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When Your Trading Plan is the Boss…

  
  Education
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1.  Creating a trading plan forces the trader to select a trading style. Will you be a day trader, position trader, or long term trend follower? You have to choose.

2.  You will have no choice but to do your homework, study charts, and read the books of other traders who made money in the markets, and discover what works.

3.  Entries will become crystal clear when you see them because you will know exactly what you are looking for.

4.  You will learn to look for what the market is offering, and not become overly obsessed with one stock, commodity, currency, or market direction.

5. You will know exactly when it is time to get out of a trade whether you are stopped out or use a trailing stop. (You may even have a price target).

6.  A trading plan should stop you from over trading because it will limit you in your entries by giving you specific parameters.

7.  You will easily be able to keep track of your trades and understand why they win or lose.

8.  It will enable you to focus like a laser on trading.

9.  A good trading plan will convert you from a gambler to a casino operator with the odds on your side.

10.  The only way to be a great trader is to have a great trading plan.
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10 Cruel Rules of Traders

  
  Education
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I) You will not buy low or sell high.

II) You will cut your winners and let your losers run.

III)  You will wish you owned more of what’s going up and less of what’s going down.

IV) You will be fearful when others are fearful.

V) You will fight the trend.

VI) You will not buy when there is blood in the streets.

VII) You will spend too much time worrying about low probability outcomes.

VII) You will invest for the long-term, or until we get a ten percent correction, whichever comes first.

IX) You will go broke taking small profits.

X) You will not just sit there, you’ll do something.

5 Vital Sins of Trading

  
  Education
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Image result for 5 sinsHubris: A foolish amount of pride or overconfidence. No matter how good of a trader you think you are, the market is always bigger. You will not win an argument with its price action no matter what.

Fear: Cutting winners short because of unwarranted fear eliminates all the big wins. Being afraid to take a good entry creates loss of a potential profit. Thorough trading methodology study is required to trade confidently.

Ego: The desire to be right more than the desire to make money leads to losing a lot of money. The ego causes traders to hold losers far too long. The best traders are slaves to the market’s price action.

Laziness: Seeking to be given trades instead of doing the work to develop a system leads to failure. Trades only have meaning when they are executed within a robust system complimented by discipline and risk management.

Greed: The greedier a new trader is, the higher the probability and speed at which they lose their whole trading account. There is significant risk in going for trades with big position sizes, because the losses can be huge if when wrong.

Money is made in the market through self-discipline and trade management. If a trader does not manage risk and position sizing, their winning trades are meaningless because they will eventually give it all back. Without overcoming the sins of hubris, fear, ego, laziness, and greed, a trader is unlikely to make it at a professional level.

10 Points For Every Trader

  
  Education
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  1. You have no trading plan – you need to treat your trading like a business and plan how you’re going to trade. If you don’t have a trading plan, then google for it, there are loads of free resources out there to get you started.
  2. You have no money management rules – You can start with the 1% rule and work from there. Calculate your risk for each trade and ensure it’s 1% or less of your trading capital.
  3. You’re prone to emotional swings – If you feel tremendous excitement when you win a trade, then something’s wrong. Sure at first it’s exciting, but after a while your trading just becomes a process and the emotional aspects should start to fade.
  4. You’re nervous when in a trade – This is usually a result of trading too big for your account size. See point 2.
  5. You try to predict rather than react – Leave the predictions for the economists. For every trade have a thesis for how you’re going to respond for different scenarios. Think in terms of “if x then y” type statements instead.
  6. You revenge trade – The market doesn’t give a shit if you win or lose. Who are you having revenge on? This is more likely a result of you’re own unconscious desire to blow up your account and to go back to doing whatever it was before you played around in the markets.
  7. You don’t cut your losses fast enough – Don’t just wait for your trade to “bounce back”, man up and take the loss. You can always re-enter if you see a good setup. (more…)

21 One Liners For Traders

  
  Education
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  1. It is possible to see that a market is dramatically overbought and prepare for, and then capture, huge gains after the sell off.
  2. Risk small amounts to make big profits.
  3. Bet against times when numerous leaders must agree.
  4. Long hours and a strong work ethic are keys to being a successful trader.
  5. While it is good to trade any market that will turn a profit, specializing in a market can lead to great success.
  6. The markets go down faster than they go up.
  7. If the market will not go down during bad news, it will likely go higher.
  8. The stock market moves in patterns and in cycles. Past price patterns repeat themselves due to human emotions.
  9. Many times traders think a big position order size means that a whale knows something, most times they do not. 
  10. It is okay to skip a trade if you can’t get your entry price.
  11. A momentum move does not just stop, it takes time to roll over.
  12. It is possible to trade successfully by gaming the actions of other traders.
  13. Be aggressive at high probability moments.
  14. Always stay in control of your trading and manage risk.
  15. Focus on risk management as the #1 priority in trading.
  16. Having the right mindset during a big loss that it is just temporary, is the key to coming back and being successful.
  17. Letting profits run is sometimes a great plan.
  18. Being long at all time highs in the indexes is a great strategy.
  19. Great money managers trade with passion.
  20. Even Market Wizards have doubts about winning when entering a trade. 
  21. When the top in a market is reached,  there is a lot of money to be  made shorting as panic selling sets in. 

10 Quotes from: Where Are the Customers’ Yachts?

  
  Education
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where_customers_yachtsMarkets can be very violent on the downside. The old saying —  Markets ride the escalator to the top and the elevator to the bottom — is still quite relevant.

The past week or so has been a rocky one to say the least. This is the time to review the lessons learned from the past. The alternative of listening to hysterical nonsense from forecasters will only lead you to heaps of trouble.

Where the Customers’ Yachts? is a timeless relic which should be read by anyone who professes the slightest interest in finance.  Though written after the infamous 1929 crash, its contents are completely applicable in 2016. In the words of Mike Bloomberg in his review of this classic tale, “The more things change, the more they remain the same. Only the names have been changed to protect the innocent.”

Here are ten quotes that can serve as a force field to ward of investment charlatans. Ignore these quotes at your own peril:

  • Wall Street Greed – “At the close of the day’s business, they take all the money and throw it up in the air. Everything that sticks to the ceiling belongs to the clients.”  Merrill Lynch Structured Notes, anyone? Yes, the customers got to keep 5%.
  • The Value of Market Predictions – “It seems that the immature mind has a regrettable tendency to believe, as actually true, that which it only hopes to be true.” 90% chance ‘Remain’ wins the referendum… OOPS!
  • Financial Salesman Having an Answer to the Unanswerable – “Now if you do someone the single honor of asking him a difficult question, you may be assured that you will get a detailed answer. Rarely will it be the most difficult of all answers – ‘I Don’t Know.’” Market pundits who were completely wrong on Brexit, telling you what to do now.

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The Legendary Turtle Traders

  
  Education
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Have you ever heard of the legendary Turtle traders? Millionaire trader Richard Dennis set off to find out if traders were just born to trade, or if they could be trained to be successful in the markets from scratch. The answer? If they could follow rules they could be successful.

“I always say that you could publish my trading rules in the newspaper and no one would follow them. The key is consistency and discipline. Almost anybody can make up a list of rules that are 80% as good as what we taught our people. What they couldn’t do is give them the confidence to stick to those rules even when things are going bad.” –Richard Dennis: Founder of the ‘Turtle Traders’ quoted from the book Market Wizards:

The Turtle system proved that the traders that followed the rules went on to be millionaires and to manage money professionally.

Markets – What to buy or sell

  • The Turtles traded all major futures contracts, metals, currencies, and commodities.
  • The turtles traded multiple markets to diversify risk.

Position Sizing – How much to buy or sell

  • Turtle position sizing was based on a markets volatility using the 20 day exponential moving average of the true range.
  • The Turtles were taught to trade in increments of 1% of total account equity,

Entries – When to buy or sell (more…)

Discipline

  
  Education
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Dramatic and emotional trading experiences tend to be negative. Pride is a great banana peel, as are hope, fear, and greed. My biggest slip-ups occurred shortly after I got emotionally involved with positions.”

Ed Seykota

I don’t buy what I like, I buy what I can sell later at higher price.

Unless you are Buffet and capable to accumulate enough shares to impact management, your shares are just pieces of paper and you should treat them like such.

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It’s the greed factor that corrupts the way people think in this business. Unfortunately, I needed a 6 fig loss to remind me how stupid greed can make a person. Needless to say, from here on, or until I recover some of these losses, trading will be disciplined.

A Short Note

  
Analysis, Education
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“Jack Bogle likes “cheap” index funds. I don’t know why as they are risky and expensive considering the heavy losses, limited “work” involved and lack of skill. If a firm “manages” $1 trillion and charges “only” 20bp, that is $2 billion PROFIT every year even when returns are negative and retirement plans are wrecked! Lose investors’ hard-earned money? It’s the market’s fault not theirs, right? Get someone to make a list of stocks for a benchmark, buy them, and then endure many years below the high water mark! Who would invest in such a dangerous product as an index fund? No-one with fiduciary responsibility.”

9 Secrets for Successful Speculation

  
  Education
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As you read the list below, think about how you can learn more about each secret and adapt it to your own most effective use.

Secret #1: Contrarianism takes courage.

Everyone knows the essential investment formula: “Buy low, sell high,” but it is so much easier said than done, it might as well be a secret formula.

The way to really make it work is to invest in an asset or commodity that people want and need but that for reasons of market cyclicality or other temporary factors, no one else is buying. When the vast majority thinks something necessary is a bad investment, you want to be a buyer—that’s what it means to be a contrarian.

Obviously, if this were easy, everyone would do it, and there would be no such thing as a contrarian opportunity. But it is very hard for most people to think independently enough to risk hard-won cash in ways others think is mistaken or too dangerous. Hence, fortune favors the bold.

Secret #2: Success takes discipline.

It’s not just a matter of courage, of course; you can bravely follow a path right off a cliff if you’re not careful. So you have to have a game plan for risk mitigation. You have to expect market volatility and turn it to your advantage. And you’ll need an exit strategy.

The ways a successful speculator needs discipline are endless, but the most critical of all is to employ smart buying and selling tactics, so you don’t get goaded into paying too much or spooked into selling for too little.

Secret #3: Analysis over emotion. (more…)

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