Everyone makes mistakes. Some repeat their mistakes and suffer continuously. The smart ones learn from their own mistakes and call it experience. But the geniuses are a special breed, they’re the ones that learn from the mistakes of others. Here’s what Bruce Kovner has to say about this subject: “You have to be willing to make mistakes regularly; there is nothing wrong with it. Michael [Marcus] taught me about making your best judgment, being wrong, making your next best judgment, being wrong, making your third best judgment, and then doubling your money. Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I’m getting out before I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis. I never think about other people who may be using the same stop, because the market shouldn’t go there if I am right. Place your stops at a point that, if reached, will reasonably indicate that the trade is wrong, not at a point determined primarily by the maximum dollar amount you are willing to lose. If you personalize losses, you can’t trade.”
Archives of “judgment” tag
rss40 Trading Lessons
1. Trading is simple, but it is not easy.
2. When you get into a trade watch for the signs that you might be wrong.
3. Trading should be boring.
4. Amateur traders turn into professional traders once they stop looking for the “next great indicator.”
5. You are trading other traders, not stocks or futures contracts.
6. Be very aware of your own emotions.
7. Watch yourself for too much excitement.
8. Don’t overtrade.
9. If you come into trading with the idea of making big money you are doomed.
10. Don’t focus on the money.
11. Do not impose your will on the market.
12. The best way to minimize risk is to not trade when it is not time to trade.
13. There is no need to trade five days a week.
14. Refuse to damage your capital.
15. Stay relaxed.
16. Never let a day trade turn into an overnight trade.
17. Keep winners as long as they are moving your way.
18. Don’t overweight your trades.
19. There is no logical reason to hesitate in taking a stop.
20. Professional traders take losses because they trust themselves to do what is right. (more…)
Greed and Fear Are Two Sides of the Same Coin
Merriam-Webster’s dictionary defines greed as simply “… a selfish and excessive desire for more of something (as money) than is needed.” Greed is often referenced as one of the main contributors to trading loss. Greed mangles the mind by distracting the trader from what matters most in the trade, which is quite frankly to protect your capital by prudent planning and following rules. It also distorts your judgment regarding high probability strategies and effective follow-through. Additionally, it is the other side of the fear coin; that is, greed can arguably be thought of as a fear of not having “enough.” Of course, having enough is a purely subjective notion, but for the reasonable person, someone who wants more, more, more as in getting every cent in a move, or wanting more than one’s share, is considered “greedy.” Whether we’re talking about the fear of loss or the fear of not having enough, either way it is a very difficult emotional challenge to getting the trading results that you want. Now, the question is what do you do about those bouts with fear/greed that takes your trading effectiveness south? The important thing of course, is to manage your fear/greed one trade and one incident at a time.
Managing errant emotions is one of the most important trading skills that you can develop. Emotions are an inextricable part of being human and cannot be totally taken out of the trading equation. However, you wouldn’t “want” to take emotions out of your trading even if you could. Yes, negative emotions throw a monkey wrench into your process; for instance, anxiety, fear, greed, guilt, self-doubt, impatience, apathy, to name a few are what mangle your thinking. (more…)
Optimism & Pessimism
Optimism means expecting the best, but confidence means knowing how you will handle the worst. Never make a move if you are merely optimistic. Optimism can be a speculator’s enemy. It feels good and is dangerous for that reason. It produces a clouding of judgment. It can lead you into a venture with no exits. Even when there is an exit, optimism can persuade you not to use it. |
10 Common Trading Errors
1. Making trades with insufficient study and practice.
2. Making trades out of harmony with the general trend.
3. Taking a position too late after a move is well under way or is completed.
4. Taking a position too soon due to impatience.
5. Improperly estimating the distance a stock should move.
6. Letting eagerness to make profits warp judgment.
7. Failing to keep a position sheet and selecting stocks on hunches rather than calculations.
8. Buying on bulges instead of waiting on reactions.
9. Failing to place and move stops.
10. Listening to advice from brokers, Blue Channels,, friends, or Website Analysts
Avoid EGO in Trading
“Don’t be a hero. Don’t have an ego. Always question yourself and your ability. Don’t ever feel that you are very good. The second you do, you are dead.”
“At other times in the past, investors lost a good profit by holding on too long, trying to get a long-term capital gain. Some investors, even erroneously, convince themselves they can’t sell
because of taxes—strong ego, weak judgment.”
“When did you turn from a loser to a winner?When I was able to separate my ego needs from making money. When I was able to accept being wrong.Before, admitting I was wrong was more upsetting than losing the money.”
“Most traders who fail have large egos and can’t admit that they are wrong.”
“Clearly, flexibility and suppression of ego are key elements of Gelber’s success.”
“Actually, the best traders have no ego. To be a great trader, you have to have a big enough ego only in the sense that you have confidence in yourself.”
Ego can also stop you from being profitable as a trader. Maybe you only like to short because you think this economny is going to H____ and the market rallies for a month and the whole time you try shorting it when you should be buying the pullbacks. In this scenario, the stongly held belief system is affecting the traders ability to see what is really going on and costs either being stopped out, or only making a small profit and missing the big moves etc.
So, the more we can become egoless, flexible in our mind and not have a preconceived direction the market is going in, the better we will be as a trader. (more…)
The Contrarian
“But being a contrarian requires a superior sense of what is real, and what is out of synch with reality. In general few amateurs possess this level of judgment and perspective, and end up just looking silly and eccentric after a few correct calls, taking the opposite position because it is the opposite, proclaiming night to be day, and the moon to be cheese.” –