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The Psychology of Trading

  
  Education
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There is an old saying that the market is driven by fear and greed. Anyone that has placed more than a couple of trades will surely have experienced these two emotions. All traders experience emotion. The distinction between a successful trader and an unsuccessful trader comes down to how they deal with that emotion. Let’s look at how these emotions affect a successful trader and an unsuccessful trader in various scenarios.

You go long and the market immediately goes down – you go short and the market immediately goes up. That’s 2 consecutive losses, and you are getting a little ‘anxious’ so you don’t take the ‘next’ trade. Of course, this trade is a winner. Now to make the situation worse, you then ‘chase’ the move, and as soon as you enter the trade it immediately reverses, thus giving you another loss – this is now 3 in a row. Ok, one more ‘try’ – this can’t happen on every trade can it? (more…)

Are You A Subjective or Objective Trader?

  
  Education
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Subjective: Based on or influenced by personal feelings, tastes, or opinions.Proceeding from or taking place in a person’s mind rather than the external world.

Subjective traders they are intertwined with their trades.Their signals are generally entering out of greed and exiting based on their own internal fear. The believe in their opinions more than the actually price action. They base trades off of whether they are feeling good or bad about a particular trade. A subjective trade comes out of the imagination of the trader, from their own beliefs, opinions, and what “should” happen in their view. Many times reality is not even cross checked as a reference, and if it is the subjective traders sees what they want to see instead of what is really going on. Their compass is their emotions and they have internal goals other than making money.

Objective: (Of a person or their judgment) not influenced by personal feelings or opinions in considering and representing facts. Having actual existence or reality. (more…)

Trading Wise Words

  
  Education
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Think about it
Turtle Trading Principle
Trade with an edge, manage risk, be consistent, and keep it simple.
The entire Turtle training, and indeed the basis of all successful trading, can be summed up in these four core principles.

Curtis Faith, Way Of Turtle
Why Chart Patterns Repeat Themselves
All through time, people have basically acted and re-acted the same way in the market as a result of: greed, fear, ignorance, and hope.
That is why the numerical formations and patterns recur on a constant basis.

Jesse Livermore, How To Trade In Stocks
Stick To Your Trading Rules
Successful trading is about finding the rules that work and then sticking to those rules.

William J. O’neil

Perfect Speculator
Perfect speculator must know when to get in; (more…)

Trading Commandments

  
  Education
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Trading Commandments

 

“Opportunities are made up easier than losses”: Trade-Ideas’ alerts show hundreds of opportunites from which to choose every day. Take your time and find the right ones using The Odds Maker. There is no reason to rush or force anything – every trade arms you with an informational edge.

“Emotion is the enemy when trading”: Trading is ruled by fear and greed. Those two sinners thrive on a lack of enough information or trade expectations. The Odds Maker readout collars these guys by revealing a strategy’s odds of success (%) as well as average winners and losers and net gains or losses.

“Adapt your style to the market”: It is so important to know what kind of foe you are facing. Do breakouts follow through or do they pull back? Are you in a trending or range bound market?

“Keep Your Eye on the Bigger Picture” :No matter what time frame you are trading on, it’s good to know what is happening on the daily charts. Understanding the larger trends in the markets will allow you to be more decisive about your trades in the lower time frames and will help you maintain a more clear perspective. Trading with the overall trends will increase your odds for success.

 

Uncertainty in Trading

  
  Education
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You just have to deal with it. But there are times where your conviction levels go through the roof. You know damned well that should should be trading. You are comfortable with what you see. Are you taking action?
 
There are other times where your
conviction level is low, or not there at all. There is a split second cue in the back of your brain that says “I don’t know what is going on here”. Are you listening to it and backing off? Or are you letting your conscious mind, emotions/greed etc. take over?
The probability for a successful outcome shares a positive correlation with what level your ‘conviction meter’ is. If its high, your chances of a successful outcome increase. If low, you can imagine just as poor of a result.
Listen to your level of conviction. If it is strong, act upon it. If weak or in question, don’t do anything at all. Typically, you have a short window of opportunity to decide where you stand. Take advantage of it.
 
 

7 Deadly Sins of Trading

  
  Education
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7 Deadly Sins of TradingPerfectionism: There is no perfection in trading as far as making money on every trade or having a perfect system. All you can hope to be perfect at, is following your system, rules, and trading plan. A winning trade should be measured as one in which you followed all your preset guidelines. Even the best traders only average about a 50%-60% win rate at best over long periods of time. The key is having bigger winners than losers, not being perfect. Like in baseball where a .300 hitter can get into the hall of fame. A .500 trader in the market can become wealthy if his wins outpace his losses.

Fear:  Faith in your system is the only way to overcome your fear of trading. You must complete enoughback testing on your system until you know that you have a valid edge over the market in the long term. You must see opportunity in trading not possible losses. You must take your systems trade signals each time and if you can’t overcome your fear of loss and failure then perhaps trading is not the best profession for you.

Pride:  We are not our trading account and staring at our profit and loss too much is a major detriment in one’s trading. Traders must cut losses at their predetermined stop, not pridefully hang on trying to prove they are right. We must separate ourselves from the trading. A person’s value is not tied to a trade or performance record. If we followed our system then we can’t view that as a personal loss. Our system failed us. (more…)

10 Trading Lessons for 2011

  
  Education
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1)You can’t succeed overnight. Most retail/aspiring traders get hooked on trading because they want money and they want it NOW! Over-trading, scalping, over-leveraging, random decisions, greed and the mirage of getting rich quick will turn trading into gambling.

A common sense rule says that – in order to make a lot of money fast, you either 1) steal, 2) you are a genius inventing or discovering something new, something that everyone will use or buy from you (like Google, Facebook, Angry Birds) or 3) gamble, if you are really lucky.

Learn from your own mistakes, don’t repeat them, practice and persevere. It doesn’t matter if you count Elliott waves better than anyone else or if you anticipate a rate hike 6 months in advance. It only matters how you control your emotions and your money.

2) Focus your efforts on the things that work best for you. If there is one trading strategy that works for you, then stick to it as long as it works. Don’t waste time testing everything you find on the Internet and don’t listen to everything you hear or read. Too much information can lead to confusion, difficult choices and failure – eventually.

3)Losing is part of the game but recovering is not an easy task and requires smarter trading decisions.

Have you ever been on a diet?
Common sense rule, again: if you have gained 40 lbs. (18 kg) in 1 year, don’t expect to lose 40 lbs. in 2 weeks. It takes a lot of work to get rid of them.
So if your trading account is down 50% after 2 months, you’ll have to double your remaining equity to break even. Will that be easy? I doubt.

4)Making mistakes is normal but rather than give up, try to learn something from your own trading mistakes, bad strategies, emotions etc.
If you don’t succeed, you aren’t out of the game.

Make a list of things that didn’t work – check it regularly so you don’t forget them. Avoid them in the future.

5)If you keep doing the same thing and you are constantly losing, it’s obvious that you are doing something wrong. Is your trading strategy constantly giving poor results? Change it. Are you always predicting the wrong market direction? Stop predicting – trade what you see, not what you think or expect.

If you want to achieve different results, then you must change your actions. (more…)

5 Characteristics of Successful Trader

  
  Education
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Knowledge – A trader must put in the time and effort to study and learn the proper skills in order to be successful. Whether that is through technical or fundamental analysis, one must invest in their education. They must completely understand their market, and its ideal as a beginner to focus on one market and be a specialist. A part of the knowledge and education is devising a game plan or strategy for trading. Writing down your rules and sticking to your trading plan is a key to success.

 Controlling your emotions – The ability to control your fear and greed is paramount to success. A successful trader will have a balanced emotional state regardless if he/she is winning or losing. Ensuring the trader has a clear head and is able to pull the trigger and take trades every time an opportunity presents itself.

  Patience – A successful trader can sit on the sidelines for days waiting for the proper setup. They don’t jump into a trade just for the sake of trading. Yes there may be opportunities, but the smart trader waits for trades that meet their trading rules and system. Over trading by beginner traders is a big obstacle to overcome. A need to always be in the market will lead to taking trades that are likely too risky. Learn patience, it’s a key to success. A winning trader usually has an extraordinary amount of self control, and often the best trade is no trade.

 Discipline – There are no 100% winning traders and taking losses are part of the trading profession. It is about finding high probability opportunities and managing the risks on each trade. A trader must stick to their trading plan and discipline is the key to success.

Confidence – Having the confidence in yourself and your system to make your profit or take a loss when your method tells you to is a winning trait. Confidence usually comes from experience and knowledge.

Max Gunther set forth basic trading principles called The Zurich Axioms

  
  Education
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On Risk:
– Worry is not a sickness but a sign of health – if you are not worried, you are not risking enough.
– Always play for meaningful stakes – if an amount is so small that its loss won’t make any significant difference, then it isn’t likely to bring any significant gains either.
– Resist the allure of diversification.

On Greed:
– Always take your profit too soon.
– Decide in advance what gain you want from a venture, and when you get it, get out.

On Hope:
– When the ship starts sinking, don’t pray. Jump.
– Accept small losses cheerfully as a fact of life. Expect to experience several while awaiting a large gain.

On Forecasts:
– Human behaviour cannot be predicted. Distrust anyone who claims to know the future, however dimly.

On Patterns:
– Chaos is not dangerous until it starts to look orderly. (more…)

Use discipline to eliminate impulse trading

  
  Education
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  • Have a disciplined, detailed trading plan for each trade; i.e., entry, objective, exit, with no changes unless hard data changes. Disciplined money management means intelligent trading allocation and risk management. The overall objective is end-of-year bottom line, not each individual trade.
  • When you have a successful trade, fight the natural tendency to give some of it back.
  • Use a disciplined trade selection system: an organized, systematic process to eliminate impulse or emotional trading.

  • Trade with a plan – not with hope, greed, or fear. Plan where you will get in the market, how much you will risk on the trade, and where you will take your profits.
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