Being confident is the ultimate prize for any trader; some call it being in the “zone”, some others talk about finding the “Holy Grail”. What it really means is that, as for any performance based endeavours, trading will satisfy you only once you reached the state where “you know what you do”. Trading is not different from any other demanding undertaking, it requires mastering the different stages of the learning curve and the quality of this learning process depends on how focused and disciplined the trader is in honing his acquired skills. Once the trader has identified, through practice, what markets, methodology and timeframe he is comfortable with, he will slowly gain confidence in himself by systematically repeating all of the steps that constitute his trading plan until it becomes part of his personality. Just as for a tennis or a golf player, being confident makes the difference between winning and losing, so it is for the trader. And, just like the tennis or golf player, the trader can only gain this confidence through a well worked out set of skills, a battle plan and the continuous practice at a performance level. Losing focus or relaxing the discipline will very rapidly threaten the trader’s confidence. Hence, it is of the utmost importance to understand that this virtuous circle has to be maintained during every trade. And here we touch the challenge for any trader: only the repetitive and focused practice of his plan will ensure that he will stay confident in his trading. This can only be achieved through a balanced and healthy way of living and a sound detachment of the day to day results.
Archives of “learning curve” tag
rssDiscipline-Risk Managment-Passion for Traders
- 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 Wisdoms
- Being wrong is acceptable, but staying wrong is totally unacceptable. Being wrong isn’t a choice, but staying wrong is.
- Understand that you will always make mistakes. The only way to prevent mistakes from turning into disasters is to accept losses while they are small and then move on
- Concentrate on mastering one style that suits your personality. Most people just cannot weather the learning curve. As soon as it gets difficult, and their approach isn’t working up to their expectations, they begin to look for something else. As a result, they become slightly efficient in many areas without ever becoming very good in any single methodology.
Why Trading is Difficult
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
8. It takes several attempts at different trading methodology to sync with a trader’s personality and cognitive strengths
9. It takes time to set and internalize specific rules that embed a sense of mastery
10. To survive in trading requires weathering the lengthy learning curve
What you WILL DO vs. NOT DO is what it comes down to
In trading you MUST take action and control. It’s not the market makers, or the talking heads, or your neighbor, or any of the experts or people you entrust with your money that are causing your losses or your poor investing performance. You are making the decisions, directly or indirectly. Any trading and investing decisions made in your accounts are all DOWNSTREAM from you and your initial decisions, so you can make different ones in the future.
But you must take measurements. You must have a plan. You must assess, then make DECISIONS to GET you to your FINANCIAL, HEALTH and RELATIONSHIP goals.
In trading we teach a very simple and effective way to make consistent profits in the markets. There is a learning curve and much of that curve is you getting to know you. It’s understanding the psychological aspects of trading profitably with consistency and making those thought process changes that are necessary to get you in a winner’s trading mindset.
For many people this is a challenge. The actual steps and actions you must take are not laborious or physically draining, they are simple things that need to be done but will go against the natural instinct to just want to go through each day on ‘autopilot’.
And this is why many a trader who is struggling slips into the ‘blame’ or ‘victim’ game. Being aware of this is important and we are all human and capable of slipping off track……but the key is to catch it early, forgive yourself for it, and then learn and ‘zig zag’ your way back onto the path that will get you to your goals.
Hard Realities for Traders
* If you don’t save a good portion of your earnings in successful years of trading, you won’t last during the less successful years;
* If you don’t have a solid nest egg of savings to support you while you’re learning trading, you won’t survive your learning curve;
* Everyone has a passion for trading; if you don’t have a passion for learning to trade, take a pass on financial markets and find the field of endeavor that offers intrinsic reward;
* If you’re living for your trading, you won’t make it trading for a living. Other things need to sustain you in the lean times, particularly the things that are more important than markets;
* The ratio of time spent working on your trading to time spent actually trading is predictive of long-term career success;
* In any performance field, the percentage of participants who can sustain a living from their craft is under 5%; always have a Plan B;
* No one can make you successful as a trader if you lack the requisite talents and skills; a mentor can, at best, help you make the most of the talents and skills you possess;
* Even if you are very successful as a trader, your annual income will be a fraction of your leveraged portfolio size;
* Your risk and reward will always be proportional: count on drawdowns of at least half of what you hope to make in markets;
* Psychology alone cannot make you a successful trader, but it can make you an unsuccessful one;
* Quiet markets reveal the best traders;
* Over time, your risk-adjusted returns are more valuable than your absolute returns;
* Trading is a business and, as such, must always adapt to changing market conditions;
* If you can’t make money consistently when paper trading, you won’t be successful when your capital is on the line;
* If someone promises you trading success, keep a close eye on your wallet.
Why Trading is Most Difficult Job in the World
How many guys do you know who can accept being wrong?
How many guys do you know who can be wrong and lose money?
How many guys do you know who can be wrong. lose money and not feel bad?
How many guys do you know who can be wrong, lose money, not feel bad and reverse their position?
How many guys do you know who can be wrong, lose money, not feel bad, and reverse their position quickly?
Don’s point is that trading requires an unusual combination of emotional resilience (the ability to tolerate being wrong) and mental flexibility (the ability to use losses as information and quickly change one’s position in the markets).
Many people have a need to be right. That makes it difficult to quickly accept losses, and it makes it especially difficult to flip one’s views. The best traders don’t have a need to be right, and in fact they readily admit that there’s many times they’re wrong.
7 Major Candlestick Reversal Pattern Pairs
Candlestick reversal patterns can be a boon to any trader’s repertoire. Combining them with support/resistance lines and other indicators can increase a trader’s edge substantially. Each set below contains both the bearish and bullish counterparts. These are ideal setups that require directional movement (i.e. nothing range bound). The more volume at the given point, the more strength each of these patterns portend.
Realize that a candlestick pattern is simply a means of reading data on the chart. Whether you trade forex, stocks, options or futures it is a superior tool for technical analysis.
Once you become familliar with the basic candlestick patterns you will quickly assimilate their meaning and easily interpret them.
The patterns are basically intuitive and the learning curve is small.
There comes a point where you will recognize market sentiment without even identifying a specific candlestick pattern.
No matter what system style or technique you may implement the fact is you will be that much more effective by making candlestick charts your tool of choice.
The alternatives or archaic to say the least, and downright ugly once you get used to using Japanese candlesticks.
Candlestick charts are the most widely used for of charting for good reason. With a little practice and help, it is actually the most intuitive process for understanding current and future price action.
Bearish and Bullish Harami –
Identified by a long bar followed by a very short one. Harami signal a loss of momentum and a possible reversal.
Dark Cloud Cover and Bullish Piercing Pattern – The dark cloud cover and bullish piercing patterns reveal weakness in the current trend and emerging strength in the opposition. (more…)
10 Points for Traders
Capital flows from those who fight trends to those who follow them.
- In the long term money flows to those who manage risk and are able to hold on to their profits from those who don’t manage risk.
- Traders that persevere through the learning curve stick around long enough to make money from those that just trade with no understanding of what they are doing.
- Robust systems take money from traders with no edge over the markets.
- Traders that trade price action take money from those that trade opinions.
- Traders that enter a trade based on a reversal signal make money form those that stubbornly hold on to a losing trade and hope.
- Money flows to those who let winners run from those that hold losing trades and hope.
- Capital flows from those that trade a winning methodology from those that trade on emotions.
- Those with big egos pay a price to try to prove they are right by holding a losing trade those that admit they are wrong quickly keep hard earned profits.
Money flows from those who do not know how to trade to those who do.
Crawl, Walk, Run
Do everything you can to survive your learning curve and to ensure that you can support yourself financially (and emotionally) through your learning curve. Trade in simulation mode before you put money at risk, trade one lots before you trade larger size. Make your mistakes when your exposure is lowest. If you can break even after trading costs/expenses, you’re doing very well. Don’t push the curve or you’ll find yourself deep in a hole.