Those who learn how to minimize the damage when they are wrong and who readily own up to the mistakes they make will do far better over the long haul. Making mistakes is a part of this game, but knowing how to handle them is everything. Likewise, if you attach your ego to your portfolio’s performance you are destined for failure. The market absolutely loves to kill those with big giant egos and who look for the markets as a place to prove how smart they are. Markets chew and spit out these folks routinely for good reason and they will continue to do so at every available opportunity.
Archives of “good reason” tag
rssTrading rules – something new to think about
Trading hours and decision making
You should make your overall (long or intermediate term) decisions before the trading hours and you should not change your general overview of the market during trading hours. Look at the bigger picture.
Breaks & presents
Take breaks from trading, don’t trade every day – after couple of weeks, make presents to yourself if you have been successful, go abroad or something like that. If you haven’t made profit, just take a couple of days off.
Crowd is wrong
Don’t follow the crowd, historically the public tends to be wrong. If everyone are buying, it might be good idea to start thinking of going short. If 85% of the market analysts are bullish, the market is most likely overbought, if less than 25% are bullish, it’s probably oversold.
Bets are bad
Don’t make bets. You don’t have to make trades multiple times a day or even every
day. Make trades only when you have a good reason to go into the trade. Wait for
an opportunity. If in doubt about the trade you have done, reduce the size or get out
of the trade.
Crash of the Titans
For many, many years, Merrill Lynch had good reason to be “Bullish on America.”
With more than 15,000 brokers and $2.2 trillion in client assets Merrill Lynch was the world’s largest brokerage. It clawed its way to the top and revolutionized the stock market by bringing Wall Street to Main Street.
But in September 2008 – at the height of the financial crisis, it ceased to exist as a separate entity when it was acquired by Bank of America
The world, the company, the Street was in shock.
How could this American institution collapse almost overnight?
In his meticulously researched new book, Crash of the Titans: Greed, Hubris, The Fall of Merrill Lynch and the Near-Collapse of Bank of America, Greg Farrell reveals it all in never before reported detail.
In this guest author blog Farrell shares how his book came to be and if you continue on, you can read an excerpt from Crash of the Titans.
Gann's trading rules
- Never risk more than 10% of your trading capital in a single trade.
- Always use stop-loss orders.
- Never overtrade.
- Never let a profit run into a loss.
- Don ‘t enter a trade if you are unsure of the trend. Never buck the trend.
- When in doubt, get out, and don’t get in when in doubt.
- Only trade active markets.
- Distribute your risk equally among different markets.
- Never limit your orders. Trade at the market.
- Don’t close trades without a good reason.
- Extra monies from successful trades should be placed in a separate account.
- Never trade to scalp a profit.
- Never average a loss.
- Never get out of the market because you have lost patience or get in because you are anxious from waiting.
- Avoid taking small profits and large losses.
- Never cancel a stop loss after you have placed the trade.
- Avoid getting in and out of the market too often.
- Be willing to make money from both sides of the market.
- Never buy or sell just because the price is low or high.
- Pyramiding should be accomplished once it has crossed resistance levels and broken zones of distribution.
- Pyramid issues that have a strong trend.
- Never hedge a losing position.
- Never change your position without a good reason.
- Avoid trading after long periods of success or failure.
- Don’t try to guess tops or bottoms.
- Don’t follow a blind man’s advice.
- Reduce trading after the first loss; never increase.
- Avoid getting in wrong and out wrong; or getting in right and out wrong. This is making a double mistake.
Confidence
Many times, you won’t feel quite right about a buy or sell decision. If this feeling persists after you have done all your research and you have followed the rules to this point, don’t take the trade. Too many times, individuals try to rationalize a decision. Don’t try to find a good reason for making a bad decision. Your decision must be made with confidence.
4 Ways Your Brain Is Making You Lose Money
Your brain doesn’t like to lose
Loss aversion, or the reluctance to accept a loss, can be deadly. For example, one of your investments may be down 20% for good reason. The best decision may be to just book the loss and move on. However, you can’t help but think that the stock might comeback.
This latter thinking is dangerous because it often results in you increasing your position in the money losing investment. This behavior is similar to the gambler who makes a series of larger bets in hopes of breaking even.
Your brain remembers everything.
How you trade in the future is often affected by the outcomes of your previous trades. For example, you may have sold a stock at a 20% gain, only to watch the stock continue to rise after your sale. And you think to yourself, “If only I had waited.” Or perhaps one of your investments fall in value, and you dwell on the time when you could’ve sold it while in the money. These all lead to unpleasant feelings of regret.
Regret minimization occurs when you avoid investing altogether or invests conservatively because you don’t want to feel that regret. (more…)
Confidence
When you feel confident, presuming you do sometimes feel confident, where do you feel it? Can you feel it in your brain or is it in your thorax (i.e. middle part of your body)? Better yet, why do I ask?
Well if you think about it, part of our mission here at Trader Psyches is to teach traders of all stripes how to use the message in Gladwell’s blink to assist in the d/m (that is decision making) process. The zillion copies it has sold prove the interest in it but the practical parts about what I read – sort of the “just do it” related to using your instantaneous impressions seem frankly impossible.
And I honestly still feel that most traders are for good reason, stuck in their heads. So, I ask this simple question – when you feel confident where does it hurt?