The way to build superior long-term returns is through preservation of capital and home runs . . . When you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig.”
Archives of “home runs” tag
rssTrading Wisdom
This (Trading) is not a job where you get paid by the hour. You get paid for doing the right thing”
-“Forget that your money is at stake. Money in trading account is just a tool for making money. Preserve your tool. You need it to make money”
-“Don’t let the outcome of one trade alter your trading discipline. One trade doesn’t make a system…”
-“Trading is a game of probabilities. You don’t have to be right every time. You just have to follow your rules”
-“You decide your fate; the market doesn’t”
-“Pure followers of stock pickers will never be around…Learn or you are bankrupt”
-“Be aggressive in trending market and conservative in choppy market”
“Take home runs when you can, but don’t beat yourself up about missing a few. One trade should never make or break your account”
Techniques of Tape Reading
This (Trading) is not a job where you get paid by the hour.
You get paid for doing the right thing.
Forget that your money is at stake. Money in trading account is just a tool for making money. Preserve your tool. You need it to make money.
Don’t let the outcome of one trade alter your trading discipline. One trade doesn’t make a system…
Trading is a game of probabilities. You don’t have to be right every time. You just have to follow your rules.
You decide your fate; the market doesn’t.
Pure followers of stock pickers will never be around… Learn or you are bankrupt.
Be aggressive in trending market and conservative in choppy market.
Take home runs when you can, but don’t beat yourself up about missing a few.
One trade should never make or break your account.
10 Mistakes
Don’t miss to Read …..
1. Failing to follow your own rules. Here we go again with the rules! Always rules! The reason we have rules is because the market has none of its own. Rules keep us focused and keep our emotions in check. Thomsett describes the market as a “dangerous place” that is “full of temptations, promises of easy money, and artificial excitement.” Sounds like the perfect place to have a set of rules!
2. Forgetting your risk tolerance limits. Risk tolerance refers to the amount of risk we can afford to take and are willing to take. As traders, we should expose themselves only to the amount of money we can afford to lose. What does that mean? For me, it means if losing X amount of money in a trade can affect how I eat this week then I am overexposed. It is the same with buying a house or a car: will these payments negatively affect my basic lifestyle? If the answer is yes then it may be best to suspend the pleasure of something new.
3. Trying to make up for past losses with aggressive market decisions. If we have a string of losers or one big loser then we can be tempted to make up the loss by doubling up or going all in on a “sure thing”, exposing ourselves to much greater losses. Keep in mind that in the market anything can happen, including losing all your money! Losses are best made up not with home runs and grand slams but with singles, doubles, and an occasional triple.
4. Investing on the basis of rumor or questionable advise. Chat rooms, mail solicitations, or pop-up ads that promise sure and fast profits are for fools and are not going to make anyone rich. “Making smart investment decisions invariably requires that you perform your own research, apply your own standards based on clearly identified risk standards, and do your homework directly.”
5. Trusting the wrong people with your money. “As a group, analysts’ advice has led to net losses for their clients.” Bottom line here is “anyone buying stocks and trading options should be making their own decisions and not relying on expensive advice.”
6. Adopting beliefs that simply are not true about the markets. “The market thrives on beliefs that, although strongly held, are simply not true.” When we believe that the market is there to make us rich if only we can find the secret to do so then we harbor false beliefs. When we believe that the market will always come back to make us whole, then we are working under the assumption of a faulty belief system. When we believe that the market makes the same logical sense as the world we are used to living and working in, then our beliefs are in direct opposition to the markets. The list can go on and on. Keep in mind here that the market is specifically designed to take advantage of human nature and those who trade by their emotions… human nature and emotions based on assumptions.
7. Becoming inflexible even when conditions have changed. We may have a great trading strategy that works in a trending market but when the market turns volatile our strategy can lose money. The same goes with a strategy that works best in a volatile market but not in a trending one. It is the ole’ square peg in a round hole experiment. It just won’t fit so we should not waste our energy trying to make it work. Know your strategy and know your market and you will know when to get in and when to stay out.
8. Taking profits at the wrong time. When the market starts working in our favor we tend to be very quick in taking profits but when not very slow in removing losses. On the one hand, we are afraid the market will take what little profit we have if we do not exit immediately with at least a small profit; on the other hand, we feel the market owes us something when it goes against us, therefore we hold on until it comes back. As hard as it may be the only way we can ever make money in the stock market is to let the winners run. Think about it this way: reverse what has become common practice so that the winners are allowed to do what the losers have been allowed to do and let the losers get knocked out quickly just like our winners have been. See if this makes a difference in the bottom line.
9. Selling low and buying high. “A worthwhile piece of market wisdom states that bulls and bears are often overruled by pigs and chickens.” In other words, we will never get anywhere in our trading is we are ruled by fear (at the bottom) and greed (at the top). Selling low and buying high is where the emotions step back in and where the market takes advantage of our human nature. Unfortunately, retail investors get the short end of the stick here as they are the last to get in (at the top) and the first to get out (at the bottom).
10. Following the trend instead of thinking independently. “Crowd mentality is most likely to be wrong. Crowds don’t think. They react.” This takes us all the way back to rule number one: have rules. One of the rules should be to follow our own thinking and not that of the crowd. By the time the crowd jumps on board, the move is usually over anyway! Hence, reaction instead of action.
Some really good lessons here as an old adage continues the provide the best lesson of all: learn from your mistakes!
Six Positive Trading Behaviors
1) Fresh Ideas – I’ve yet to see a very successful trader utilize the common chart patterns and indicator functions on software (oscillators, trendline tools, etc.) as primary sources for trade ideas. Rather, they look at markets in fresh ways, interpreting shifts in supply and demand from the order book or from transacted volume; finding unique relationships among sectors and markets; uncovering historical trading patterns; etc. Looking at markets in creative ways helps provide them with a competitive edge.
2) Solid Execution – If they’re buying, they’re generally waiting for a pullback and taking advantage of weakness; if they’re selling, they patiently wait for a bounce to get a good price. On average, they don’t chase markets up or down, and they pick their price levels for entries and exits. They won’t lift a market offer if they feel there’s a reasonable opportunity to get filled on a bid. (more…)
Power Is No Substitute For Precision And Patience
“Investing is no different. It is a game of repetition where hundreds of small actions result in one larger result. But most importantly, it is a game of risk management. It is not the home run hitter who wins in the long-run. Rather, it is that strategist who devises the best long-term plan who ultimately wins. While hitting home runs is sexy it is rarely a recipe for success in the investment world. Aim high, but play small. Over time, good risk management and patience wins. Power is no substitute for precision and patience. The same is true in the world of investing.”
Six Positive Trading Behaviors
1) Fresh Ideas – I’ve yet to see a very successful trader utilize the common chart patterns and indicator functions on software (oscillators, trendline tools, etc.) as primary sources for trade ideas. Rather, they look at markets in fresh ways, interpreting shifts in supply and demand from the order book or from transacted volume; finding unique relationships among sectors and markets; uncovering historical trading patterns; etc. Looking at markets in creative ways helps provide them with a competitive edge.
2) Solid Execution – If they’re buying, they’re generally waiting for a pullback and taking advantage of weakness; if they’re selling, they patiently wait for a bounce to get a good price. On average, they don’t chase markets up or down, and they pick their price levels for entries and exits. They won’t lift a market offer if they feel there’s a reasonable opportunity to get filled on a bid.
3) Thoughtful Position Sizing – The successful traders aren’t trying to hit home runs, and they don’t double up after a losing period (more…)
Think about it
The way to build superior long-term returns is through preservation of capital and home runs . . . When you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig.”
Six Positive Trading Behaviors
1) Fresh Ideas – I’ve yet to see a very successful trader utilize the common chart patterns and indicator functions on software (oscillators, trendline tools, etc.) as primary sources for trade ideas. Rather, they look at markets in fresh ways, interpreting shifts in supply and demand from the order book or from transacted volume; finding unique relationships among sectors and markets; uncovering historical trading patterns; etc. Looking at markets in creative ways helps provide them with a competitive edge.
2) Solid Execution – If they’re buying, they’re generally waiting for a pullback and taking advantage of weakness; if they’re selling, they patiently wait for a bounce to get a good price. On average, they don’t chase markets up or down, and they pick their price levels for entries and exits. They won’t lift a market offer if they feel there’s a reasonable opportunity to get filled on a bid.
3) Thoughtful Position Sizing – The successful traders aren’t trying to hit home runs, and they don’t double up after a losing period to try to make their money back. They trade smaller when they’re not seeing things well, and they become more aggressive when they see odds in their favor. They take reasonable levels of risk in each position to guard against scenarios in which one large loss can wipe out days worth of profits.
4) Maximizing Profits – The good traders don’t just come up with promising trade ideas; they have the conviction and fortitude to stick with those ideas. Many times, it’s leaving good trades early–not accumulating bad trades–that leads to mediocre trading results. Because successful traders understand their market edge and have demonstrated it through real trading, they have the confidence to let trades ride to their objectives.
5) Controlling Risk – The really fine traders are quick to acknowledge when they’re wrong, so that they can rapidly exit marginal trades and keep their powder dry for future opportunities. They have set amounts of money that they’re willing to risk and lose per day, week, or month and they stick with those limits. This slows them down during periods of poor performance so that they don’t accumulate losses unnecessarily and have time to review markets and figure things out afresh.
6) Self-Improvement – I’m continually impressed at how good traders sustain efforts to work on themselves–even when they’re making money. They realize that they can always get better, and they readily set goals for themselves to guide their development. In a very real sense, each trading day becomes an opportunity for honing skills and developing oneself.