1) It’s not by making large profits that money is made over time. It’s by consistently keeping losses small in relation to profits. |
Archives of “loser” tag
rssTrick for Traders
I developed a little trick that might seem trivial, but it is very important. Simply put, anytime to you put a trade on, assume that the trade is going to be a loser. No matter how much analysis, how many supporting factors, or how perfect the pattern is, assume that the trade will lose money. This creates a profound shift in your focus because, rather than searching for and possibly discounting contradictory evidence (which can sometimes be as simple as “I just bought and now it’s going down…”), you will be open to and will readily accept contradicting information. Of course you will, because you assumed the trade was wrong to begin with. When you find confirmation for the trade, it is almost a pleasant surprise. Shift your thinking into this mode, and you will be much less likely to overstay your welcome in suboptimal setups that are not working out–you’ll be far more likely to do the right thing, which is usually to pull the plug on the trade (time stop) and look for a better opportunity.
Now, there’s another piece to this puzzle. A lot of writers focus a lot of attention on confidence in trading, and this is important, but it is a different kind of confidence. You must have confidence in your method and know that a profit is virtually assured over a large enough set of trades, and be able to separate this knowledge from the outcome of any one trade which is, more or less, a coin flip.
Four Trading Fears
“Ninety-five percent of the trading errors you are likely to make—causing the money to just evaporate before your eyes—will stem from your attitudes about being wrong, losing money, missing out, and leaving money on the table. What I call the four primary trading fears.” -Mark Douglas (Trading int he Zone)
As Mark Douglas points out in his great book about trading psychology is that the majority of traders lose because of wrong thinking, misplaced emotions, and wanting to be right. We know fear and greed drive the market prices far more than fundamentals do. However fear makes traders do the wrong things at the wrong time. Here are four great examples of fear over ruling sound trading strategies.
Here are more thoughts about these four fears:
The fear of being wrong: Traders fear being wrong so much they will hold a small loss until it becomes a huge loss. Even adding to the loss in the hopes of it coming back and getting to even. Don’t do this, holding on to a loser after it hits your predetermined stop loss is like being a reverse trend trader. Do not be afraid of being wrong small be afraid of being wrong BIG.
The fear of losing money: New traders hate to lose money, they do not quite understand yet that they will lose 40%-60% of the time in the long term. We should come to expect the small losses and wait for the big wins patiently. Many times traders fear this so much that they have a hard time taking an entry out of fear of losing. If you can’t handle the losses as part of the business, you can’t trade.
The fear of missing out: The opposite of the fear of losing money is the fear of losing potential profits. This causes traders to watch a stock go up and up, miss the primary trend, then not being able to take it any more and get in late just in time for the trend to reverse and lose money. Trade at your systems proper entry point do not chase a stock because you are afraid to miss out on some profits.
The fear of leaving money on the table: When your trailing stop is hit get out of the trade. If your rules tell you to get out after a parabolic run up and stall then exit. You must be disciplined on taking money off the table while it is there. Being greedy for that last few dollars when your system says to sell could lead to major losses of paper profits. Let your winners run but when the runner gets to tired to continue: bank your profits.
39 Trading Rules
RULE 1 – Keep losses small. I am more concerned about protecting my capital and ensuring any losses are small, than I am about making money. I’m going to have losses, but I control them and let the winners take care of themselves. The hardest job of any trader is to get out of a losing trade, believe it.
RULE 2 – Do not forget Rule 1.
RULE 3 – Learn the basics; fundamentals, charts and indicators etc.
RULE 4 – Position size every bet in relation to your bank.
RULE 5 – Always use stops, not as a trading tool, but as a disaster avoidance technique.
RULE 6 – Give your trade room to breathe, don’t place stops too close, most beginners lose because of this. Remember, the wider the stop the smaller the trade size. This is also dependent on the timeframe you are in, simple tip if you are trading on the 5 min. chart. Check the 10 min one as well. Stops should be placed visually in my opinion.
RULE 7 – Don’t be greedy, appreciate small and consistent gains. Once you’re in a profitable position, consider moving your stops – especially to break even – and then you are using the broker’s money. If your software has the facility, then trailing stops could the answer.
RULE 8 – Accept that the markets are totally random and unpredictable and practice makes perfect – give yourself time before trading ‘live’.
RULE 9 – Control REVENGE, after a loser take a break, always. Never strike right back, never, and never double up to recover your losses.
RULE 10 – Never HOPE that you will win, trade only when you see a good trading opportunity, and remember live trading is different mentally from demo trading.
RULE 11 – Keep accurate records of each and every trade, winners and losers, even on a demo account, you must learn the correct habits.
RULE 12 – Eliminate fear, fear of failure and fear of trading. If you suffer from fear then trading is not for you.
RULE 13 – You do not have to trade, if there are no good trading opportunities then do not trade, there is always tomorrow. You can always spend the time practicing new techniques on a demo account.
RULE 14 – Take full responsibility 100% for your own trading – only you can win at trading, do not rely on any external crutch to blame.
RULE 15 – All markets are bearish, they will eventually reverse, prepare and profit from them.
RULE 16 – If you lose, bet smaller. If you win, bet bigger. (more…)
When Things Go Wrong
The trade falls apart. The stop loss gets hit, but your dealer doesn’t get you out of the trade. Or the spreads widen. Or you forget you have an order in the system and it triggers, and you’re on vacation, and you’re just having a great time until you are on the White Knuckler roller coaster ride and you think to yourself:
Trading is much like holding a fire in your hand.
At the same time, it’s beautiful and mesmerizing (for some of you at least). It hurts, too. When you have a bad trade, you are holding fire in your hands, so to speak. What are you going to do with it? Take a picture of it? Hide from it? Close your hand on it? Blow on it? Pour gasoline on top of it?
We don’t always react in the best of ways to the unexpected trade. Especially if the trade is a loser, or a mistake, we are likely to try to hide from it first. We flee from the scene of the crime.
If things don’t go your way in trading, tackle the situation. Get on top of it. Figure something out, and do it with friends, and do it sooner rather than later. You’ll be happy you put out the fire in your hand.
Typical trading errors
Don’t define the risk in advance of putting on a trade.
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9 Steps for Traders
1- When you see a trade setup you like, pull the trigger without hesitationIt looks so simple but it isn’t! If your mind is not 100% ready to take the trades when they present themselves to you, you’ll miss them, you’ll be just watching and will let them go without any apparent reason why, and then when you realize what you just did, your reaction is to get angry! Just to make you jump into an unplanned trade and lose… Prepare in advance, market is like playing chess, you have to look ahead for the next move.
2 – Always use STOPs
In case you don’t like to use physical stops, make sure you’ll be able to stop in case it breaks the limits you’ve set for that trade
3 – Anything can happen
Try to start the morning with a free state of mind so that you’ll be able “to listen” to the market.
4 – Always lower your trade size when you’re losing
If you make two losing trades in a row, lower trade size until you get in tune with the market again.
5 – Never turn a winning trade into a loser
That’s the reason why I like to take small portions of profit when market makes it available to me, I hate to see a winner turn into a loser, manage your trades well.
6 – Buy or develop a system and stick to it, don’t change it from day to day
Find a trading system that fits your personality and once you have it, if it gives you an edge, stick to it, don’t change it because it didn’t work on one or two days, otherwise you’ll keep changing systems forever and that means: losing money.
7 – Get out of losers
One of the most known market adages is: “Cut your losses and let your profits run.” Much easier said than done, but it’s very important that you do it, usually it’s much easier to do exactly the opposite… make sure you bear that in mind.
8 – Don’t worry about news
This one I like very much, the only thing news will do is to accelerate the targets, nothing else, most of the time, I completely trash the news and just follow what I see on my map.
9 – Monitor your progress, create your own trading journal
It is very important that you have a trading journal to track your success, so that you’ll be able to stop what you’re doing wrong and keep your strong strategies. I’ll talk about this in detail on my next post.
Hope this helps, happy trading!
Technically Yours
ASR TEAM
Always Remember
One must always remember Slansky’s admonition which is that you have to take account of whether you’re a winner or loser, and what your average rate of win is relative to the distribution of losses. If you’re a good player, never accept a bet with a small edge if it might subject you too close to gambler’s ruin, or getting stopped out of you position even if you have an edge. Many a good player doesn’t call bets in one’s favor if it has too high a variability relative to his bank roll. Many a t-grade should not be taken when the variables like an announcement put the normal tit and tat into jeopardy. I hate to force a weaker player, (assuming I might ever have that luxury again) into making a good shot. Board players are the same way. They can sometimes create a crisis, a tension where if the weaker player makes the rite move, he might pull out a draw or victory. Much better to grind the poor sinner or market into oblivion.
50 Trading Mistakes
1. Many futures traders trade without a plan. They do not define specific risk and profit objectives before trading. Even if they establish a plan, they “second guess” it and don’t stick to it, particularly if the trade is a loss. Consequently, they overtrade and use their equity to the limit (are undercapitalized), which puts them in a squeeze and forces them to liquidate positions.
Usually, they liquidate the good trades and keep the bad ones.
2. Many traders don’t realize the news they hear and read has already been discounted by the market.
3. After several profitable trades, many speculators become wild and aggressive. They base their trades on hunches and long shots, rather than sound fundamental and technical reasoning, or put their money into one deal that “can’t fail.”
4. Traders often try to carry too big a position with too little capital, and trade too frequently for the size of the account.
5. Some traders try to “beat the market” by day trading, nervous scalping, and getting greedy.
6. They fail to pre-define risk, add to a losing position, and fail to use stops.
7 .They frequently have a directional bias; for example, always wanting to be long.
8. Lack of experience in the market causes many traders to become emotionally and/or financially committed to one trade, and unwilling or unable to take a loss. They may be unable to admit they have made a mistake, or they look at the market on too short a time frame.
9. They overtrade.
10. Many traders can’t (or don’t) take the small losses. They often stick with a loser until it really hurts, then take the loss. This is an undisciplined approach…a trader needs to develop and stick with a system. (more…)
Dont Take Too Much Risk
One of the most devastating mistakes any trader can make is risking too much of their capital on a single trade. One thing is certain in trading and that is if you lose all your capital you are out of the game. Why risk so much you could be prevented from continuing? There is a saying in poker than going all-in (risking all your chips) works every time but once. This is true of trading.
If you risk all your account on every trade it only takes one loser to wipe you out (and no trading method is 100% accurate), so you will be out of the game at some point it is only a question of time.
In general, we only risk 1-3% of the available capital allocated to a system on any individual trade. This is calculated using the size and, the difference between our entry price and our maximum stop price, and the amount of capital allocated to the system. With the win probability and ratio of size of winning trades to losing trades we are almost certain never to lose all of our trading capital. In fact, the chance of us hitting our maximum drawdown for the year is tiny. (more…)