Yου learn tο distinguish tһе ɡοοԁ traders frοm tһе bаԁ, tһе successful techniques frοm tһе unsuccessful, аחԁ tһе ɡοοԁ habits frοm tһе faulty. Yου аƖѕο learn tο distinguish tһе lover frοm tһе fighter, tһе winners frοm tһе losers, tһе serious frοm tһе frivolous, tһе cerebral frοm tһе superficial, аחԁ tһе friend frοm tһе foe. Bυt above аƖƖ, уου learn tһаt tһе psychological makeup οf tһе trader іѕ tһе single mοѕt critical element οf success.
Archives of “losers” tag
rssThe Difference: Mediocrity vs. Greatness
In Trading, the STATISTICS show that smarts, experience, etc. are not the differentiating factor.
The BEST (most successful guys I know and work with) have winning %’s of less than 50%.. actually, the average is between 45-55% but the point is, basically, winning percentages don’t matter – so they might as well be a random event.
So, what does make a difference?
- CONVICTION in ideas
- INTERNAL CONFIDENCE
- TRUSTING YOURSELF
- GETTING BIG IN TRADES you believe in
- LETTING WINNERS RUN
- CUTTING LOSERS QUICKLY
- SWITCHING DIRECTIONS QUICKLY
These are many of the factors that allow some people to become monster traders over time. It’s not my opinion, just my observations.
Speculation drives human progress
Speculation, in all its forms, is what drives human progress. This is the core message behind Michael Bigger’s recent post, “The Desire to Speculate”.
An excerpt from Michael’s essay:
“It is said that the desire to speculate is very strong in the American people. That is why our country has made greater progress than any other country in the world, because progress is the result of speculation. We are not referring merely to stock speculations, but to the word in its broadest sense. Every new undertaking is a speculation.
An inventor speculates on what he is going to invent. Often such speculations result in losses, because many inventors, or would-be-inventors, never accomplish very much. They spend their money, time, and efforts, and probably live years in poverty, and then if the invention is not profitable, they are heavy losers.
It is the same thing with every new business. It is purely a speculation…” (more…)
Weekend -Trading Quotes
Trading Journal
“Show me a trader with good records, and I’ll show you a good trader.”
– Dr. Alexander Elder
“The fruits of your trading or investment success will be in direct ratio to the honesty and sincerity of your own effort in keeping your own records, doing your own thinking, and reaching your own conclusions. You cannot wisely read a book on ‘ how to keep fit’ and leave the physical exercise to another. “
– Jesse Livermore
Risk Management
“Risk comes from not knowing what you’re doing.”
– Warren Buffet
Money Management
“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”
– George Soros
“If you have an approach that makes money, then money management can make the difference between success and failure… … I try to be conservative in my risk management. I want to make sure I’ll be around to play tomorrow. Risk control is essential. “
– Monroe Trout
“Every winner needs to master three essential components of trading; a sound individual psychology, a logical trading system and good money management. These essentials are like three legs of a stool – remove one and the stool will fall, together with the person who sits on it. Losers try to build a stool with only one leg, or two at the most. They usually focus exclusively on trading systems. Your trades must be based on clearly defined rules. You have to analyze your feelings as you trade, to make sure that your decisions are intellectually sound. You have to structure your money management so that no string of losses can kick you out of the game.”
– Dr. Alexander Elder
“The most important advice is to never let a loser get out of hand. You want to be sure that you can be wrong twenty or thirty times in a row and still have money in your account. When I trade, I’ll risk perhaps 5 to 10 percent of the money in my account. If I lose on that trade, no matter how strongly I feel, on my next trade I’ll risk no more than about 4 percent of my account. If I lose again, I’ll drop the trading size down to about 2 percent. I’ll keep on reducing my trading size as long as I’m losing. I’ve gone from trading as many as three thousand contracts per trade to as few as ten. “
– Randy McKay
“All traders make mistakes, great traders, however, limit the damage.”
– Unknown
“My trading style blends both the risk-oriented and conservative personality of my personality. I take the risk-oriented part of my personality and put it where it belongs to : trading. And, I take the conservative part of my personality and put it where it belongs to money management. My money management techniques are extremely conservative. I never risk anything approaching the total amount of money in my account, let alone my total funds. “
– Randy McKay
“I’m more concerned about controlling the downside. Learn to take the losses. The most important thing about making money is not to let your losses get out of hand. “
– Marty Schwartz
“I’m always thinking about losing money as opposed to making money. Don’t focus on making money, focus on protecting what you have.”
– Paul Tudor Jones (more…)
Courage
Not all traders have the courage to stand up to their actions. It takes a lot of courage to deal with the fears a trader must overcome in his career. The first is the fear of success that is so common and is the most prevalent. We want success and are afraid of it at the same time too. As our account grows so does the fear of handling those amounts of money. Could you trade risking a bigger amount as the account grows? Sometimes we sabotage our own success as it puts us out of our comfort zone. Another aspect of the fear of success is the subconscious fear of not being able to sustain that success. Our ego is questioning our ability to avoid messing up and losing that prized status of a hero. Same holds true for a windfall success. We know we might be able to do it again but our ego says we will look bad if we cannot do it again. Professional Traders have developed the ability to methodically achieve success and the confidence to repeat it while reducing the odds of sabotaging themselves via their egos. Professional Traders know that trading is boring and is not full of fun and excitement. That is why they have the courage to give up the fun and excitement in exchange for trading capital preservation. They also have the courage to not become addicted to winning big all the time. They know there will be singles, doubles and losers along the way too. They have the courage to stay on the sidelines at times and miss trading opportunities. They also know when to get out of a trade bravely and have the courage to ask for help when needed. They have the courage to stick to their strategy, ask dumb questions, admit it when they are wrong and finally have the courage to trade for profit and not for pure excitement.
WINNERS V. LOSERS
Why do some win in the market and some lose? Some thoughts on winning and losing:
Winning Trader’s Traits
- Calm
- Disciplined
- Confident
- Organized
- Excellent recordkeeping
- Business like approach
- Professional demeanor
Losing Trader’s Traits
- Emotional
- Undisciplined
- Anxious
- Disorganized
- No recordkeeping
- Wants action & excitement
- Amateur demeanor
Quotes from The Little Book of Trading
The Little book of trading is a must read for trend followers. Michael Covel brings down to all of us what is needed in order to succeed in trend following:
Some of the quotes need to be internalized by investors of trend following strategies..
David Druz
Trend traders are trying to capture risk premium from the hedgers. […]
Hedgers hope to minimize their exposure to unwanted risk. Speculators (i.e. trend followers assume risk for hedgers. […]
Hedgers are net losers in futures markets over the long run, and Druz’s trend trading approach is based on capturing this risk premium.
The more robust a system, the more volatile it tends to be!
There are whole families of trend trading ideas that seem to work forever on any market. The down side is they are very volatile because they are not curve-fitted.
Larry Hite
Hite has two basic rules about trading and life:
1) If you don’t bet, you can’t win.
2) If you lose all your chips, you can’t bet
Justin Vandergrift
While entry and exit is an overwhelming focus for new traders, it is only a small part of the recipe for winning in the trend follower’s cookbook. Money management is far more imperative to your success than worrying about a perfect entry.
Vandergrift, like many of the trend following traders, found through intense research that the only systems that really worked over time were long term trend following in nature. However, his real Aha! moment came when he put money managementinto his trading system equation. […] If you have a portfolio of markets, […] you want t risk an equal amount on every trade.
Michael Clarke
You want to look for trend following models that remain robust over long time periods and you want to include models that have flat to negative performance for periods of up to two years. The principles that allow a good model to work successfully may fall out of favour and stop working for a period of time, but if the model has validity, the long-term principles will reassert themselves over time. Don’t jump the gun in throwing away your models.
In order for a model to be accepted, you want it to trade all markets using the same rules and parameters. Your results should yield good performance across 90-plus percent of all markets tested. Also, no model should be accepted unless it shows stability of performance during tests involved with shifting parameters and altering rules. This is the definition of robust.
David Harding
Don’t get caught up constantly trying to lower your risks. Think of yourself as running a risk targeting business where you go find risk. No risk, no reward!
I think the efficient market hypothesis is quite useful too. One prediction it makes is that it is difficult to beat the markets. It’s just saying that the markets know better than you do. So the assumption that the markets know better than you do is quite a sensible and useful assumption. It certainly would lead you to approach [beating the markets] with humility and modesty.
Determination is the same as having wings. If at first you don’t succeed, try, try, and try again. Madonna always says, ‘I’m like a cockroach.’
Wisdom of Market Wizards
“Perhaps the most important rule is to hold on to your winners and cut your losers. Both are equally important. If you don’t stay with your winners, you are not going to be able to pay for the losers.” – Michael Marcus
“The more a price pattern is observed by speculators, the more prone you are to have false signals. The more a market is the product of nonspeculative activity, the greater the significance of technical breakouts.” –Bruce Kovner
My take – Most commons are pennants and flags. And most obvious failed outbreaks are candles ended with the close below the intended trendline.
“The most important rule is to play great defense, not great offense. Everyday I assume every position I have is wrong. I know where my stop risk points are going to be. I do that so I can define my maximum drawdown. Hopefully, I spend the rest of the day enjoying positions that are going in my direction. If they are going against me, then I have a game plan for getting out.”
“… I believe the very best money is to be made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all the money by catching the trends in the middle. Well, for twelve years, I have often been missing the meat in the middle, but I have caught a lot of bottoms and tops. If you are a trend follower trying to catch the profits in the middle of a move, you have to use very wide stops. I’m not comfortable doing that. Also, markets trend only about 15% of the time; the rest of the time they move sideways.”
“Don’t focus on making money; focus on protecting what you have.”
–Paul Tudor Jones (Big Big Big Fund Manager)
“The most important is discipline – I am sure everyone tells you 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 courafe to go into the market, and courage comes from adequate capitalization. Fifth, you need a strong desire to win.”
“You should 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.” –
Gary Bielfeldt
Louis Ehrenkrantz’ 7 Golden Rules for Investing
First rule: develop a large appetite for
reading; it will hone your instincts for finding successful companies.
Second
rule: don’t overdiversify; ten stocks, in at least three sectors, are
enough for the average investor.
Third rule: stick with your winners and sell
your losers; do not automatically sell when a stock hits a target price, but
continue to hold it as long as it performs well and has good prospects for the
future.
Fourth rule: look for top-quality, out-of-favor companies; look for
companies that produce an array of high-quality products and/or services.
Fifth
rule: don’t worry about earnings if a company makes a popular product; strong
earnings growth will follow.
Sixth rule: don’t tinker with your portfolio; check
your portfolio’s performance only once or twice a year.
Seventh rule: don’t be
afraid to hold cash; it’s okay to be prepared to purchase stocks with
beaten-down prices after a correction.
Trading Quote
“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.”