There is a difference between what you think it should happen and what ultimately happens, especially in the short-term perspective where supply and demand are defined not by fundamentals, but by fear and greed.
However strongly you believe in something and however coherent the case is, you need to be:
(1) willing to accept that you might be wrong, and
(2) able to take the position off even though you might not be wrong in the medium-term sense.
One of Sun Tzu’s most famous quotes is: “Every battle is won before it is fought.” The phrase implies that it is planning and strategy that wins wars and not the battles themselves. Similarly, successful traders commonly quote the phrase: “Plan the trade and trade the plan.” Just like in war, planning ahead can often mean the difference between success and failure.
Stop-loss (S/L) and take-profit (T/P) points represent two key ways in which traders can plan ahead when trading. Successful traders know what price they are willing to pay and at what price they are willing to sell, and they measure the resulting returns against the probability of the stock hitting their goals. If the adjusted return is high enough, then they execute the trade.
Conversely, unsuccessful traders often enter a trade without having any idea of at what points they will sell at a profit or a loss. Like gamblers on a lucky or unlucky streak, emotions begin to take over and dictate their trades. Losses often provoke people to hold on and hope to make their money back, while profits often entice traders to imprudently hold on for even more gains.
A stop-loss point is the price at which a trader will sell a stock and take a loss on the trade. Often times, this happens when a trade does not pan out the way a trader hoped. The points are designed to prevent the “it will come back” mentality and limit losses before they escalate. For example, if a stock breaks below a key support level, traders often sell as soon as possible.
On the other side of the table, a take-profit point is the price at which a trader will sell a stock and take a profit on the trade. Often times, this is when there is limited additional upside given the risks. For example, if a stock is approaching a key resistance level after a large move upwards, traders may want to sell before a period of consolidation takes place. (more…)
1. Undiscplined
2. No money management
3. Unprepared
4. Overtrading habits
5. Easily tilted
6. Does not trade with probabilities
7. Trades emotionally without controlling: greed, hope, fear, and euphoria
8. Does not have a trading plan and strategy
In the book “Reminiscences of a Stock Operator,” Edwin Lefevre writes:
“The speculator’s deadly enemies are: Ignorance, Greed, Fear and Hope.“
In today’s commentary we will take a look at “Hope” and see why it is one of the four deadly enemies of successful market timing.
Each of us has a desire for success. That is why we use market timing in our investing. Not only to increase our gains in both bull and bear markets, but importantly to protect our capital against loss.
But that same desire for success can stand in the way of our ability to recognize reality, even if it is right before our eyes. All of us have a survival instinct that typically causes us to focus on good news. Bad news is avoided, or at least put on the back burner.
When we take a position in the market, whether bullish or bearish, we hope it will be successful. Hope can be such a powerful emotion, that when the same trading plan that told us to enter a position originally, reverses and tells us to exit immediately, our emotions may very well focus on the possibility that if we just hold on a bit longer, any loss may be erased. (more…)
Trading is about following a method, system, or rules that give you an advantage over other market participants in the long run. There are good bets and bad bets. There are traders who follow a trading plan with discipline and others that start trading out of fear and greed after strings of losses or wins. Just because you lost money does not mean you made a mistake. Just because you made money does not mean you did not make a mistake. The goal of trading is to make money over the long term not be right every time. Losses are a part of trading. There is a big difference between a loss after following your plan versus a loss after a loss of discipline.
Losses are simply getting out of a trade with less capital than you entered it. The question is was the loss due to your method or your lack of discipline?
A mistake however can be many things, and mistakes can be profitable which is dangerous to the long term health of your trading account.
Wall Street never changes, the pockets change, the suckers change, the stocks change, but Wall Street never changes, because human nature never changes.” ~ Jesse Livermore
“Wealth and rank are what people desire, but unless they are obtained in the right way they may not be possessed.” ~ Confucius
“Man has the power to act as his own destroyer—and that is the way he has acted through most of his history.” ~ Ayn Rand
“It is no measure of health to be well adjusted to a profoundly sick society.” ~ Jiddu Krishnamurti
“Men in the game are blind to what men looking on see clearly.” ~ Chinese Proverb
“The most exquisite paradox… as soon as you give it all up, you can have it all. As long as you want power, you can’t have it. The minute you don’t want power, you’ll have more than you ever dreamed possible.” ~ Ram Dass
“If thou wilt make a man happy, add not unto his riches but take away from his desires.” ~ Epicurus
“Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble… to give way to hope, fear and greed.” ~ Benjamin Graham
“The investor’s chief problem – and even his worst enemy – is likely to be himself.” ~ Benjamin Graham
“The ignorant mind, with its infinite afflictions, passions, and evils, is rooted in the three poisons. Greed, anger, and delusion.” Bodhidharma
“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.” ~ Ayn Rand
“Money often costs too much.” Ralph Waldo Emerson
Personally, I believe it to be futile to fight greed — something that is ingrained in human nature. We can only acknowledge greed’s existence, choose our own behaviors as individuals, and react to its occurrence — it can not be prevented. Greed will simply manifest into a different form.
Ignoring the downside of a trade. Most traders, when entering a trade, look only at the money they think they will make by taking the trade. They rarely consider that the trade may go against them and that they could lose. The reality is that whenever someone buys a futures contract, someone else is selling that same futures contract. The buyer is convinced that the market will go up. The seller is convinced that the market has finished going up. If you look at your trades that way, you will become a more conservative and realistic trader.
Taking too much risk. With all the warnings about risk contained in the forms with which you open your account, and with all the required warnings in books, magazines, and many other forms of literature you receive as a trader, why is it so hard to believe that trading carries with it a tremendous amount of risk? It’s as though you know on an intellectual basis that trading futures is risky, but you don’t really take it to heart and live it until you find yourself caught up in the sheer terror of a major losing trade. Greed drives traders to accept too much risk. They get into too many trades. They put their stop too far away. They trade with too little capital. We’re not advising you to avoid trading futures. What we’re saying is that you should embark on a sound, disciplined trading plan based on knowledge of the futures markets in which you trade, coupled with good common sense.
There are some meaningful and aspiring quotes that i have read from books or i heard from my coaches. Today i’m going to share with you guys. Hope that it will inspire you and you might use the quotes as a daily reminder or as a form of motivation.
“Trading is hardwork, laborious and boring, just like any other jobs. If you are excited about it, you are gambling” by Conrad
“There is no calamity greater than lavish desires. There is no guilt than discontentment. And there is no greater disaster than greed.” by Lao Tze
“Its not about being right or wrong, rather, its about how much money you make when you’re right and how much you don’t lose when you’re wrong” by George Soros
“Luck is what you have left over after you give 100 percent” by Langston Coleman
“In the business world, the rear view mirror is always clearer than the windshield.” by Warren Buffet
“Experience is a hard teacher because she gives the test first, the lesson afterwards.” by Vernon Sanders Law
“Human beings, by changing the inner attitudes of their minds, can change the outer aspects of their lives.” by William James
“The only that overcomes hard luck is hard work.” by Harry Golden
“A goal without a plan is just a wish.” Antonie de Saint-Exupery
“If i can do it, so can you” by Adam Khoo
An edge is an advantage that a trader has over his competitors, allowing him to generate and retain profits from other traders . There can be many types of trading edges through risk management, psychological management, and through better trading methods.
Here are a few:
1. Buying a weak stock is like betting on a slow horse. It is retarded.
2. Stocks are only cheap if they are going higher after you buy them.
3. Never trust a person more than the market. People lie, the market does not.
4. Controlling losers is a must; let your winners run out of control.
5. Simplicity in trading demonstrates wisdom. Complexity is the sign of inexperience.
6. Have loyalty to your family, your dog, your team. Have no loyalty to your stocks.
7. Emotional traders want to give the disciplined their money.
8. Trends have counter trends to shake the weak hands out of the market.
9. The market is usually efficient and can not be beat. Exploit inefficiencies.
10. To beat the market, you must have an edge.
11. Being wrong is a necessary part of trading profitably. Admit when you are wrong.
12. If you do what everyone is doing you will be average, so goes the definition.
13. Information is only valuable if no one knows about it.
14. Lower your risk till you sleep like a baby.
15. There is always a reason why stocks go up or down, we usually only learn the reason when it is too late.
16. Trades that make a lot of intellectual sense are likely to be losers.
17. You do not have to be right more than you are wrong to make money in the market.
18. Don’t worry about the trades that you miss, there will always be another.
19. Fear is more powerful than greed and so down trends are sharper than up trends.
20. Analyze the people, not the stock.
21. Trading is a dictators game; you can not trade by committee.
22. The best traders are the ones who do not care about the money.
23. Do not think you are smarter than the market, you are not.
24. For most traders, profits are short term loans from the market.
25. The stock market can not be predicted, we can only play the probabilities.
26. The farther price is from a linear trend, the more likely it is to correct.
27. Learn from your losses, you paid for them.
28. The market is cruel, it gives the test first and the lesson afterward.
29. Trading is simple but it is not easy.
30. The easiest time to make money is when there is a trend.
