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Fear and Greed

  
  Education
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Day trading is a system based on rules, but as charts are analyzed and prices fluctuate, traders may find that they have a difficult time sticking to those rules when fear or greed become involved in the analysis. Successful traders are able to buy despite feelings of fear and sell despite feelings of wanting to prolong the holding of a stock.

A confident trader will still take the time to test and re-test a stock. At first glance a stock might look like it’s in top shape and performing as expected, but a successful trader will not solely rely on first glance appearances. Those who day trade stocks know that in an instant the market can change and it’s important to stay abreast of company information as well as market news and conditions. A successful trader will stick to the rules set up in day trading systems to ensure that his or her reactions remain unbiased throughout the trade.

Effective day trading strategies focus on providing consistent and disciplined actions. Successful traders have a consistent approach to the market and trading. They will take the time to systematically build up their own trading system that takes into account their own personal elements of risk control and they will take the time to stick to their original trading plan. It’s not that traders shouldn’t make changes based on market information, but that the changes made should be based on established trading rules that help traders determine what their entry and exit points on a trade should be.

Some of the best day trading tips that a trader can get help them deal with fear and greed. Many traders find that they may be able to memorize the rules and familiarize themselves with knowing how to accurately interpret stock charts, but they also need to learn how to prepare themselves to deal with fear and greed.

Fear in trading primarily takes on two basic forms – the fear of loss and the fear of missing out. The fear of loss leads to selling stocks prematurely and as a result, they aren’t able to capitalize and recover fully on the trade. When they start to enter into trades, the trade isn’t given enough time to mature and the trader sells so that more isn’t risked.

The fear of missing out is another form of fear that compels people to abandon their rules so that they don’t lose out on another major stock move. These fears need to be dealt with because they will impact a trader’s entry and exit decisions.

Greed is the motivation for over-confidence. Dreams of “making it big” in trading can cloud a trader’s perspective. Again, they abandon the rules of their trading system in the hopes that more money will come their way. Traders need to learn how to deal with greed so they can maintain their focus and not have their thoughts be swept away with illusions.

DISCIPLINE IN TRADING

  
  Education
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Discipline: “Habit of Obedience”

 Have a trading plan or system is essential to the exercise of good discipline, as it normally imposes certain parameters and sets out certain criteria which dictate how trading decisions should me made and what needs to be done in certain situations. Habitually following your plan is what is meant by the exercise of good trading discipline, which, in turn, will help you realize the best expected results possible from your plan. If you find that your trading plan or system is not meeting your expectations, despite habitually following it for a reasonable period of time, good discipline requires that you be prepared to review it and make any adjustments or fine tuning necessary for future use.

 Lack of Discipline

Day traders who suffer from lack of discipline often allow their emotions to rule their trading decisions, which often leads to bad decisions and unacceptable trading losses. Never allow your emotions to rule your trading. In order to trade successfully, you must develop a trading plan. (more…)

Courage and Trading

  
  Education
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According to Plutarch, “Courage stands halfway between cowardice and rashness…” Clearly, we don’t want to be reckless; and clearly, we don’t want to be hesitant and timid. What we need is a balance. As we go about our trading moderating our greed and our fear to a combination of healthy desire and clear minded caution, we use courage to go forward.

Courage doesn’t mean closing your eyes, holding your nose, and jumping into the deep end. It does mean moving forward with clean and clear perception as well as steadfastness of purpose.

You don’t need courage if you’re totally confident and unafraid. Courage, according to John Wayne, is being scared to death and saddling up anyway. Because people tend to fear the unknown, and the unknown is all that is certain about any given trade, we need to employ courage. Since trading is always new, since anything can happen and it often does, since the wildness lies in wait, we need to overcome uncertainty and fear so that we can appropriately enter, exit, and remain in trades. (more…)

Fear

  
  Education
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  fear-daytrading
 

One of my favorite bits of trading advice was given 85 years ago by Jesse Livermore in Reminiscences of a Stock Operator: 

“The speculator’s chief enemies are always boring from within.

“It is inseparable from human nature to hope and to fear. In speculation when the market goes against you, you hope that every day will be the last day and you lose more than you should had you not listened to hope… to the same ally that is so potent a success-bringer to empire builders and pioneers, big and little. And when the market goes your way you become fearful that the next day will take away your profit, and you get out too soon. Fear keeps you from making as much money as you ought to.

The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit. It is absolutely wrong to gamble in stocks the way the average man does.” (more…)

Jesse Livermore / "How to trade stocks"

  
  Education
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–“All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why the numerical (technical) formations and patterns recur on a constant basis.”

–“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, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.”

–Don’t take action with a trade until the market, itself, confirms your opinion. Being a little late in a trade is insurance that your opinion is correct. In other words, don’t be an impatient trader.

–“It is foolhardy to make a second trade, if your first trade shows you a loss. Never average losses. Let this thought be written indelibly upon your mind.”

–“Remember this: When you are doing nothing, those speculators who feel they must trade day in and day out, are laying the foundation for your next venture. You will reap benefits from their mistakes.”

–“When a margin call reaches you, close your account. Never meet a margin call. You are on the wrong side of a market. Why send good money after bad? Keep that good money for another day.”

–“Successful traders always follow the line of least resistance. Follow the trend. The trend is your friend.”

–A prudent speculator never argues with the tape. Markets are never wrong–opinions often are.

–Few people succeed in the market because they have no patience. They have a strong desire to get rich quickly.

–“I absolutely believe that price movement patterns are being repeated. They are recurring patterns that appear over and over, with slight variations. This is because markets are driven by humans–and human nature never changes.”

–When you make a trade, “you should have a clear target where to sell if the market moves against you. And you must obey your rules! Never sustain a loss of more than 10% of your capital. Losses are twice as expensive to make up. I always established a stop before making a trade.”

–“I am fully aware that of the millions of people who speculate in the markets, few people spend full time involved in the art of speculation. Yet, as far as I’m concerned it is a full-time job–perhaps even more than a job. Perhaps it is a vocation, where many are called but few are singled out for success.”

–“The big money is made by the sittin’ and the waitin’–not the thinking. Wait until all the factors are in your favor before making the trade.”

Ed Seykota-Quotes

  
  Education
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If you can’t take a small loss, sooner or later you will take the mother of all losses.

There are old traders and there are bold traders, but there are very few old, bold traders.

Dramatic and emotional trading experiences tend to be negative. Pride is a great banana peel, as are hope, fear, and greed. My biggest slip-ups occurred shortly after I got emotionally involved with positions.

I prefer not to dwell on past situations. I tend to cut bad trades as soon as possible, forget them, and then move on to new opportunities.

The elements of good trading are: 1. Cutting losses, 2. Cutting losses, and 3. Cutting losses. If you can follow these three rules, you may have a chance.

Trying to trade during a losing streak is emotionally devastating. Trying to play “catch up” is lethal.

I set protective stops at the same time I enter a trade. I normally move these stops in to lock in a profit as the trend continues. (more…)

Desire and Fear

  
  Education
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Desire and fear alternate in the minds of traders as they go through the day.  But let me ask you whether desire or fear dominates your thoughts and feelings as you trade? 

For many traders the primary emotion is fear.  They fear loss: losing profits, losing money, losing equity and even their margin.  Some fear losing their touch, their feel for the market, their focus, their luck, the respect of their boss, colleagues, or mate, or worse, their own self esteem.

Other traders are flooded with the emotion of desire.  They look forward to what the day will produce.  They like the thrill of the chase.  They have a sense of unlimited potential and abundant opportunities for profit.  They anticipate improving their skills, intuition, and understanding as they go through the trading day and week.

Keep in mind that desire is not greed.  Greed is an inordinate wanting.  It is excessive desire and comes from a sense of scarcity, a feeling that there is not and will not be enough.  Desire is healthy: greed is unhealthy.

What you feel depends upon your mental focus.  Do you place your conscious and unconscious attention on the possibility of loss or the probability (hopefully) of gain? (more…)

10 Trading Lessons

  
  Education
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1. Markets tend to return to the mean over time.
2. Excesses in one direction will lead to an opposite excess in the other direction.
3. There are no new eras – excesses are never permanent.
4. Exponential rising and falling markets usually go further than you think.
5. The public buys the most at the top and the least at the bottom.
6. Fear and greed are stronger than long-term resolve.
7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chips.
8. Bear markets have three stages.
9. When all the experts and forecasts agree – something else is going to happen.
10. Bull markets are more fun than bear markets.

The Confident Trader

  
  Education
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Confidence overcomes fear. Confidence also overcomes greed because a component of greed is an underlying sense of scarcity. To be confident doesn’t mean that every trade or trading day will be profitable. What it does mean is that when you look to where you want to go, you know that you can figure out a strategy that will get you there. And you know you can execute that strategy in a consistent manner. A successful strategy doesn’t mean anything if you don’t or can’t or won’t employ it.

Theoretically we should be as successful at trading and investing as our trading and investing strategies. Unfortunately the vast majority of traders and investors fall far short of the results of their strategies. They trip over themselves again and again on the way to employing their methods. My work as a trading coach is to enable traders around the world to become as good as their methods.

Confidence need not waver when you have dips and troughs and plateaus in your trading. Confidence is developed when you realize you can correct mistakes and learn from failures. You don’t persist in failing. You learn and move on. You don’t fear repeating the failure either, you simply anticipate correcting it.

Self esteem is basically the sum total of all the thoughts we have about ourselves. This is quite important because we do tend to become what we think about ourselves. The noted philosopher and psychologist, William James, said, “People, in general, become what they think of themselves.” Not only did he say this but he added that this was the essence of all we had learned in psychology in the prior 100 years. (more…)

Trading Rules – For A Survival Of The Trader

  
  Education
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1. Plan your trade. Trade under the plan.

2. Write down your results.

3. Keep positive mood irrespective of your losses.

4. Do not bring the market from work to home.

5. Constantly raise level of your purposes.

6. Buy during bad news and sell during good.

7. Do not be afraid to buy at high position and to sell at low.

8. Always have well planned time for market studying.

9. Isolate yourself from opinions of others.

10. Always be quiet, persevering and consecutive; operate rationally.

11. Never enter into the market because you are bored to be out of the market. To be out of a position is also a position.

12. It is not necessary to enter and leave from the market too frequent.

13. Traders usually study not at profits, but at losses. Study every loss for improvement of the knowledge about the market.

14. Successful trading is combined and often accompanied by negative emotions. The most important element of successful trade is you are.

15. Always discipline yourself to follow certain rules in advance.

16. Do not allow big profits to turn in big losses

17. You should have the plan, you should know the plan – and you should follow it.

18. Perceive losses with advantage.

19. Halve your profit and never risk more than 50 % of profit operating against the market.

20. A key to successful trade – self-studying.

21. There is no so much distinction between getting in the market and losing there in natural abilities, that in ability to study the errors correctly. (more…)

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