Archives of “holy grail” tag

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Expectancy

  
  Education
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Expectancy
Expectancy along with position sizing are probably the two most important factors in trading/investing success. Sadly most people have never even heard of the concept.
Expectancy is the average amount you can expect to win (or lose) per rupee at risk.
Here’s the formula for expectancy:
Expectancy = (Probability of Win * Average Win) – (Probability of Loss * Average Loss)
As an example let’s say that a trader has a system that produces winning trades 30% of the time. That trader’s average winning trade nets 10% while losing trades lose 3%.

Expectancy, position-sizing and other aspects of money management are far more important than discovering the holy grail entry system or indicator(s). Unfortunately entry techniques are where the vast majority of books and talking heads focus their attention. You could have the greatest stock picking system in the world but unless you take these money management issue into consideration you may not have any money left to trade the system. Having a system that gives you a positive expectancy should be in the forefront of your mind when putting together a trading plan.

The Stock Trader's circle of Sucess and Failure

  
  Education
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The following graphic describes two types of traders.  The first (the circle on the left) describes what I believe to be the characteristics of all beginning traders, most of which end up quitting.  There is a progression here from bad to worst.  However, if the beginning trader can break through this cycle somewhere around undisciplined fear (#3) and paralysis of analysis (#4), the chances of his success improves exponentially.

TWOTYPETRADERS

THE LOSER’S CYCLE OF DESPERATION

Simply put, a trader enters the stock market with little if any knowledge about what to expect.  How can he?  No experience = no knowledge.  Not only that, but his expectation of untold riches distorts his perception of reality.  Once in the market he seeks the holy grail that will make him rich.  When he doesn’t find it he continues his search as fear begins to shackle his feet.  The fear leads to paralysis of analysis or the thinking that the more indicators and patterns and candlesticks etc. that he uses the more likely he will win.  Wrong!  (more…)

Defination of Great Trader

  
  Education
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Great traders that we have had the pleasure to know and to be around, on exchange floors and on trade desks, had certain repeatable traits that all level traders can learn, or take something from;

  • Empathy and the ability to listen.
  • Faith in their own ability to get things done, if life and in work.
  • Humility, and a willingness to accept defeat as graciously as accepting success.
  • Desire to work towards, and not to just expect, having more success than defeat.

They listened more than they spoke. They had two ears and one mouth and had learned to use them in the right proportion. The ability to listen, either to a mentor, to your inner self, or to the market, is critical for success.

They had an undying faith and belief in their own ability, and accepted that most things that went wrong were probably outside of their control, because they planned their work. Their brutal honesty with themselves and with others allowed them to develop a faith in their own ability that was beyond the norm.

They were humble, and understood that they were not smarter, stronger, nor wiser than others; they just knew that there were few others that had more faith in their own ability to follow something through and to achieve their goals. (more…)

Small Things Matter

  
  Education
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Ask many experienced traders to describe their most profitable trade, and you’ll hear a fantastic story. It’s usually purely chance. I know it was that way for me on a number of occasions. For example, the trader may have been going long on a large position when suddenly a report came out that shocked the market. Prices shot up as the public heard the news, and the trader made a killing. These stories are thrilling. They inspire you to sharpen your trading skills and master the markets. Who doesn’t want to be at the right place at the right time? But if you want to be a profitable, consistent trader, you can’t sit around waiting for a fantastic trading opportunity to present itself. Most of the time, trading is about making trade after trade to the point that it seems boringly routine. Rather than seek out big, exciting trades, it’s important to remember that small trades matter a lot.

As thrilling as big trades seem to be, it’s the smaller trades that keep you in business. It’s not unusual for traders to feel they have reached a plateau when trading. They make trade after trade and little seems to happen. They don’t suddenly find the Holy Grail of trading and achieve the great wealth and status they’ve dreamed about. Whether they realize it or not, however, they are still making progress. Each new observation of the market, each trade they execute, no matter how small, adds to their wealth of knowledge. They intuitively learn what to do and what not to do. They may see a slight variation in chart pattern that creates an inefficiency in price and learn just how far the pattern can deviate from the norm and still forecast the most likely movement of prices. On another day, they may learn a new way to place a protective stop so that they protect their risk, yet don’t get stopped out prematurely. These small everyday, seemingly insignificant experiences matter a lot.

Trading is challenging. Few survive trading over many years. The traders who do survive, however, know how to stay focused and patient. They don’t go for quick thrills, and unrealistically huge profit objectives. They know that losing is easy and can happen in the blink of an eye, but rebuilding capital usually takes a lot of work over a long period of time.

Instead of going for risky, exciting trades, you must seek out high probability setups, take steps to protect your capital, and execute your trades decisively, according to your trading plan. You may not have an exciting tale to brag about, but you take home steady profits–you get paid to trade. And when you make trade after trade, the small profits add up, and you end up with big profits in the end.

So when you feel that your earnings have reached a plateau, don’t get discouraged. As long as you are making profits, and staying in business, you’re continuing to develop your trading skills. You’re adding to your knowledge base. You’re developing a more intuitive feel for how the markets operate. It may not seem like you’re making the profits of a trading wizard, but if you keep at it, you’ll be one of the rare few that join the ranks of winning traders.
__________________

Trade what you see, not what you think!

20 Ways to Stop Losing Money

  
  Education
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1. Don’t trust the opinions of market gurus. Remember that it’s your money at stake, not theirs. Listen to what they say, then step back and do your own homework.

2. Don’t believe in a company. Trading isn’t investing, so you need to focus on the price action and forget the balance sheets. Leave the American Dream to Warren Buffett.

3. Don’t break your entry and exit rules. You made them for bad trades, just like the one you’re stuck in right now.

4. Don’t try to get even. This isn’t a game of catch-up. Every action you make has to stand on its own merits. Take your losses with detachment and make your next trade with absolute discipline.

5. Don’t trade over your head. If your last name isn’t Kass or Cramer, stop trading like them. Just concentrate on playing the game well, and stop thinking about making money.

6. Don’t seek the Holy Grail. There is no secret trading formula, other than good position choice and solid risk management. So why are you looking for it?

7. Don’t forget your discipline. Anyone can learn the basics of the trading game. Sadly, most of us will fail because of a lack of self-control, not a lack of knowledge.

8. Don’t chase the crowd. Tune out the groupthink and dance to the beat of your own drummer. Get out of the chat rooms and off the stock boards. This is serious business.

9. Don’t trade the obvious. Everyone sees the most perfect-looking patterns, which is why they set up the most painful losses. Simply stated, if it looks too good to be true, it probably is.

10. Don’t ignore the warning signs. Big losses rarely come without warning. Don’t wait for a lifeboat before you abandon a sinking ship.

11. Don’t count your chickens. That delicious profit isn’t yours until you close out the trade. Trail stops, take blind exits and do everything possible to get that money into your pocket.

12. Don’t forget the plan. Remember the reasons you took a trade in the first place, and don’t get blinded by greed or fear when the position finally starts to move.

13. Don’t have a paycheck mentality. You don’t need to get paid every week or every month, as long as you take advantage of the opportunities as they come. Classic wisdom: traders book 80% of their profits on just 20% of the days the market is open for business. (more…)

Psychology by Michael Jordan

  
Education, LINKS, Video
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Hi,

I like these commercials, because it very similar with trading. Commercials are not new, but i hope, that it can somebody give some more motivation.

1st one: YouTube – Michael Jordan “Simple Math” Nike Commercial
It says – stop looking for holy grail, there is no math formula, there is only training!

2nd one: YouTube – Maybe – New Michael Jordan Commercial
It says – stop looking for excuses!

3rd one: YouTube – Michael Jordan “Failure” Nike Commercial
It says – Success it not about winning, it is about loosing and deal with it!

4th one: YouTube – Look Me In The Eyes – Jordan Commercial – Become Legendary
It says – very nice courage and patience… I am scared what i wont become, you are scared what you could become..

5th one: YouTube – Michael Jordan “Become Legendary #1” Nike Commercial
It says – It is not about indicator/shoes/etc!!

Good luck, goal is closer, than you think..

 

Hedge Fund Market Wizards: Covel Interviews Schwager

  
  Education
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Jack Schwager wrote the original Market Wizards books, two of the must read, seminal books for investors and traders.

His latest is Hedge Fund Market Wizards — it is a behind-the-scenes look at the world of hedge funds, from fifteen traders who’ve consistently outperformed.

Schwager explores the differences between great traders and everyone else who thinks they can trade. Rare insights into the trading philosophy and methods employed by some of the most profitable individuals in the hedge fund business.

 
Mike Covel interviews Schwager, and its very interesting:

Jack Schwager:

“Five Market Wizard Lessons” 
Hedge Fund Market Wizards is ultimately a search for insights to be drawn from the most successful market practitioners. The last chapter distills the wisdom of the 15 skilled traders interviewed into 40 key market lessons. A sampling is provided below: (more…)

Defining A Great Trader

  
  Education
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Great traders that we have had the pleasure to know and to be around, on exchange floors and on trade desks, had certain repeatable traits that all level traders can learn, or take something from;

  • Empathy and the ability to listen.
  • Faith in their own ability to get things done, if life and in work.
  • Humility, and a willingness to accept defeat as graciously as accepting success.
  • Desire to work towards, and not to just expect, having more success than defeat.

They listened more than they spoke. They had two ears and one mouth and had learned to use them in the right proportion. The ability to listen, either to a mentor, to your inner self, or to the market, is critical for success.

They had an undying faith and belief in their own ability, and accepted that most things that went wrong were probably outside of their control, because they planned their work. Their brutal honesty with themselves and with others allowed them to develop a faith in their own ability that was beyond the norm.

They were humble, and understood that they were not smarter, stronger, nor wiser than others; they just knew that there were few others that had more faith in their own ability to follow something through and to achieve their goals. (more…)

Perfectionism

  
  Education
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perfect-aTrading is not about perfection. It is about probability and progress. All charts, analyses (fundamental and technical) and trading plans are built on probabilities.

Why then, do so many traders strive for perfection? Why do so many traders miss trades, waiting for exactly the right entry and then beat up on themselves when it doesn’t come and the position runs away while they sit there scratching their heads and condemning themselves?

Why are so many traders trying to turn a game of probability into one of 100% certainty?

The answer lies in one of the cardinal sins of trading which is PERFECTIONISM.

Perfectionism can be a great help to people in many professions, but can be fatal to a trader. Perfectionists, always trying to find the Holy Grail of trading go from one service to another, from one system to another, looking for a way that they can be right all the time. YES! Now, I found it. It’s this trading room, or this service, or this indicator! Wait… something is wrong here. Not all of these trades are working and I have draw downs! How can it be that this particular method failed and I actually had to take a loss? Must be something wrong. I will try harder and look for an even better system, a more expensive service, a new and improved guru, some absolutely no-fail software so that I can have ONLY WINNING TRADES. (more…)

Mind over the Market Video Interview with Mark Douglas

  
Education, Video
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What is the most important part of your trading? The chart? Managing the risk? Finding the Holy Grail of trading that can’t lose? (I have bad news for you about the Holy Grail).

I am convinced how a trader emotionally reacts to the markets while trading will determine their success more than anything else.

Mark Douglas is a trader and author of Trading in the Zone and The Disciplined Trader two great trading books for traders at all levels that deal primarily with how to develop the correct mindset to be a successful trader.

My favorite Mark Douglas quotes.

Trader Psychology: (more…)

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