I recommend this video [see video below] about LTCM. Very interesting. (related to risk management and black swan events).
Archives of “long term capital” tag
rssYou Are Having Trading Skill or You are Lucky ?
Traders with skill have large gains after 100 trades and are relatively quiet, traders that were lucky have huge gains after a few trades and are very loud, then very quiet for the next few trades that usually bring their account to zero.
Traders with skill risk 1% to 2% of their trading capital per trade and win in the long term, traders that are just lucky risk the majority of their account for a few big wins in the short term but lose in the long term when their luck runs out.
Traders with skill use a successful method with many stocks in different markets, traders with just luck are only successful with one stock and when its up trend ends their winning streak ends.
Traders with skill have winning track records over many years, traders with only luck only have winning track records measured in months.
Traders with skill have risk management as a top priority, traders with only luck do not understand why risk management is important, yet.
Traders with skill are trading like it is a business, traders operating with luck are trading like they are a gambler in a casino.
Traders with skill use a trading plan and back tested method, traders with luck make guesses and are sometimes right.
Traders with skill have done their homework, traders with luck think they are naturally smarter than the market.
Traders with skill are disciplined and stick to their system, traders with luck make bets based on opinions.
Would you rather be lucky for a few trades or skillful for a few years? Lucky traders give back their profits when their luck runs out. Skillful traders are eventually financially interdependent due to their long term capital growth.
The Top Ten Similiarities of Winning Traders
You can read trading, books until you are red-eyed, you can spend thousands of dollars on seminars, you can try to get successful traders to give you the secret sauce of trading or the Holy Grail. But, in the end it is simply you versus the markets. You have to pick your system, your risk tolerance, and take the heat in your own account, it will be your own money you lose.
No one can tell you the right system and method for you. If you can take draw downs in equity mixed with long term capital growth then trend following may be for you. If you love playing the hottest stocks in the market then CAN-SLIM or the Darvas System may be the right systems for you. If you just have little patience and love action then you can join the few who have mastered day trading. There really is no right system for everyone, it depends on what you can handle. However here is what all winning traders must have to win in the markets regardless of time frame and system:
Trading System
- They trade a robust system or method that wins more money over time than it loses.
- Their system gives them a reward to risk ratio that is in their favor.
- Their system or method is proven to work with a live trading record over many markets and trades or has historical back testing. (more…)
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…)