1. Overtrading – Trading often with tight stops and tiny profit targets will only make the broker rich. The desire to “just” make a few thousand rupees a day by locking in tiny profits whenever possible is a losing strategy.
2. Over leveraged – Leverage is a two way street. The brokers want you to use high leverage because that means more spread income because your position size determines the amount of spread income; the bigger the position the more spread income the broker earns.
3. Relying on Others – Real traders play a lone hand; they make their own decisions and don’t rely on others to make their trading decisions for them; there is no halfway; either trade for yourself or have someone else trade for you.
4. Stop Losses – Putting tight stop losses with retail brokers is a recipe for disaster. When you put on a trade commit to a reasonable stop loss limit that allows your trade a fair chance to develop.
5. No Trading Plan – ‘Make money’ is not a trading plan. A trading plan is a blueprint for trading success; it spells out what you see your edge as being; if you don’t have an edge, you don’t have a plan, and likely you’ll wind up a statistic (part of the 95% of new traders that lose and quit). (more…)
Archives of “lack of confidence” tag
rssAmos Hostetter: One Great Trend Trader
Amos Hostetter: Trading Dont’s
- Don’t sacrifice your position for fluctuations.
- Don’t expect the market to end in a blaze of glory. Look out for warnings.
- Don’t expect the tape to be a lecturer. It’s enough to see that something is wrong.
- Never try to sell at the top. It isn’t wise. Sell after a reaction if there is no rally.
- Don’t imagine that a market that has once sold at 150 must be cheap at 130.
- Don’t buck the market trend.
- Don’t look for the breaks. Look out for warnings.
- Don’t try to make an average from a losing game.
- Never keep goods that show a loss, and sell those that show a profit. Get out with the least loss, and sit tight for greater profits.
Amos Hostetter: Dangers in Trading caused by Human Nature
- Fear: fearful of profit and one acts too soon.
- Hope: hope for a change in the forces against one.
- Lack of confidence in ones own judgment.
- Never cease to do your own thinking.
- A man must not swear eternal allegiance to either the bear or bull side.
- The individual fails to stick to facts!
- People believe what it pleases them to believe.
Think about how simple Hostetter’s wisdom appears on the surface. But how many adhere to such principles?
What Trading Teaches Us About Life
Trading is a crucible of life: it distills, in a matter of minutes, the basic human challenge: the need to judge, plan, and seek values under conditions of risk and uncertainty. In mastering trading, we necessarily face and master ourselves. Very few arenas of life so immediately reward self-development–and punish its absence.
So many life lessons can be culled from trading and the markets:
1) Have a firm stop-loss point for all activities: jobs, relationships, and personal involvements. Successful people are successful because they cut their losing experiences short and ride winning experiences.
2) Diversification works well in life and markets. Multiple, non-correlated sources of fulfillment make it easier to take risks in any one facet of life.
3) In life as in markets, chance truly favors those who are prepared to benefit. Failing to plan truly is planning to fail.
4) Success in trading and life comes from knowing your edge, pressing it when you have the opportunity, and sitting back when that edge is no longer present.
5) Risks and rewards are always proportional. The latter, in life as in markets, requires prudent management of the former.
6) Happiness is the profit we harvest from life. All life’s activities should be periodically reviewed for their return on investment.
7) Embrace change: With volatility comes opportunity, as well as danger.
8) All trends and cycles come to an end. Who anticipates the future, profits.
9) The worst decisions, in life and markets, come from extremes: overconfidence and a lack of confidence.
10) A formula for success in life and finance: never hold an investment that you would not be willing to purchase afresh today.
5 Trading quotes for Weekend
-If you are hesitating to take a position, that indicates a lack of confidence that is not necessary. Just get into the position and PLACE A STOP. Day Traders lose money in positions everyday. Keep them small. The confidence you need is not in whether or not you are right, the confidence you need is in knowing you will stick to your stop no matter what. Therefore you can actually alleviate this hesitancy to pull the trigger by continually sticking to your stops and reinforcing this behavior.
-You want to own the stock before it breaks out, then sell it to the momentum players after it breaks out. If you buy breakouts, realize that professional day traders are handing off their positions to you in order to test the strength of the trend. They will typically buy it back below the breakout point which is typically where you will set your stop when you buy a breakout. (In case you ever wondered why you get stopped out on a lot of failed breakouts).
-Embracing your opinion leads to financial ruin. When you find yourself rationalizing or justifying a decline by saying things like, “They are just shaking out weak hands here,” or “The market makers are just dropping the bid here,” then you are embracing your opinion. Don’t hang onto a loser. You can always get back in.
-Professional day traders focus on limiting risk and protecting capital. Amateur traders focus on how much money they can make on each trade. Professionals day traders always take money away from amateurs traders.
-In the stock market, heroes get crushed. Averaging down on a losing position is a “heroic move” that is akin to Superman taking a spoonful of Kryptonite. The stock market is not about blind courage. It is about finesse. Don’t be a hero.
SNIPER LESSONS
One of the trader’s biggest psychological barriers to overcome is over trading. Of course, over trading is relative depending on the type of trader you are and the time frame(s) used to make trading decisions. However, if you have a well formulated trading plan, you will know from past experience when you are walking the line between planned trading and over trading.
Here are some of the symptoms of over trading:
1. not sticking to a plan or system
2. taking trades for no clear reason
3. taking on larger than normal positions
4. second guessing your system
5. jumping the gun (entering a trade in anticipation of an affirmative signal/pattern)
6. obligatory trading (if I am not in a trade, then I am not working)
The underlying cause of over trading is purely a lack of confidence either in yourself and/or your system. If you truly believe that your trading strategy provides X number of high probability set-ups over X number of days, then why would you waste your energy (and capital) taking high risk, low probability trades? The answer: lack of confidence. The solution: think and train like a sniper.
According to the dictionary a sniper is a skilled military shooter detailed to spot and pick off enemy soldiers from a concealed place using long-range small arms. The word originates from the snipe, a game bird difficult for hunters to sneak up on. (more…)
5 Signs You’ve Matured as a Trader
1) Are Self Reliant: When you stop asking other people: “What do you think of the market?” While I respect the opinions of my colleagues, I DO NOT rely on them. I prefer to do my own homework, research and analysis. I LET THE MARKET tell me if I’m right or wrong.
The ultimate goal for traders is to make confident decisions on your own and trade with complete independence. You should not have to rely on the opinions of others because you should have conviction in your OWN ideas.
2) Stop Celebrating Winners: When you stop feeling the need to pound your chest every time you make 30 cents on a stock. (It is the flip side of not getting depressed over every loss). Recognize what you did correctly and move on to the next trade.
Same thing goes for the stock market. Don’t act like you’ve never had success trading before.
3) Let the Trades Come to You: When you stop feeling the need to trade every day and you get over the “fear of missing out.” This is the downfall of most traders.
It took me a while to shift my focus from worrying about “missing out” to playing great defense. Once I did this, I noticed an increase in my confidence level as a trader. Keep in mind, there will ALWAYS be opportunities and it’s okay if you miss a few. (more…)