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Overcoming the top 10 Pains of Trading.

  
  Education
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PAIN-ASE

Here are 7 painful aspects of trading and what to do about them.

  1. The pain of losing money. (Trade smaller so it is not painful, it is just an outcome)
  2. The pain of being wrong about a trade you were sure about. (You lost simply because the market didn’t match your trade, trend followers lose money in choppy markets, swing traders lose money in trending markets, it’s the market not you.)
  3. The pain of a draw down in capital.(Even the world’s best money managers do not continually hit all time equity highs. Your path may look like this $10,000 to $20,000 to $15,000 to $25,000 to $20,000 to $30,000.  Mine was rockier than most, and after blood, sweat and tears I am now able to trade with $250,000.)
  4. Consecutive trading losses hurt. They make you doubt yourself, your method, and your system. (You need to remember your winning trades, your winning years, or your back-testing, or paper trading of the method.)
  5. The embarrassment of public losses. You told everyone who would listen about a great trade, and you were wrong. (Never be overconfident in any trade, but always be sure of your stop loss.)
  6. The pain of of admitting you were wrong. (Cut your loss and move on to the next trade, trade reality not your ego.)
  7. Losing paper profits, you are up 20% on a trade then a massive whip saw takes back those profits in one move. (Take your trailing stop and move on to the next trade, there is truly no reason to cry over spilled milk.)
  8. You are following a guru and come to realize he truly is a salesman not a trader. (You stop following gurus and look to learn how to trade you yourself.)
  9. You buy a super hot stock that you have researched for many weeks then it goes down due to a bear market. (Only trade stocks long in up-trending markets)
  10. You start trading a system that did amazing in back-testing and promptly lose 10% of your account. (You have to stick with it so it can win in the long term, you may need to make slight adjustments in position sizing or stops to account for volatility that you may have missed.)

Whatever the pain, just don’t quit, there is gold to be found in trading right over the long term.

Top 8 Ways To Lose All The Money In Trading

  
  Education
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 tradingloss8 – Put all of your efforts into finding the perfect technical indicator. Once you find this magical indicator, it will be like turning on a water faucet. Go all in. The money will just flow into your account!

7 – Make sure to visit a lot of stock trading forums and ask them for hot stock tips. Also, ask all your friends and family for stock tips. They are usually right, and acting on these tips can make you very rich.
6 – Watch what other traders do and be sure to follow the crowd. After all, they have been trading a lot longer than you so naturally they are smarter.
5 – Pay very close attention to the fundamentals of a company. You MUST know the P/E ratio, book value, profit margins, etc. Once you find a “good company”, consider going on margin to pay for shares in their stock. (more…)

11 Biases That Affect Traders

  
  Education
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Overconfidence
As the name suggested, it is the irrational faith in one’s skills, methodology or beliefs. For example, you see a certain chart pattern and make a maximum leveraged trade, even though you understand that any chart pattern cannot predict market with certainty. Trading excessively after a winning streak also shows overconfidence.
Cognitive Dissonance
It means finding excuses for something which makes you ‘uncomfortable’. For example, jumping from one indicator to another when you face losing trades; or continuing to trade in stock even your trading methodology does not gives you a positive expectancy. 
Availability Bias
It means being biased to information which is readily and easily available. For example, people begin to trade using RSI without understanding the internal relative strength; that is, RSI is most talked about on forums so start using them without rationally researching it. Being affected from attractive advertisement or intelligent sounding articles (including this one!) without due diligence also signifies availability bias.
Self-Attribution Bias
It means giving yourself unwarranted praise for outcomes which may just be an outcome of chance. For example, people make money in a bull market through buy and hold and start begin to believe on their trading acumen rather than the market regime which favors their trading style. (more…)

How to Trade Through the Pain

  
  Education
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10 painful aspects of trading and what to do about them.

  1. The pain of losing money. (Trade smaller so it is not as painful, it is just an outcome not an emotion).

  2. The pain of being wrong about a trade you were sure about. (You lost simply because the market didn’t match your trade, trend followers lose money in choppy markets, swing traders lose money in trending markets, it’s the market not you. As long as you followed your own plan.)
  3. The pain of a draw down in capital.
  4. Consecutive trading losses hurt. They make you doubt yourself, your method, and your system. (You need to remember your winning trades, your winning years, or your back-testing, or paper trading of the method. You have to keep the faith or get with a method you have faith in).
  5. The embarrassment of public losses. You told everyone who would listen about a great trade you were taking and you were wrong. Social media has given us all the ability to embarrass ourselves anytime we want. (Never be overconfident in any trade, but always be sure of your stop loss.)
  6. The pain of of admitting you were wrong. (Cut your loss and move on to the next trade, trade reality not your ego.)
  7. Losing paper profits, you are up 20% on a trade then a massive whip saw takes back those profits in one move. (Take your trailing stop and move on to the next trade, there is truly no reason to cry over spilled milk.)
  8. You are following a guru and come to realize he truly is a salesman not a trader. (You stop following gurus and look to learn how to trade for yourself using a method and a trading plan).
  9. You buy a super hot stock that you have researched for many weeks then it goes down due to a bear market. (Only trade stocks long in up-trending markets)

  10. You start trading a system that did amazing in back-testing and promptly lose 10% of your account. (You have to stick with it so it can win in the long term, you may need to make slight adjustments in position sizing or stops to account for volatility that you may have missed.)

Three of Buffett’s rules

  
  Education
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  • Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.
    If you lose money on an investment, it will take a much greater return to just break even, let alone make additional money. Minimize your losses by finding quality companies that are temporarily selling at discounted prices. Then follow good capital management principles and maintain your trailing stops. Also, sitting on a losing trade uses up time, money and mental capital. If you find yourself in this situation, it is time to move on.
  • The stock market is designed to transfer money from the active to the patient.
    The best returns come from those who wait for the best opportunity to show itself before making a commitment. Those who chase the current hot stock usually end up losing more than they gain. Remain active in your analysis, look for quality companies at discounted prices and be patient waiting for them to reach their discounted price before buying.
  • The most important quality for an investor is temperament, not intellect.
    You need a temperament that neither derives great pleasure from being with the crowd or against it. Independent thinking and having confidence in what you believe is much more important than being the smartest person in the market. Most of the time, the best opportunities are found when everyone else has given up on the stock market. Over-confidence and emotion are the enemies of a high quality portfolio.
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