One of the stock market classics that should be on every speculator’s bookshelf is Edwin Lefevre’s Reminiscences of a Stock Operator. Written in 1923, you may assume its contents have scant application to the more sophisticated traders of today. That assumption could not be farther from the truth, for while technology may change and access to information may level the playing field in many respects, human nature hasn’t changed, especially when it comes to managing risk and the uncertainty associated with it.
While I could list many pertinent Lefevre quotes here, one that affects all of us in one way or another is the following.
DISCIPLINE: The trader must have the ability to control themselves and follow a plan. Discipline is a required skill in trading without it there is no edge, you are either a gambler or simply trading off fear and greed. You will not be successful, instead you will be gamed by those in control of their emotions.
RISK MANAGEMENT: Risk management must be a top skill for a trader to even survive in the markets. You must structure your risk per trade to be no more than risking 1% or 2% of your trading capital. You have to be able to survive 10 losses in a row. These strings of losses come around more often than a new trader would suspect. If you lose just 5% of your trading capital in each of ten trades you will be down almost 50% and need a 100% return just to get back to even. At this point you are ruined.
PASSION: A trader must love to trade, without a passion for the markets and trading the new trader will not survive the learning process because anyone with common sense would believe that it was not worth the struggle. Passion will be needed to bring a trader through the learning curve and later the losing streak.
Trading Losses: There are two types of losses, one loss is caused by the market simply not being conducive for the profitability of your system. The other loss is due to your lack of discipline causing your system not to work. If you followed your trading plan and had a loss that is to be expected. If you are trading a proven and tested method then you have simply learned that taking a loss is simply part of trading. However if your breach of discipline caused your loss, whether not taking a stop, over riding your plan, not taking an entry, trading too big, etc. then it is time to learn why you had the loss. Ego? Fear? Greed? Overconfidence? Laziness? and many other things cause losses. It is crucial that you learn why you broke your trading plan so you do not repeat the mistake again.
Charts: Studying the past price action of charts is very educational. It will show you how prices have reacted at support/resistance levels in the past along with moving averages and any other indicators that you may choose. It is important that you understand how your market has historically traded whether it is currencies, commodities, stocks, or bonds. It is crucial that you learn how to identify a trend, a swing trade, and a range bound market. (more…)
1. Need to internalize lots of trading simulation of specific set-ups in real-time to trade effortlessly
2. Need to trust money management system to weather +10 losses in a row
3. Tuff to internalize that its the 5-6 huge monthly runners that is the big pay-off days
4. Must master +3 trade set-ups to make money consistently month to month.
5. It takes considerable time to mathematically think and act like a trader
6. Trading is a performance skill which requires mastery of every element of trading
7. It requires time capital and considerable effort to achieve the experience to make it effortless and automatic (more…)
“I believe there are a few reasons why only 5% make it.
1. They start in a position to not need to make a living from it. The need for steady money like a weekly paycheck will corrupt your thinking and force you to deviate from your plan of action that was so well thought out prior to the heat of the battle.
2. They do not need the money that they loose. The enormous amounts of money that it requires to learn to daytrade would exceed most people’s lifetime income. What makes the number of successful daytraders so low is that even the few who could make it, dont have enough capital to endure the learning curve.
3. They do not give a flying _uck about anything or anyones opinions of what the market will or might do. The very news and opinions that surround them becomes the mortar for their brick wall of defense that protects their completely independent thinking. (more…)
Confusion and frustration is part of the learning curve. Frankly, if you’re not getting confused by the array of opinions and information out there, then you’re doing something wrong. The key is to keep working though it and continue learning as much as you can. With time and effort, the confusion you have now will be replaced with a clear understanding of key elements of trading that can’t be learned in a different way. But, it takes time
Have you ever noticed that awareness is the first step toward future growth? If you want to improve in any area, read on below to understand the four stages of awareness as they relate to good trading.
The learning curve in any endeavor involves four stages:
Unconscious incompetence (where the trader has no idea how much he doesn’t know about trading)
Conscious incompetence (where the traders realizes after initial losses that he has a lot to learn)
Conscious competence (where the trader has developed and is now doing well as long as he works his system and its rules)
Unconscious competence (where the trader has mastered the rules and also knows when to break the rules as conditions change, in a complete flow with the markets based on great experience)
They say that 90% or more of new traders get washed out of the market in six months – why would that be? I just had an insight into my own current state and the implications of it long term if it were left as an unconscious process…
The fact is that learning to trade is hard; very hard – but on top of that, it is a zero feedback learning curve. You don’t get marked or a pat on the back for your efforts; the only feedback you get is:
You think you are building up knowledge and skill in your conscious mind, but unbeknownst to you, in the dark invisible depths of your subconscious, you are slowly training yourself to HATE TRADING…
It is like constantly sticking your hand in the fire and going “Ouch! Ouch! Ouch!”
Your interest and passion for it is being quietly eroded. There eventually comes a day where you would rather do something else than trade that day; your instincts are telling you to avoid the pain.
It eventually becomes a DRAG…
Attracted by more pleasurable pursuits you realize one day that you haven’t traded for a week or two, but the very thought of it gives you a pain in the solar plexus… You brush the whole thing aside as an old hobby that was a large expensive waste of time.
You’ve been washed out. You are a statistic, but by now you couldn’t care less!