Archives of “losers” tag

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Five Quotes From Market Wizard Steve Lescarbeau

  
  Education
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“I think that a physical science degree is as good if not better than a financial degree because it trains you to be analytical. If there is anything I am really good at, it’s being a researcher. I’m not a particularly good trader.” – Steve Lescarbeau

I found it ironic that Lescarbeau doesn’t consider himself a good trader, despite the fact that Schwager later notes that Lescarbeau has the most impressive returns of anyone Schwager had interviewed.

I like Lescarbeau’s point that having a physical science degree taught him to be analytical. I have a similar background and can absolutely see the relation. Also, similar to Lescarbeau, I am finding that I prefer doing the research to actually trading. Trading makes me very nervous, but research is relaxing for me. This is a big part of the reason I have shifted my focus to system trading.

“The same qualities that make you a successful person in whatever you’re doing are going to make you successful in trading. You have to be very decisive, extremely disciplined, relatively smart, and above all, totally independent.” – Steve Lescarbeau

I like to think that I have all of those qualities, yet I never think of myself as very successful. I probably just haven’t gotten there yet.

“I may take partial profits on a position, or not go fully long on a buy signal, but I will never hold after a sell signal.” – Steve Lescarbeau (more…)

7 Things You Must Do to Win at Trading.

  
  Education
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1. Managing the risk of ruin.
Do not risk so much on any one trade that 10 losing trades in a row will destroy your account. risking 1% to 2% of your trading capital per trade  is a great baseline for eliminating the risk of ruin.
2. Only trade with a positive risk/reward ratio.
Only take trades where your possible reward is at least two or three times the amount of capital you are risking in the trade.
3. Always trade in the direction of the prevailing trend.
Always trade in the direction of the flow of capital for your specific time frame. Shorting rockets and catching falling knives is not profitable in the long run.
4. Trade a robust system.
Back test and study your trading method, system, or style to ensure it is a winning system historically. The key is that it had bigger winners than losers over the long run in the past.
5. You must have the discipline to take your entries and exits as they are triggered.
You must take your entries when they trigger, your losses when they are hit, and your profits when a run is over to be a successful trader.
6. You must persevere through losing periods.
All successful traders were able to overcome their losing periods to come back and make the big money. If you quit you will not be around for the opportunity to win big.
7. If you want to be a winning trader you must follow your trading plan not your fear and greed.
Emotions will undo a trader more than anything else. Trading too big is due to greed, missing a winning trade due to no entry is a sign of fear, traders must trade the math and probabilities not their own opinions or emotions.

Taking losses

  
  Education
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takinglossesTaking losses is a tough part of doing Day Trading and no one is immune to making mistakes. In fact, professionals know that the sin isn’t in taking a loss, but rather not taking a loss and letting a loser continue to eat away at the equity in a portfolio.
Losers not dealt with are like a cancer which can quickly spread throughout the body if it is left untreated.

Trading wisdom and strategies

  
  Education
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Trading System – According to Howard Abell: The trading system gives the trader the ability to control his or her emotional states rather than allowing them to control him. A system is a disciplined method for organizing dynamic, ever-changing market phenomena.

Risk Control – According to Paul Tudor Jones: 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. If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in.

Psychological Makeup – According to Leo Melamed: You learn to distinguish the good traders from the bad, the successful techniques from the unsuccessful, and the good habits from the faulty. You also learn to distinguish the lover from the fighter, the winners from the losers, the serious from the frivolous, the cerebral from the superficial, and the friend from the foe. But above all, you learn that the psychological makeup of the trader is the single most critical element of success.

The Easy Middle – According to Randy McKay: The beginning of a price move is usually hard to trade because you are not sure whether you are right about the direction of the trend. The end is hard because people start taking profits and the market gets very choppy. The middle of the move is what I call the easy part.

Cut Back Trading Size When Losing – According to Bill Lipschutz: When you are in a losing streak, your ability to properly assimilate and analyze information starts to become distorted because of the impairment of the confidence factor, which is a by-product of a losing streak. You have to work very hard to restore that confidence, and cutting back trading helps achieve that goal.

Have A Predetermined Stop – According to Bruce Kovner: Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I am getting out before I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis.

Accept the Risk – According to Mark Douglas: To whatever degree you haven’t accepted the risk, is the same degree to which you will avoid the risk. Trying to avoid something that is unavoidable will have disastrous effects on your ability to trade successfully.

Making Mistakes Is Part of Business – According to Bruce Kovner: Michael Marcus [another top trader] taught me one other thing that is absolutely critical: You have to be willing to make mistakes regularly; there is nothing wrong with it. Michael taught me about making your best judgement, being wrong, making your next best judgement, being wrong, making your third best judgement, and then doubling your money.

CHANGE IS ESSENTIAL

  
  Education
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The stock market, just like life, can change on a dime.  In the market, just as in life, we must learn to adapt to change.  What separates the great trader from the rest of the crowd is his or her ability to change based on current market conditions.  In other words, NO EGO ALLOWED.  Mark Douglas, in his first book entitled The Disciplined Trader writes,

“There must be a difference between these two types of traders-the small majority of winners and the vast majority of losers who want to know what the winners know. The difference is that the traders who can make money consistently on a weekly, monthly, and yearly basis approach trading from the perspective of a mental discipline.  When asked for their secrets of success, they categorically state that they didn’t achieve any measure of consistency in accumulating wealth from trading until they learned self-discipline, emotional control, and the ability to change their minds to flow with the markets.”

We trade the current market conditions as they unfold with a plan to trade one way or the other.  To do otherwise would be to fight an undefeated foe.

Great Nuggets from the Book-A Better Way to Make Money.

  
  Education
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1.  The secret to losing money in the market is to know why.  “The losers “were ‘playing the market’, not using it intelligently.  The fellow at the other end of the deal, who was using it intelligently, not ‘playing the market’, is the one who got the money.”

2.  “It is an undeniable fact that indiscriminate trading in a hectic market will send one to financial oblivion quicker than any other known process.”

3.  “The most careful preparation-a systematic plan-is one of the essentials of success.”

4.  “Market action is not complex but surprisingly simple.  Yet it is often made to appear complex by newspaper forecasters and market letter writers.”

5.  “Market action is human nature in action.”

6.  All market movements are based on “two deep-seated and entirely natural emotions:  the desire for gain and the fear of loss.”

7.  “So anxious are people to find some talisman, some magic wand, that will help them secure the hidden riches of the market, that they will try anything from coin-flipping to crystal gazing to secure the desired assistance.”

8.  “What marvelous results could be attained in the business of making money if those who buy stocks would take a little time to learn a few simple facts about the market in which they are blindly reposing their faith.”

9.  “Market students are continually diverted from making true evaluations of securities and commodities because they study the statistics made by prices instead of the psychology of prices.”

10.  “Adopt one system of trading and stick to it, just as you employ and stick to one physician in whom you learn to have confidence.”

11.  “One of the most important points in your market education is to learn as early as possible that the customary and supposedly weighty market news is of very small importance.  The news only looks important.”

12.  “Don’t trade just because you can afford to lose.”

13. “Practice makes perfect is an old copybook adage that works well in the market place.”

14.  “If a trade fails to come out right, the error will be found in the operator-not the market.”

15.  “Trading is simple another form of business.  Treat it as such.”

16.  “Trend to the investor is like the vein of gold to the miner, who must follow the vein faithfully if he expects to get the yellow metal.”

17.  “Stocks are made to buy and sell…not to be bought and held.”

18.  No matter what a thing costs, stocks or otherwise, “it is worth only what you can somebody to pay for it.”

19.  People will always be prone to be extravagantly optimistic or dolefully in the slumps and “in this action is unlimited wealth for the men who realize this fact and will use it with confidence and decision.”

20.  “Success is the most desirable thing in the world, but it is an eliminating contest.  It may trample the thoughtless trader into the dust, but it will pour large treasure into the laps of those who work in sincere harmony with its laws.”

Ten Ways to Trade With an Edge

  
  Education
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An edge is an advantage that a trader has over his competitors, allowing him to generate and retain profits from other traders . There can be many types of  trading edges through risk management, psychological management, and through better trading methods.

Here are a few:

  1.  A selective trader that only trades the best set ups, trends, and stocks has the advantage of waiting for the fat pitch and not just swinging at every ball thrown his way.
  2. Simply using correct position sizing can put you in the top 10% of traders simply by not blowing out your account and staying in the game by maximizing winners and minimizing losers..
  3. Risking no more than 1% of your capital per trade brings your risk of ruin down to almost zero and allows the trader to survive losing streaks. You have the edge of being around to have a winning streak later on.
  4. Only taking trades with a risk-to-reward of 3 to 1 or better gives the opportunity to have bigger winners than losers in the long run which is needed to be profitable. 
  5. Trading in the direction of the trend in your time frame gives you an edge over those losing money by fighting the trend.
  6. Having the discipline to follow a trading plan gives you an edge over those that trade based on fear and greed. (more…)

Thirty Trading Rules for Traders

  
  Education
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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.

Three Essential Components

  
  Education
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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.”

My Trading Lessons for Traders

  
  Education
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Read….When ever you are Free.

  • Prepare, be confident & be decisive

  • Follow my trading rules without exception

  • Plan every trade with profit exit, stop exit and risk/reward ranking

  • Trade only when you have time AND you have an edge

  • Formulate and write down a trading/investing plan

  • Exit a position at my stops and not “hope” it will recover tomorrow

  • Trade the market I actually see, not the one I think I will see

  • Focus more on what’s actually happening rather than what I wish would happen

  • Learn to prevent my skepticism and opinion over the economy from keeping me from making good trades

  • Have a plan every day to trade the market and to not let my opinions of the market interfere with my trading

  • Concentrate on rule based trade management and not the outcome of the specific trade

  • Follow price action as opposed to listening to the fundamental “experts”

  • Listen to the market signal rather than market noise

  • Don’t be afraid of making mistakes

  • To pay more attention to technical signals to determine purchase/sell points rather than emotion & personal reasoning

  • Have more confidence in my trade ideas and believe in myself more often

  • Do not have a bias but instead let the charts be the guide

  • Have the discipline and fortitude to stick to my trade plans

  • To improve my organization of stock lists and automation of stock alerts

  • Do not over-leverage

  • Select only the most favorable setups

  • Try not to over analyze every potential trade

  • Lose less when I am wrong

  • Spend less time reading words and more time reading charts

  • Stick with winners and sell the losers

  • Allocate 2-3 hours each day & 5 hours every weekend to finding attractive setups

  • Increase position size and be in the market more (more…)