The language you use as a trader can provide either positive reinforcement through honest self awareness or negative results through demeaning self talk. In other words, when discussing your trading with others or in your journal become aware of how you view yourself. Do you see yourself as an amateur, a whipping post, a loser? Do you blame an indicator or the market or an advisor for your failures and lack of discipline? When you are with others do you brag about your winners and hide your losers? All of this talk is based on fear: fear of being wrong, fear of what others might think of you and your decisions; fear of the market; fear of being afraid. When you practice positive self awareness you create a fertile learning environment that allows you to grow and progress as a BETTER trader, not focus on BECOMING a GOOD trader (implying that you are a bad one). When I work with individuals I often hear the following: “If I would just do this I would become a good trader” or “If I had your discipline I would be a able to make money.” These statements are grounded in a sense of doubt and fear. Instead, these statements should be replaced with “I am becoming a BETTER trader because I know the market cannot hurt me” AND “I am becoming a BETTER trader the more I stick with my rules.” See the difference between the two? One is focused on the joy of progress; the other on the fear of not being good enough. Are you focused on progress or failure? Listen to yourself and you will quickly figure it out. It is EASY to get down on yourself and much HARDER to remain positive in the face of adversity.
Archives of “losers” tag
rssThe Right Approach to Losses
First of all, understand that losses are a necessary part of any risk taking activity. The goal should always be to blunt the impact of losses as opposed to eliminating the losses altogether. There is a distinct difference between minimizing the impact of losses versus minimizing the number of losses. If the money you are risking stands between you and hunger, think twice before placing it on the line. Risk capital must be true risk capital.
Second, losses are better teachers than wins. As noted above, wins often lead to complacency. Losses usually compel you to figure out “why.” If small and incidental to your overall strategy, they confirm that your plan is working. If relatively outsized and/or unexpected, losses make you examine the precedent trades and determine if your strategy should be adjusted. This is how advancement happens. Thomas Edison needed nearly 10,000 tries to find filament for an incandescent bulb that would last for more than a few hours. Of the thousands of attempts that did not produce the bulb, Edison did not see them as failures, but rather as things that didn’t work which was useful knowledge in and of itself. By knowing what didn’t work, Edison was able to find his way to what did. Containing and then examining your losses will help you do the same with your trading strategy.
Third, recognize that losses that are kept small relative to your portfolio are a big part of the fuel that propels your account higher. They say that you are taking prudent steps to grow your account… that you are “in the game.” The alternative, especially if you accept that losses are a necessary part of trading, is no risk taking or the taking of outsize risk (refusing to cut losers). Neither of these provide a path to account growth. If you can find/develop a trading method that allows for (in fact, embraces), many small losses while still delivering profits overall, you will have gone a long way toward eliminating the trepidation that most new traders feel about entering the fray. You will also be able to stop worrying about having the “right” picks.
30 Rules for Traders
- Buying a weak stock is like betting on a slow horse. It is retarded.
- Stocks are only cheap if they are going higher after you buy them.
- Never trust a person more than the market. People lie, the market does not.
- Controlling losers is a must; let your winners run out of control.
- Simplicity in trading demonstrates wisdom. Complexity is the sign of inexperience.
- Have loyalty to your family, your dog, your team. Have no loyalty to your stocks.
- Emotional traders want to give the disciplined their money.
- Trends have counter trends to shake the weak hands out of the market.
- The market is usually efficient and can not be beat. Exploit inefficiencies.
- To beat the market, you must have an edge. (more…)
Trading Rules to become Great Trader
Time for another list of Trading Rules . Make it a habit to reread these trading rules every now and then.
1. Buying a weak stock is like betting on a slow horse. It is retarded.
2. Stocks are only cheap if they are going higher after you buy them.
3. Never trust a person more than the market. People lie, the market does not.
4. Controlling losers is a must; let your winners run out of control.
5. Simplicity in trading demonstrates wisdom. Complexity is the sign of inexperience.
6. Have loyalty to your family, your dog, your team. Have no loyalty to your stocks.
7. Emotional traders want to give the disciplined their money.
8. Trends have counter trends to shake the weak hands out of the market. (more…)
Forecasting the Market
Amateurs attempt to make a forecast while professionals manage information to make decisions based on probabilities. Dr. Alexander Elder compares this to a Doctor that received a patient with a knife stabbed in his chest. The family will ask, “will he survive?” and “when can he go home?” But the Doctor is not forecasting, he must prevent the patient from dying, remove the knife, saturate the organs and carefully watch for an infection. He monitors the health trend of the patient and takes measures to prevent any complications. He is managing, not forecasting. To profit in trading you do not need to forecast the future, you need to derive from the market whether the bulls or bears are in control. You need to practice money management techniques for long term survival. You trade against the sharpest mind in the ocean-like markets. Mental discipline is an undivided part of trading. Please remember the following points: Understand you are in the market for the long term, that you want to be a trader in even 20 years from now Develop your trading strategy, either technical or fundamental analysis. If “x” happens then “y “is therefore likely to take place. You may need different tools for trading a bull or a bear market Develop a money management plan, with the first goal being long term survival. Secondary goal is steady money growth and third goal would be high profits. Successful traders do not concentrate on the profit itself but maintaining successful trades regardless of the earned amount. Winners feel, think and act different than losers. Look inside yourself, eliminate the illusions and change the way you have been thinking and acting. Changing is hard but could pave the way to becoming a successful trader. |
Trading Wisdom
The most important thing is to have a method for staying with your winners and getting rid of your losers. By having thought out your objective and having a strategy for getting out in case the market trend changes, you greatly increase the potential for staying in your winning positions. The traits of a successful trader: The most important is discipline – I am sure everyone says that. Second, you have to have patience; if you have a good trade on, you have to be able to stay with it. Third, you need courage to go into the market, and courage comes from adequate capitalization. Fourth, you must have a willingness to lose; that is also related to adequate capitalization. Fifth, you need a strong desire to win. You have to have the attitude that if a trade loses, you can handle it without any problem and come back to do the next trade. You can’t let a losing trade get to you emotionally. If a trade doesn’t look right, I get out and take a small loss.
Cut your losses and let your winners ride
This quote is the perfect corollary to Livermore’s. Just as he preached “sitting”, letting your winners ride is the same idea. If you have on a position and it’s working, let it make you money. Don’t cut it prematurely for the sake of booking a small profit. Don’t get scared and exit on the first reaction, when all of your trading rules dictate staying in. If it’s a winner, and it’s working, then let it ride. Winners are good—embrace them.
The important flip side is how to treat losing trades. The first lesson is that losers have to be cut at some point. Otherwise, a losing trade can keep eating away at your P&L, undoing the profits from any winning positions. If you cut losses at a pre-defined level, then they stop—and presumably your wins can be larger than your losses.
The math behind this is compelling. If you assume that your average winner make 1.6x what your average loser loses, then you only need to be right 40% of the time in order to make money consistently. By keeping the leash short on your losses, then you can let the math of statistical expectation work in your favor. Cut losses and let your winners ride.
There is another aspect to this. A loser isn’t just a trade where you get stopped out at a pre-defined loss limit. Imagine a trade that isn’t making money and has just been languishing on your books—this is also a loser. Cut it, free up financial and mental capital and move on.
Five Things to Avoid In Trading
What Not To Do
1. Have an opinion. One sure way to find yourself trading against the market is to have a
market bias. Trading with an opinion about what the market will do next can limit your
ability to see what the market is actually telling you.
2. Have worse than having your own. Market gurus are notoriously inaccurate in their predictions. s market judgment prevents you from learning to read the market on
your own.opinion has changed.
3. Make your opinion public. Putting your bias into a chat room or forum thread makes it
off an opinion once you have announced it to others.
4. Let your ego get involved. Everyone wants to be right. In trading, you have to ask
yourself
5. Ride a loser. Still wanting to be right? Having a bias, making it public and getting your ego involved will cause you to hold losers far longer than you should.
What to Do
1. Anticipate. Avoid having a bias. Identify areas where the market might turn or continue
and think through what that would look like. Anticipate the alternative ways the market may
trade.
2. Keep your own counsel. Avoid gurus. Learn to read the market and make your own
decisions.
3. Avoid the forums while trading. Use the good ones as a source of education, but refrain
from making your trades public.
4. Check your ego. Be aware of when you want make the correct decision.
5. Cut losses short. Use hard stops. When the market turns against you, exit.
Castles Made Of Sand
Jimi Hendrix was an extraordinary guitarist, but most people focused just on his guitar playing abilities, not realizing his lyrics were often quite poetic. In one song, he sings “Castles made of sand, fall in the sea, eventually.” This is a great phrase to think about while trading.
There are two good lessons for traders in this simple song lyric. First, just as you should not trade based on a faulty idea, you should not use sand as a building material. Second, you need a solid trading plan as your foundation – without it, you’ll slip into the sea, where 90% of traders reside. Let’s look a bit more at both ideas.
First, you need to trade with a sound concept. This means you can throw all those hot tips out the window, and ignore the talking heads on television. What you need to do is have an idea or strategy that has been properly researched and tested. Then, you need the emotional power to trade the proven idea as is, without fail. Obviously, there are a lot to these two steps, but if you ignore them your trading house might as well be built of sand.
Second, a trading plan is essential to have a solid foundation, BEFORE you enter the markets with real money. What is involved in a trading plan? A good trading plan is written just like a business plan, since if you don’t treat trading as a business, you are destined to fail. So, all the sections that make up a good business plan (Mission, Products, Operation, Strategies, Disaster Plan, Financials, etc) should be in your trading plan. The more time you spend on this plan, the stronger your foundation will Be. (more…)
Great -Mark Douglas Trading Quotes
In trading your mind may be the ultimate technical indicator that determines whether you persevere and win in the markets or get broken in half by fear, greed, ego, stress, and uncertainty. No matter whether you are a an investor, retail trader, prop trader, or professional money manger your success will still be determined on the management of your mind. Never underestimate the importance of keeping a cool head in rough times.
Here are ten of the best quotes from Mark Douglas, an author who verbalizes the real nature of trading as well as I have ever seen it captured. If you can absorb these teachings it will help you get through that rough period when you have 10 losing trades in a row or experience a 10% draw down in your trading capital. If you are not matching risk correctly you may have to come back from a complete wipe out of your account like many other have had to do. But do not give up, you can do this if you really want to.
“I know it may sound strange to many readers, but there is an inverse relationship between analysis and trading results. More analysis or being able to make distinctions in the market’s behavior will not produce better trading results. There are many traders who find themselves caught in this exasperating loop, thinking that more or better analysis is going to give them the confidence they need to do what needs to be done to achieve success. It’s what I call a trading paradox that most traders find difficult, if not impossible to reconcile, until they realize you can’t use analysis to overcome fear of being wrong or losing money. It just doesn’t work!”
-Mark Douglas
“There is a random distribution between wins and losses for any given set of variables that defines an edge. In other words, based on the past performance of your edge, you may know that out of the next 20 trades, 12 will be winners and 8 will be losers. What you don’t know is the sequence of wins and losses or how much money the market is going to make available on the winning trades. This truth makes trading a probability or numbers game. When you really believe that trading is simply a probability game, concepts like “right” and “wrong” or “win” and “lose” no longer have the same significance. As a result, your expectations will be in harmony with the possibilities.”
-Mark Douglas (more…)