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5 Facts for Speculators & Traders

  
  Education
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1) It’s not by making large profits that money is made over time. It’s by consistently keeping losses small in relation to profits. 
2) Making Money and Being Right are at opposite ends of the performance spectrum, and — very surprisingly to most — most professional traders admit their primary job is to minimize losses, NOT focus on being right. Why? Minizing losses (well over 50% of the time losses can’t be avoided) ensures their average winner will be greater in relation to the average loser. 
3) No one knows FOR SURE how much profit any trade is likely to make. Fortunately, it is possible to know THE INITIAL RISK a trader is willing to lose. 
4) Projection of future prices are only a BEST GUESS, never a 100% certainty. 
5) Top traders only control three things all the time: Initial Risk, Exits, and EMOTIONS…  

Nuggets

  
  Education
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Price — The Truth, The Light, The Way

  • Work to understand price
  • Price does not move in a straight line
  • Big moves take time
  • Volatility is your friend and helps to compress time
  • Although volatility is your pal, it can cut both ways
  • If a stock moves 30% a day, then you can’t trade with a 5% stop
  • Don’t expect a volatile stock to stop behaving as it has been and only move in your favor just because you’re now in it. Unless you’re Bill Clinton, what is, IS.

Random Thoughts:

  • Observe but be slow to shift gears — we are trend followers, not predictors
  • It’s the market’s “job” to shake you out
    • The market will do what it has to do to create the most pain (for the most people)
    • The market will often do the obvious in the most un-obvious manner
  • Err on the side of the longer-term trend
    • DO wait for entries
    • DO use protective stops
    • DO trail and scale as offered

Book Review :Sell & Sell Short

  
Analysis, Education
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Sell and Sell Short (Wiley Trading) by Alexander Elder

If you are searching for a book on trading stocks then look no further, this is it. I have been a successful trader for years and read over 160 books on trading,and in my opinion this is one of the very best. Alexander Elder actually read the change in the market from bull to bear in late 2007 and was able to get this books first edition released in early 2008 when it was needed most.

While as the title suggests it teaches when to sell your stocks for profits, and also does the best job I have seen on explaining short selling and when technical indicators show to short. This book is a complete book for any trader. The main lessons of this book is when to lock in profits and exit a trade using a target, and how to double your potential for profits by not only buying stocks, but also selling stocks short and buying them back at a lower price for profit. Professionals sell short because while overall the stock market drifts upward, when a stock falls it falls over
twice as fast as it rises. I sell short and it is a powerful tool when used correctly. This book will show you when it is appropriate to short.

Dr. Alexander Elder is the only author I am aware of that integrates trading psychology, money management, technical analysis and keeping a trading journal into one book. These four factors will determine whether you are successful in the market or not, even more than the trading method you choose.

You will learn the three great divides in trading:

technical vs. fundamental
trend vs. counter trend
discretionary vs systematic
The author follows a discretionary, technical approach trading counter trend for the most part. However what you learn in this book can be applied to any type of trading. The authors own technical approach uses prices, volume, exponential moving averages (13 day, 26 day), envelopes, MACD, and force index. Limit your tools to no more than five, more is less, any more just causes confusion. The main method you will learn in this book is using the moving averages as a technical base for agreed upon value and buying at the lower edge of the envelope and selling at the high edge of the envelope when you have favorable MACD and force index agreement, or buying at value between the EXP MAs.

If you are going to be a trader you must follow the money management suggestions
in this book. NEVER risk more than 2% of your total equity on a trade, and if you lose 6% of your equity in a month you must stop, clear your head and start back next month. If you follow the 2% rule from the book, it will be a major life lesson in your trading and save you a ton in equity draw downs and will almost completely eliminate your risk of ruin. (more…)

The wrong ways to trade

  
  Education
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Without a plan. Get one already. It does not have to be good right now. I have been accused more than once of always thinking I am always right. I am just confident. The only reason I can be confident is because I am willing to change if the information changes. I have to admit I am wrong a lot. You will have to admit your plan is flawed too.

Without good notes. The market changes very fast. The brain is over stimulated, especially in the beginning. Your recall of events will be better if you write them down. The goal is to learn the most, the cheapest. At the end of the day when you review the charts you will not believe you took that trade. There will be something that you missed that could have helped you to act differently. It is your job to make sure it does not happen again, good notes help.

Not maintain trading environment equilibrium (TEE). Have you ever said or done something that you were not proud of because of emotion? What if you could stop time, take a few breathes, evaluate the situation and then act? You have that opportunity in trading, use it. They say that you regret not saying or doing something when you have a chance. That does not apply to trading. Those situations are a few in a lifetime type situations. No trade is more important than another unless it is your last. Let me say that again, no trade is more important than another unless it is your last. Yes you are going to miss the “winner” but it was hypothetical.

Losing more than you budgeted. Every Rupee counts, for every Rupee you lose you have to make another to get to even. This is not a normal transaction, you are not guaranteed anything other than experience. You should be a better trader tomorrow. There is nothing worse than having to have your “best day ever” to get back to even. Sometimes you are wrong, sometimes your system is broke, be able to trade tomorrow. Tomorrow may be next week.

Not having risk capital. If the market has to go your way a certain amount for you to pay your mortgage you are in trouble. The mind goes from reacting to what is there to hoping and praying. It may work from time to time but it is not a dependable strategy.

To summarize. There are no right ways to do anything, there are more efficient ways but that is based on experience. There is a path to failure, fight those battles. Call your father or those that have/ had a positive effect on you and thank them.

Trading Principles

  
  Education
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• In life, as in trading, the right mindset is crucial for success. You must be confident in your decisions because they are based on cause and effect, not on emotions or opinion. Negative people who are unsure of themselves are not successful in any field. You need faith in yourself and your methods to be able to persevere and not give up before reaching success.

• You can risk too much and lose it all in your business, life, marriage, friendships or family. You have to measure the potential cost of every action. One affair can cost you your marriage, just like one big trade with too much risk can cost you all your capital.

• In business there are certain methods which bring in customers and turn a profit, and others which cause a business to turn away customers and lose money. Trading is similar: methods which turn a consistent and long-term profit are essential for success.

• Having unrealistic expectations in a marriage, job, or business will lead to unhappiness and failure just like it will in trading. You have to set realistic expectations so
you do not get discouraged easily and quit in any of these areas. You have to be satisfied that the results are worth your effort over the long term. You need to understand what to expect before you begin a marriage, a job, a business, or trading.

• Those who succeed in all areas of life are the ones who can manage stress the best. The best way to manage stress is to increase what you can handle step by step so that you grow into new circumstances. Another way to manage stress is to avoid actions which get you into situations you are uncomfortable with.

Trading Nuggets

  
  Education
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Price — The Truth, The Light, The Way

  • Work to understand price
  • Price does not move in a straight line
  • Big moves take time
  • Volatility is your friend and helps to compress time
  • Although volatility is your pal, it can cut both ways
  • If a stock moves 30% a day, then you can’t trade with a 5% stop
  • Don’t expect a volatile stock to stop behaving as it has been and only move in your favor just because you’re now in it. Unless you’re Bill Clinton, what is, IS.

Random Thoughts:

  • Observe but be slow to shift gears — we are trend followers, not predictors
  • It’s the market’s “job” to shake you outErr on the side of the longer-term trend
    • The market will do what it has to do to create the most pain (for the most people)
    • The market will often do the obvious in the most un-obvious manner
  • DO wait for entries
  • DO use protective stops
  • DO trail and scale as offered

7 Warning Signs for Traders

  
  Education
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  1. You stop trading your plan and start “shooting from the hip” you are losing or winning so you believe that you are above your own rules, you start trading your opinions instead of your plan.

  2. You are about to take a trade you are 100% sure of, you have no doubt that it will work out. Trades that feel good to do and feel like can’t lose trades rarely win because everyone is already positioned in those trades.
  3. When you ignore your first stop and start deciding that you should give your trade “more room”, when you allow a loss to grow and rationalize why you should hold it instead of following your plan and stopping out you are in trouble.
  4. Averaging down in a position that is going against you is never a good idea, fighting trends are very dangerous amplifying your losses by increasing your position size can be fatal to your account.
  5. Fighting against the prevailing market trend over an over again can chop your account to pieces.
  6. When losing, you start trading bigger and bigger to get back to even. When you are losing you should start trading smaller and smaller to decrease losses.

  7. When you actually disagree with the market and believe it is wrong and you are right. Price is reality wherever it is, your job is to trade trend and price action not your own opinion.

A Traders number 1 JOB is…..

  
  Education
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A trader’s number one job is NOT:

  1. Stock Picking
  2. Chart Reading
  3. Trend Following
  4. Entries
  5. Exits
  6. Understanding the market environment
  7. Managing Emotions
  8. Managing Ego
  9. A Robust Method
  10. Or even Discipline

A traders #1 job is to be a great risk manager. (more…)

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