risk capital must be true risk capital.
Second, losses are better teachers than wins. As noted above, wins often lead to complacency. Losses usually compel you to figure out “why.” If small and incidental to your overall strategy, they confirm that your plan is working. If relatively outsized and/or unexpected, losses make you examine the precedent trades and determine if your strategy should be adjusted. This is how advancement happens. Thomas Edison needed nearly 10,000 tries to find filament for an incandescent bulb that would last for more than a few hours. Of the thousands of attempts that did not produce the bulb, Edison did not see them as failures, but rather as things that didn’t work which was useful knowledge in and of itself. By knowing what didn’t work, Edison was able to find his way to what did. Containing and then examining your losses will help you do the same with your trading strategy.
Third, recognize that losses that are kept small relative to your portfolio are a big part of the fuel that propels your account higher. They say that you are taking prudent steps to grow your account… that you are “in the game.” The alternative, especially if you accept that losses are a necessary part of trading, is no risk taking or the taking of outsize risk (refusing to cut losers). Neither of these provide a path to account growth. If you can find/develop a trading method that allows for (in fact, embraces), many small losses while still delivering profits overall, you will have gone a long way toward eliminating the trepidation that most new traders feel about entering the fray. You will also be able to stop worrying about having the “right” picks.
Characteristics for successful trading
A) absolute trust in myself to do what’s necessary when it’s necessary, B) discipline to follow my rules/method even when it’s going through a rough period (which all methods do), C) the unquestioning belief that I don’t know what’s going to happen next and that trading is just a probabilities game, D) that my success isn’t about the system/method – it’s about me and my attitude toward the market and trading, and E) the complete confidence that I really can make consistent profits from my trading over time.