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Trading ,Not So 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. (more…)

Why Trend Followers Mint Money ?

  
  Education
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The reason trend traders make money in the long term is because due to supply and demand and the flow of capital equities, currencies, commodities, and future contracts tend to trend in one direction or the other in different time frames, trend traders and trend followers are there to capitalize on those trends by letting the market action determine their buy and sell decisions seeking to be on the right side of the market’s trend the majority of the time.
Here is why it works:

  1. Bear markets have no supports, they keep falling until a new support level is found.
  2. Bull markets have no resistance, they keep keep going up until a new resistance level is found.
  3. The world’s capital is always flowing and seeking to find returns; this flow causes trends to emerge.
  4. Monster stocks can double due to earnings growth expectations.
  5. Currencies can plunge based on fear of a nations solvency.
  6. Commodities can run to absurd levels based on supply expectations.
  7. Fear can bring markets down far below what any one thinks is rational.
  8. Greed can inflate markets up far above any reasonable valuations.
  9. Trend traders are not predicting price action they are simply following it. They let reality guide them not opinions.
  10. Markets tend to trend and systems that are able to capture trends and minimize losses in choppy environments are robust in the long term.

Some behaviors that virtually guarantee losses in the markets

  
  Education
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• Lack of discipline: It takes an accumulation of knowledge and sharp focus to trade successfully. Many would rather listen to the advice of others. They just want to believe, like Fox Mulder.

• Impatience: Some have an insatiable need for action. The day trading adrenaline rush and the gamblers’ high can have heroin-like addiction pull.

• No objectivity: Some are unable to disengage emotionally from the market. They create a virtual “lifelong” marriage to their trades. Divorce is not an option.

• Greed: A desire for quick profit blinds many from the diligent work needed to actually win in the long run.

• Refusal to accept truth: Some do not want to believe that the only knowable truth is price action. They feel more secure following cult leaders serving Kool-Aid.

• Impulsive behavior: Many jump into investments based on the morning paper or Good Morning America. Thinking that if you act quickly, somehow you will beat everybody else in the great race is a recipe for a messy failure.

• Inability to stay in the moment of now: To be a successful trader, you cannot spend your time thinking about how you are going to spend your profits. Trading because you have to have money is not workable.

• Stay open-minded: Come into the day knowing your future steps. Do not be stubborn when the market does not go your way. Cut your losses and follow your stinking trading plan.

• Avoid false parallels: Just because the market behaved one way in 1995, 2000, or 2008 does not mean a similar pattern today will give you the same result. A great example of this: The Hindenburg Omen. It is a technical analysis pattern that is said to portend a stock market crash. The problem: Sometimes it is right, sometimes not. You don’t want to bet your life savings on a coin flip.

Trading Mantra's

  
  Education
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“Technical analysis is a windsock, not a crystal ball. It is a skill that improves with experience and study. Always be a student, there is always someone smarter than you!

“Thou Shall Not Trade Against the Trend.”

Let volatility work in your favor, not against you.

Emotions can be the enemy of the trader and investor, as fear and greed play an important part of one’s decision making process.

Portfolios heavy with underperforming stocks rarely outperform the stock market!

Even the best looking chart can fall apart for no apparent reason. Thus, never fall in love with a position but instead remain vigilant in managing risk and expectations. Use volume as a confirming guidepost.

When trading, if a stock doesn’t perform as expected within a short time period, either close it out or tighten your stop-loss point.

As long as a stock is acting right and the market is “in-gear,” don’t be in a hurry to take a profit on the whole positions, scale out instead.

Never let a profitable trade turn into a loss and never let an initial trading position turn into a long-term one because it is at a loss.

It’s not the ones that you sell that go higher that matters, it’s the ones you don’t sell which go lower, that do.

Don’t think you can consistently buy at the bottom nor sell at the top. This can rarely be consistently done. (more…)

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