Archives of “good habits” tag

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Visualise and Be Motivated

  
  Education
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cat lion mirrorFirst, visualise the bad habits that you had. How do you feel? Terrible? Fuel with regrets? Uncomfortable? Now, make a note of the negative emotions and remind yourself how badly you want to get away from it.

Next, visualise the new but good habits that you intent to acquire. Again, how do you feel about it? Excited? Energised? Happy? If so, make a note of the positive emotions and compare it with the negative ones.

With that, do you feel motivated to change? I hope the answer is yes. And make sure to apply the same technique frequently to remind yourself that you really want to change.

Trading wisdom and strategies

  
  Education
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Trading System – According to Howard Abell: The trading system gives the trader the ability to control his or her emotional states rather than allowing them to control him. A system is a disciplined method for organizing dynamic, ever-changing market phenomena.

Risk Control – According to Paul Tudor Jones: If I have positions going against me, I get right out; if they are going for me, I keep them… Risk control is the most important thing in trading. If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in.

Psychological Makeup – According to Leo Melamed: You learn to distinguish the good traders from the bad, the successful techniques from the unsuccessful, and the good habits from the faulty. You also learn to distinguish the lover from the fighter, the winners from the losers, the serious from the frivolous, the cerebral from the superficial, and the friend from the foe. But above all, you learn that the psychological makeup of the trader is the single most critical element of success.

The Easy Middle – According to Randy McKay: The beginning of a price move is usually hard to trade because you are not sure whether you are right about the direction of the trend. The end is hard because people start taking profits and the market gets very choppy. The middle of the move is what I call the easy part.

Cut Back Trading Size When Losing – According to Bill Lipschutz: When you are in a losing streak, your ability to properly assimilate and analyze information starts to become distorted because of the impairment of the confidence factor, which is a by-product of a losing streak. You have to work very hard to restore that confidence, and cutting back trading helps achieve that goal.

Have A Predetermined Stop – According to Bruce Kovner: Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I am getting out before I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis.

Accept the Risk – According to Mark Douglas: To whatever degree you haven’t accepted the risk, is the same degree to which you will avoid the risk. Trying to avoid something that is unavoidable will have disastrous effects on your ability to trade successfully.

Making Mistakes Is Part of Business – According to Bruce Kovner: Michael Marcus [another top trader] taught me one other thing that is absolutely critical: You have to be willing to make mistakes regularly; there is nothing wrong with it. Michael taught me about making your best judgement, being wrong, making your next best judgement, being wrong, making your third best judgement, and then doubling your money.

Honesty & Experience in Trading

  
  Education
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Honesty:

Trading introduces you to yourself and you can’t ignore it. The mentor was just being honest.  He saw the guys impatience.  The more emotionally the guy got about the reality of the situation the more angry the guy got.  Trading is difficult because money is an imperfect feedback mechanism.  The habits you create early on you may continue to pay for throughout your career even it if paid you in the beginning. The good habits you create may not pay you for awhile or you may not be able to see them paying off.  It take a strong person to keep going without rewards.

Experience:

If I have learned one thing it is never to discount others experience. If someone has something to say I am smart enough to learn something from it.  That does not mean that all experience are created equally efficiently.  But completely discounting it is dangerous.  About everything I have ever done I started off thinking I was smarter than everyone else.  It started with my parents and continued to football and trading.  Each step I got better.  However it is important to take the information and make it work for you.

The Power of Habit: Why We Do The Things We Do

  
  Education
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The notion that success is a simple matter of following routine and sticking to good habits isn’t exactly new. But in his just-released book, The Power of Habit: Why We Do What We Do in Life and Business, Charles Duhigg explains why. An investigative reporter at the New York Times who also has an MBA, Duhigg taps into insights from biology, sports, consumer products marketing and manufacturing.

How do people kick smoking? How did Procter & Gamble turn Febreze into an also-ran into a big seller? How did Tony Dungy turn his National Football League defenses into champions? How did Paul O’Neill (the executive, not the baseball player) succeed at Alcoa? It all comes down to understanding the power of habits, Duhigg argues. “In the last ten years, our understanding of how habits work has been totally transformed, and companies take advantage of that,” he said.

People, like animals studied by scientists in laboratories, tend to see a feedback loop in their behavior. They are cued or prompted to act in a certain way, respond with a routine behavior, and then receive a reward for the behavior. “If you identify the cues and rewards, you can change the routine,” Duhigg writes. (more…)

Good Habits

  
  Education
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When a new trader comes to me for advice, quite often they have suffered initial losses from their trading activities (sometimes heavy ones) and have not really had a focussed overall trading plan set out, or if they have, they’ve not followed it.

Even if you start trading with limited capital, it is important that you start ingraining good habits as early as you can. Principal amongst these is ensuring that you do not trade too large positions relative to your overall equity. 

Depending on your chosen method of trading, transaction costs can also eat into a small account, and the trading vehicle you choose to use should be carefully considered.

However, it is a well known maxim that the vast majority of new traders blow up their accounts within 6 months. This is not necessarily as a result of their method of choosing their entries and exits (although that undoubtedly helps) but more as a result of risking way too much on each trade, or in extreme cases having a complete disregard for risk.

Trading is a marathon not a sprint, and to stay in the game you need to exhibit strong risk control right from the off. The sooner you can ingrain that in your method and your mind, the better. Even the best did not necessarily get a grip on risk control early in their careers – in Market Wizards Paul Tudor Jones talks about losing 70% of his equity on a single trade relatively early in his career. It was only after that experience did he go away and implement rigorous risk control.

From having risk under control, unemotional trading decisions can be taken, improving your mindset and allowing you to follow your system with no risk of self-sabotage. Allied to a proven method for selecting entry and exit points, you will be well on the journey to trading success.

Few suggestions

  
  Education
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suggestion1) Forget about performance and results numbers (i.e. P/L, Wins vs. Losses). These numbers only blur the plan and increase the anxiety on not losing on next trade. This aggravates the proper mindset to prepare to trade properly. Perfectionists will not execute well and will try to focus on buying low (bargain hunting to win) when the entry is not right.
2) Create the trading plan and write it into details to avoid ambiguity. This helps prevent loosely interpreted actions and end with too much leeway and perfect execution won’t be successful.
3) Focus on the charts and work toward identifying and preparing the entry and exits. Having these numbers in mind will keep the focus on the executing at the right prices.
4) Focus on the Risk:Reward ratio in mind. Having this ratio will keep the execution precise because any miscue will change the ratio in negative way. If the ratio is set, chances of the making the perfect entry and exits are higher. (more…)

Psychological Makeup

  
  Education
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makeupYou learn to distinguish the good traders from the bad, the successful techniques from the unsuccessful, and the good habits from the faulty. You also learn to distinguish the lover from the fighter, the winners from the losers, the serious from the frivolous, the cerebral from the superficial, and the friend from the foe. But above all, you learn that the psychological makeup of the trader is the single most critical element of success.

Timeless Trading Wisdom

  
  Education
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Trading wisdomTrading System –  The trading system gives the trader the ability to control his or her emotional states rather than allowing them to control him. A system is a disciplined method for organizing dynamic, ever-changing market phenomena.

Risk Control – If I have positions going against me, I get right out; if they are going for me, I keep them… Risk control is the most important thing in trading. If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in.

Psychological Makeup – You learn to distinguish the good traders from the bad, the successful techniques from the unsuccessful, and the good habits from the faulty. You also learn to distinguish the lover from the fighter, the winners from the losers, the serious from the frivolous, the cerebral from the superficial, and the friend from the foe. But above all, you learn that the psychological makeup of the trader is the single most critical element of success.

The Easy Middle – The beginning of a price move is usually hard to trade because you are not sure whether you are right about the direction of the trend. The end is hard because people start taking profits and the market gets very choppy. The middle of the move is what I call the easy part.

Cut Back Trading Size When Losing – When you are in a losing streak, your ability to properly assimilate and analyze information starts to become distorted because of the impairment of the confidence factor, which is a by-product of a losing streak. You have to work very hard to restore that confidence, and cutting back trading helps achieve that goal.

Have A Predetermined Stop – Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I am getting out before I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis.

Accept the Risk – To whatever degree you haven’t accepted the risk, is the same degree to which you will avoid the risk. Trying to avoid something that is unavoidable will have disastrous effects on your ability to trade successfully.

Making Mistakes Is Part of Business – According to Bruce Kovner: Michael Marcus [another top trader] taught me one other thing that is absolutely critical: You have to be willing to make mistakes regularly; there is nothing wrong with it. Michael taught me about making your best judgement, being wrong, making your next best judgement, being wrong, making your third best judgement, and then doubling your money.

Jim Rogers' Keys to Success

  
  Education
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JimRogerJim Rogers’ Keys to Success (taken from the titles and sub headings of each chapter of the new book, “A Gift to My Children: A Father’s Lessons for Life and Investing“)
1. Do not let others do your thinking for you
2. Focus on what you like
3. Good habits for life & investing
4. Common sense? not so common
5. Attention to details is what separates success from failure
6. Let the world be a part of your perspective
7. Learn philosophy & learn to think
8. Learn history
9. Learn languages (make sure Mandarin is one of them) (more…)

Key Lessons For All Traders

  
  Education
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Find a Trading Method That Fits Your Personality

Traders must find a methodology that fits their own beliefs and talents. A sound methodology that is very successful for one trader can be a poor fit and a losing strategy for another trader. Colm O’Shea, one of the global macro managers I interviewed, lucidly expressed this concept in answer to the question of whether trading skill could be taught:

If I try to teach you what I do, you will fail because you are not me. If you hang around me, you will observe what I do, and you may pick up some good habits. But there are a lot of things you will want to do differently. A good friend of mine, who sat next to me for several years, is now managing lots of money at another hedge fund and doing very well. But he is not the same as me. What he learned was not to become me. He became something else. He became him.

Trade Within Your Comfort Zone

If a position is too large, the trader will be prone to exit good trades on inconsequential corrections because fear will dominate the decision process. Steve Clark, an event driven manager, advises, you have to “trade within your emotional capacity.” Similarly, Joe Vidich, a long/short equity manager warns, “Limit your size in any position so that fear does not become the prevailing instinct guiding your judgment.”

In this sense, a smaller net exposure may actually yield better returns, even if the market ultimately moves in the favorable direction. For example, Martin Taylor, an emerging markets equities manager, came into 2008 with a very large net long exposure in high beta stocks in an increasingly risky market. Uncomfortable with the level of his exposure, Taylor sharply reduced his positions in early January. When the market subsequently plunged later in the month, he was well positioned to increase his long exposure.

Had Taylor remained heavily net long, he might instead have been forced to sell into the market weakness to reduce risk, thereby missing out in fully participating in the subsequent rebound.  (more…)

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