Stocks rise when they are being bought up. Stocks fall when they are being sold off. I always ask myself “Who is in control. The buyers or sellers.” Control changes often and in different time frames you can argue that one party or the other were merely taking a rest.
I generally buy stocks that are going up and short sell stocks that are falling. But I also play the sharp reversals that happen if there is a huge gain or drop as I know gravity will take effect and profit taking will occur. The smart way to day trade is to be on the winning side be it buyers or sellers.
As a small fish in a big ocean I can only ride on the coattails of the big boys who actually move the market. My job as a trader is to recognize when trend or momentum is starting to kick in and climb aboard. Short term trends or momentum are the only thing that I trade. The old cliche’ “the trend is your friend” is so very true.
I only trade in the direction the chart is telling me to. Maybe you can watch the talking heads on TV blathering on or read about how great some stock is without forming an opinion on it. I can’t, so it’s safer to insulate myself from any and all information. I actually don’t care what, where, why, how or when a company does what it does. Who am I to be able to process all this information? I do know that when a stock is rising, more people are buying it than selling it and vice versa. Seems easier to me to only look at and believe the chart and trade accordingly. If I have preconceived notions about what the stock may do, I will not be able to cut my losses when the chart tells me to. I will hold on to the dream all the way to the poor house. Always trade with the trend.
Cutting your losers is one of the most important aspects of trading.Unless you have an unlimited pile of money to fritter away you must admit you’re wrong and exit the trade. If you don’t you will not have enough to remain in the game. End of story.
Letting the winners run is also important. They are winners after all and that is all that counts. Adding size (buying more shares) can turn little winners into big winners.
If you disregard any or all of these 3 simple rules you won’t be around trading very long.
Archives of “losers” tag
rssQuotes 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 (more…)
10 More Trading Rules
1) Trading rules don’t normally fall out of the sky.
2) The emotional work is normally not undertaken by developing traders. After all this game should be easy.
3) Not enough time has been spent finding a system that is a fit to the personality of the trader.
4) You don’t really feel congruence with the approach.
5) As soon as you have a few losers you tinker with the approach or move to a new approach.
6) You are under-capitalized or for some other reason you mess with the approach then don’t hold yourself accountable for the fiddling and blame the approach.
7) You have unrealistic expectations as to the performance of the system in terms of win rate.
8) You are ‘bricking it’ about entering drawdown territory.
9) Your system actually isn’t complete. You haven’t got all of the following bases covered: market selection, position sizing, entries, stops, exits, tactics.
10) You learned a system or got a system from a marketeer or pseudo trader and it’s actually just crap.
Risk Management -From ASR TEAM
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My favourite Tudor Jones quotes
“First of all, never play macho with the market. Second, never overtrade”
“I spend my day trying to make myself as happy and relaxed as I can be. If I have positions going against me, I get right out; If they are going for me, I keep them.”
“Risk control is the most important thing in trading”
“Dont ever average losers. Decrease your trading volume when you are trading poorly, increase your volume when you are trading well. Never trade in situations where you don`t have control. For example I don`t risk significant amounts of money in front of key reports, since that`s gambling, not trading”
“If you have a losing position that is making you uncomfortable, the solutuion is very simple: Get out, because you can always get back in. There is nothing better then a fresh start.”
Focus
The goal of a successful professional in any field is to reach his personal best. You need to concentrate on trading right. Each trade has to be handled like a surgical procedure – seriously, soberly, without sloppiness or shortcuts. This is a stock trading risk management plan. A loser cannot cut his losses quickly. When a trade starts going sour, he hopes and hangs on, and his loses pile up. And as soon as he gets out of a trade, the market comes roaring back.
- Trends reverse when they do because most losers are alike. They act on their gut feeling instead of using their heads. The emotions of people are similar, regardless of their cultural background or educational levels.
- Emotional traders go into risky gambles to avoid taking certain losses. It is human nature to take profits quickly and postpone taking losses. Emotional trading destroys those who lose. Good money management and timing techniques will keep you out of the hole. Losing traders look for a “sure thing”, hang on to hope, and irrationally avoid accepting small losses.
Heads or Tails
“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.”
Paul Tudor Jones quotes
“Don’t be a hero. Don’t have an ego.”
“Don’t ever average losers.”
“Decrease your trading volume when you are trading poorly.”
“I’m always thinking about losing money as opposed to making money.”
3 Characteristics of Great Traders
Adapt or Die
Market conditions change and technology advances, thus the conditions for trading are always evolving, the rise in mechanical trading is testament to that. The very best traders through a process of education and adaptation are constantly staying ahead of the curve and creating ever new and ingenious methods to profit from the markets evolution.
Fail to plan, you plan to fail.
The best traders have a well documented plan; they know exactly what they are looking for and follow that plan to the letter. Their preparation for a trade starts long before the market open, it is this meticulous planning and importantly adherence to that plan that helps them avoid the biggest demons for any trader, over trading and revenge trading.
“Be like Machine”
As human beings emotions pay a key role in our existence, for a trader emotions can be a source of great pain. Trading psychology and the management of your emotions in a trade play a key role in overall success. Fear and greed can cut your winners short and let your losers run. Dealing with emotions follows on from your plan; the more robust your plan the less likely you are to fall into the emotional mine field.
30 Trading Rules
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.
9. The market is usually efficient and can not be beat. Exploit inefficiencies.
10. To beat the market, you must have an edge.
11. Being wrong is a necessary part of trading profitably. Admit when you are wrong.
12. If you do what everyone is doing you will be average, so goes the definition.
13. Information is only valuable if no one knows about it.
14. Lower your risk till you sleep like a baby.
15. There is always a reason why stocks go up or down, we usually only learn the reason when it is too late.
16. Trades that make a lot of intellectual sense are likely to be losers.
17. You do not have to be right more than you are wrong to make money in the market.
18. Don’t worry about the trades that you miss, there will always be another.
19. Fear is more powerful than greed and so down trends are sharper than up trends.
20. Analyze the people, not the stock.
21. Trading is a dictators game; you can not trade by committee.
22. The best traders are the ones who do not care about the money.
23. Do not think you are smarter than the market, you are not.
24. For most traders, profits are short term loans from the market.
25. The stock market can not be predicted, we can only play the probabilities.
26. The farther price is from a linear trend, the more likely it is to correct.
27. Learn from your losses, you paid for them.
28. The market is cruel, it gives the test first and the lesson afterward.
29. Trading is simple but it is not easy.
30. The easiest time to make money is when there is a trend.