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4 More Rules to Trade

  
  Education
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1. Average Winners Not Losers.  It is not “don’t frown, average down”; it is applying the discipline to cut losers short and adding to winners that separates the successful from the unsuccessful.  If you have a winning stock then add to it.  If you have a losing stock then get rid of it. 

2.  Never Let a Winner Turn Into A Loser.  Greed is the cause of this mistake.  Let the market tell you when to exit a trade, not whether you have a profit or not.  “If your trade is acting well, as defined by key indicators, and the market activity is supporting your position, stay in.  If not, its go time!” Do not let a good profit vanish into thin air because you want more than the market is willing to give.

3. Never Mix Disciplines.  If you day trade then day trade and do not let a day trade turn into a swing trade.  If you swing trade do not let your swing trade turn into an investment. Follow the rules based on the discipline of your time frame.

4.  Never Try To Trade Back A loser.  In other words, each trade is a new one and should not be used to win back money lost in the last trade.  Always trade in the present not in the past where too many emotional and psychology factors can affect the current trade.  Revenge does not pay in or out of the market. 

100% You will lose Money

  
  Education
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You are entering a position out of EMOTIONS or ANTICIPATION at wrong price level in a WRONG scrip with GREED or HOPE with no pre-entry exit in the place – even worst, once in a trade, riding the position with HOPE without STOP LOSS even if it goes against the entry – adding more to average down in the entirely wrong trade – at last running out PATIENCES and out of FRUSTRATION booking huge LOSS.

Even the position is in PORFIT there is no STOP LOSS or pre-entry EXIT in place – exiting the position abruptly in FEAR booking just a small profit with FEAR that market may take this small profit too – these random small profits unable to compensate earlier big losses!

To cover big losses you try more and more RANDOM trades and above process continues – end result it challenges your EGO and creates more FEAR, more AGONY – cycle continues with small profits and big losses – until account is wiped off.

Ten Trading Lessons

  
  Education
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teacher-point1. 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.

FEAR

  
  Education
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There is nothing to fear except fear itself…’so said FDR when talking about America’s policies for exiting the great depression. Of all the known negative emotions that affect trading, I would argue that Fear is the most pervasive, and potentially the most destructicve. 

Even that other emotion we are always warned about – Greed can be alternatively described as ‘the fear of missing out’ and so it’s very essence is derived from fear. Frustration too is essentially born from fear as is Boredom, these being two other potentially harmful emotions that can afflict traders.

Fear in trading comes from the fear of a losing trade/losing run and the loss of money/not being right. This fear of losing stems from operating in an environment of uncertainty where the result is not known in advance. This uncertainty though does not have to result in fear per say.

The human brain is not naturally wired for trading in it’s evolutionary development. It takes years of practice and development for someone to re-train their brain to accept uncertainty and manage it. This is the necessary acquiring of the psychological skills required to trade successfully. Essentially when it is more natural to hope we fear and when it is more natural to fear – we hope….in trading we have to do the opposite. Add to this the technical skill requirement of having to be right at the right time as being right at the wrong time is still a losing trade, and it is not hard to see that a process has to be undertaken to train our brains from a fear based outlook of uncertainty to a risk management outlook toward it. (more…)

10 Points -Why Traders lose Money

  
  Education
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  1. Not honoring your original stops. Big losses make winning systems losing ones.

  2. Quit trading it during draw downs. All systems have losing streaks, the key is to manage risk and stick to it until the system gets make to a winning streak.
  3. Lack of discipline, drifting from taking defined entries and exit signals to opinions is hazardous.
  4. Trading too big, no system can survive huge positions sizing that makes the first string of losses the last.
  5. Style drift is deadly, slowly changing your trading plan during active trades is not good. Research comes after hours and before changes are made. (more…)

Not That Simple

  
  Education
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Becoming a good trader doesn’t happen overnight. Just as with any other skill or discipline, it requires time and practice to become proficient at it:

One of the biggest problems I see new traders struggle with is the mindset that somehow trading can be approached differently from other ventures or activities. This is something which either comes from too much focus on the prospects of profits and easy wealth building (greed, in short) or from just not considering that it is an activity which requires skill to do well.
In Enhancing Trader Performance, Brett Steenbarger talks about trading as a performance activity. He relates it closely to athletics, but you could very easily extend the metaphor to any other activity which takes time and effort to progress in skill. The point is that you cannot expect to just jump right in and be an expert. You must progress through stages of understanding, competence, and experience.
Trading is easy. I mean pointing and clicking to buy and sell is about at simple as it gets.
Playing guitar is easy too. Just pluck or strum. No one thinks they are going to pick up a guitar and become the next Jimi Hendrix, though. They know it takes hours and hours of practice to develop even a basic ability to play, nevermind getting to the point of having people pay to listen to you.
Why do people think that things are different in trading?
Good trading requires learning and practice – just like anything else you want to get good at. There are no quick solutions. Don’t expect them, and don’t let anyone lead you to believe that there are.

Market Rules to Remember

  
  Education
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Tradingrules-new1) 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 rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.
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 chip names.
8) Bear markets have three stages — sharp down, reflexive rebound, and a drawn-out fundamental downtrend.
9) When all the experts and forecasts agree — something else is going to happen.
10) Bull markets are more fun than bear markets.

Not That Simple

  
  Education
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One of the biggest problems I see new traders struggle with is the mindset that somehow trading can be approached differently from other ventures or activities. This is something which either comes from too much focus on the prospects of profits and easy wealth building (greed, in short) or from just not considering that it is an activity which requires skill to do well.

Trading is easy. I mean pointing and clicking to buy and sell is about at simple as it gets.

Playing guitar is easy too. Just pluck or strum. No one thinks they are going to pick up a guitar and become the next Jimi Hendrix, though. They know it takes hours and hours of practice to develop even a basic ability to play, nevermind getting to the point of having people pay to listen to you.

Why do people think that things are different in trading?

Good trading requires learning and practice – just like anything else you want to get good at. There are no quick solutions. Don’t expect them, and don’t let anyone lead you to believe that there are.

Stock Market Wisdom :Benjamin Lee

  
  Education
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Benjamin Lee

“There are laws governing the financial markets just as there is gravity law to keep all things together on the earth.”

  • “Stock market is a battlefield. Always remember to survive in the game first. Only those that survive the battle can enjoy the spoils of the war.”
  • “Never revenge for your losses in share market. It will get you killed.”
  • “It is better to be late, and catch the right worm, than catching the snake’s tail.”
  • “The stock market is always there. It has been there for centuries, and it lives longer than anyone of us here. Therefore, don’t rush and trade all your capital like there is no tomorrow.”
  • “Human is always subject to his own emotion. How many of us can break free from the greed, fear, and unfounded hope that are so common in stock market?”

“Do not underestimate the power of a raging bull, and the strength of a bear in stock market. Both have the power to trample you to death if you fight against them.”

“The secret recipe for success in stock market is simple. 30% in market analysis skills, 30% in risks management, 30% in emotion control, and 10% in luck.”

“Time is the cause, Volume is the fuel, and Price is the result. Of all these three, Time is the greatest factor in determining stock market direction.”

“The worst enemy to any stock traders and investors are Greed, Fear, and unfounded Hope.”

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