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Losers Average Losers

  
  Education
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There is a famous picture of Paul Tudor Jones relaxing in his office with his feet kicked up. A single sheet of loose-leaf paper is tacked on the wall behind him with the simple phrase written out in black marker: “Losers Average Losers”. Trite meaningless talk? Not so fast.

Famed trader Jesse Livermore warned 100 years ago against averaging losses. For example, you buy a stock at 50, and two or three days later if you can buy it at 47, you average down by buying another hundred shares, making an average price of 48.5. Having bought at 50 and being concerned over a three-point loss on a hundred shares, what rhyme or reason is there in adding another hundred shares and having the double worry when the price hits 44? At that point, there would be a $600 loss on the first hundred shares and a $300 loss on the second shares. If you are able to apply such an unsound principle, you can keep on averaging down by buying 200 at 44, then 400 at 41, 800 at 38, 1600 at 35, 3200 at 32, 6400 at 29, and so on (source: Jesse L. Livermore, How to Trade in Stocks: The Livermore Formula for Combining Time Element and Price).

Losses are a part of the game. You want no losses? You want positive returns every month? It does not work that way, that is, not unless you were lucky enough to be invested in the Bernard Madoff Ponzi-scheme which has resulted in assorted criminal convictions and a few suicides. Losses are not your problem. Its how you react to them. Ignore losses with no plan, or try to double down on your losses to recoup, and those losses will come back like a Mack truck to run over your account.

Wisdom Not to Be Ignored

Don’t frown, double down! Not smart strategy.

Escalator up, express elevator down.

You can’t win if you are not willing to lose. It’s like breathing in, but not breathing out.

The importance of success in succeeding at trading.

  
  Education
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Different shapes and forms.

Failure comes in all different shapes and forms.  The distance you fall after a failure,  time it took to get to the failure,and whether you get back up determines that shape and form.   I realize there are a million posts on why failure is important but success is important, especially in trading.

Failure is different in trading.

Failure/losing in trading is not the same as failure in other contexts.  What is working right now is always changing. What happens to many traders is that they waste money until their system is working again or they run out of money before it happens.  I believe in having a process so you can adapt to that change.  When you find something that works continue to do it till it does not work.  A 100x easier said than done.

Trading is gambling for some. (more…)

15 Mistakes by Traders

  
  Education
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1) Always wants to be in the game .. more time means less money
2) Wants money quickly .. you can’t control the market 
3) Finds it very inexact – which system – how much to risk – there are no hard and fast rules .. 
using a positive expectancy system with a clear edge will work out over a period of time if risk is proportionate
4) Finds it boring to trade small
Since no trade is a sure thing and even with positive expectation, it is possible to have a string of 10 consecutive lossees. It is important to risk less to give probabilities a chance to work in your favour
5) Wants immediate gratification – can’t wait
You don’t control the market
6) Keeps looking for new indicators/systems – the sure system
There is no definiteness..
7) Keeps trying new indicators
Nothing works all the time
8) Keeps switching between different techniques – he wants the techniques to work 100% of the time
Nothing works all the time.. Instead stick with a few proven systems and trade them all the time
9) Very Adventurous
You are here to make money and not for thrills
10) Wants to make big money overnight.. Multiple positions – excess leverage
Since you can never be sure if the next trade is a winner or if the next 10 trades are losers, why would you want to risk too much (more…)

Cut Losses Short

  
  Education
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Cut losses short is the sister rule to the let profit run, and is usually just as difficult to implement. In the same way that profitability comes from a few large winning trades, capital preservation comes from avoiding the few large losers that the market will toss your way each year. Setting a maximum loss point before you enter the trade so you know before-hand approximately how much you are risking on this particular position is relatively straightforward. You simply need to have a exit price that says to you this trade is a loser and I will exit before it gets any bigger. Due to gaps at the open, or limit moves in futures we can never be 100%
certain that we can get out with our maximum loss, but simply having the rules, and always sticking to it will save us from the nasty trades that just keep on going and going against our position until we have lost more than many winning trades can make back.

If you have a losing position that is at you maximum loss point, just get out. Do not hope that it will turn around. Given that trades are either winners or losers, and this one is shouting Loser at you, the chances that it will turn around and become a large winner is tiny. Why risk any more money on this losing trade, when you could simply close it out (accept the loss) and move on. This will leave you in a much better place financially and mentally, than holding the position and hoping it will go back your way. Even if it did do this, the mental energy and negative feelings from holding the losing position are not worth it. Always stick to your rules and exit a position if it hits your stop point.

Consecutive Loses

  
  Education
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loser-1

You go long and the market immediately goes down – you go short and the market immediately goes up.  That’s 2 consecutive losses AND you are getting a little ‘anxious’ so you don’t take the ‘next’ trade and it of course works.  BUT to make the situation worse you then ‘chase’ the entry and it immediately reverses – another loss AND this is 3 in a row.  Ok 1 more try – this can’t happen on every trade can it – pray mode?   
This time though you will be real clever.  You have at least noticed that the market is in a range AND it’s the bounce from the low/retrace from the high that is causing all the problems.  So this time the next trade you take will be a range extreme fade AND the hell with your trading method.  The market is at the range low AND per your new ‘on the fly’ plan you go long AND the range immediately breaks out giving you consecutive loser #4 – trading against a method trade that is going far enough to pay for the previous 3 losers and make you net ahead.   
Now what are you supposed to do – QUIT?  AND to be sure that there is no more temptation – your throw your computer out the window and dive out right behind it.  You are in a trading psychology spiral.

The Importance of Timing the Market

  
  Education
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Any investor can find and research the “greatest” stock on the market; one with huge potential but if the general indexes are negative, it will most likely be the wrong time to buy. A stock with accelerating earnings, rising sales, an up-trending chart pattern and a strong industry group may sound excellent to buy on the surface but will mean absolutely nothing if the market is positioned to move in the opposite direction of your expectations. As soon as a stock is purchased, the time comes for an investor to make a decision to hold or to sell. If the position shows a profit, hold as your judgment is correct. If the position shows a loss, cut it quickly and don’t rationalize the situation before the loss doubles in size. Timing will play an important role in determining if you are right or wrong.

Losers must be cut quickly, long before they materialize into enormous financial disasters. The company and underlying stock may not be a loser but rather your timing may be premature to a strong movement, forcing you to sell on a pullback. After a stock is cut from your portfolio, the transaction must be forgotten about and eliminated from your subconscious mind and/or emotional bank. This may sound as if I am contradicting myself from Monday but I am not. I said the transaction must be eliminated from your memory bank but not the actual trade. (more…)

What Not to Do-What to Do

  
  Education
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What Not to Do

  1. Have an opinion. One sure way to find yourself trading against the market is to have a market opinion. Trading with a rigid belief about what the market will do next can limit your ability to see what the market is actually telling you. 
  2. Have someone else’s opinion. Adopting some market guru’s market opinion is actually worse than having your own. Market gurus are notoriously inaccurate in their predictions.  Embracing another’s market judgment prevents you from learning to read the market on your own. Besides, it’s doubtful the guru will be texting you to let you know when his or her opinion has changed.
  3. Make your opinion public. Putting your bias into a chat room or forum thread makes it public. Making something public gives it a psychological life of its own. It’s hard to back off an opinion once you have announced it to others. 
  4. Let your ego get involved. Everyone wants to be right. In trading, learning to accept being wrong and the losses associated with being wrong is a big part of the game. This is no place for big egos.
  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 an inflexible bias. Identify areas where the market might turn, break out, or continue, and think through what that would look like. Anticipate the alternative ways the market may trade. When you see the market trading as anticipated, you already know what to do.
  2. Keep your own counsel. Avoid gurus. Jesse Livermore viewed trading as a “lone-wolf” business, and it is. 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 to be right. Ask yourself, “What is more important, being right or making money?” Then, make the correct decision.
  5. Cut losses short. Use hard stops and be merciless with losing trades. When the market turns against you, exit.

40 TRADING TIPS

  
  Education
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1. Trading is simple, but it is not easy.

2.  When you get into a trade watch for the signs that you might be wrong.

3.  Trading should be boring.

4.  Amateur traders turn into professional traders once they stop looking for the “next great indicator.”

5.  You are trading other traders, not stocks or futures contracts.

6.  Be very aware of your own emotions.

7.  Watch yourself for too much excitement.

8.  Don’t overtrade.

9.  If you come into trading with the idea of making big money you are doomed.

10.  Don’t focus on the money.

11.  Do not impose your will on the market.

12.  The best way to minimize risk is to not trade when it is not time to trade. 

13.  There is no need to trade five days a week.  

14.  Refuse to damage your capital.

15.  Stay relaxed.

16.  Never let a day trade turn into an overnight trade.

17.  Keep winners as long as they are moving your way.

18.  Don’t overweight your trades.

19.  There is no logical reason to hesitate in taking a stop.

20.  Professional traders take losses because they trust themselves to do what is right.

21.  Once you take a loss, forget about it and move on.

22.  Find out what loss parameters work best for your setup and adjust them accordingly.

23.  Get a feel for market direction by “drilling down” (looking at multiple time frames).

24.  Develop confidence by knowing and executing your trade setups the same way every time.

25.  Don’t be ridiculous and stupid by adding to losers.

26.  Try to enter a full size position right away.

27.  Ring the register and scale out of your position.

28.  Adrenaline is a sign that your ego and your emotions have reached a point where they are clouding your judgment.

29.  You want to own the stock before it breaks out and sell when amateurs are getting in after the move.

30.  Embracing your opinion leads to financial ruin.

31.  Discipline is not learned until you wipe out a trading account.

32.  Siphon off your trading profits each month and stick them in a money market account.

33.  Professional traders risk a small amount of money on their equity on one trade.

34.  Professional traders focus on limiting risk and protecting capital.

35.  In the financial markets heroes get crushed.

36.  Stick to your trading rules and you will never blow up your trading account.

37.  The market can reinforce bad habits.

38.  Take personal responsibility for each trade.

39.  Amateur traders think about how much money they can make on each trade.  Professional traders think about how much money they can lose.

40.  At some point all traders realize that no one can tell them exactly what is going to happen next in the market.

Perfectionism And Trading

  
  Education
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Perfectionism: Many traders try very hard to always be right. If the market shows that they are wrong with a loss, they work very hard to turn that loss into a profit. They may average down on a losing position or just hold the stock after their stop price has been exceeded with the hope that the market will turn around and turn their loser into a winner. It is the pursuit of perfectionism that causes us to ignore that trading stocks is a matter of probability. Trying to always be right leads to failure, for eventually, one of those losers fails to turn around and gives the trader a portfolio crushing loss.

12 Difference between Losers & Winners Traders

  
  Education
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1.       Losers trade against the trend, but winners trade the impulsive wave of the current trend.

2.       Losers have no money management because they aim quick profit; but winners target steady profits by risking 2 or 3% of their investment.

3.       Losers don’t set stop loss order expecting to be faster then the market in case of reversal; winners know that any time news can make the price reacts suddenly. Therefore use protective stop loss in case of news release.

4.       Losers have no trading plan, they emotionally jump in and out of the market when the price moves; winners build solid entry and exit plans.

5.       Losers cut early their winning trades and let losses run and wipe out their account; but winner s cut quickly their losses. When the trade is positive, they set the stop loss to the break even to protecting their profit. Otherwise, they open to 2 lots to closing the first lot when the stop loss value is reached and let the second winning trade run with a trailing stop from the breakeven until it is touched.

6.       Losers do trade many strategies at the same time, but have mastered none of them; winners master one successful strategy and move to the other.

7.       Losers think the market or the broker is against them, winners don’t fight against the market they try to understand it; they know how to choose between brokers with objective criterions.

8.       Losers think Forex is gambling; but winners develop skills, discipline, self control, and patience, they work hard for being successful traders. Winners learn from their mistakes and constantly improve their main trading strategy.

9.       Losers perform emotional trading after the release of alarming news, winners respect their trading plans.

10.   Losers do overtrading, they even trade at the daily pivot point; winners trade the best opportunities at support or resistance according to the price reaction.

11.   Losers can trade a bad risk reward opportunity; winners aim good risk reward with ratio such as 1/3 or 1/4. A won trade protects their portfolio from several small losses.

12.   Losers use any strategy or expert advisor without back testing it; but winners know that long term profitability is one of the key of Forex trading success. Winners don’t focus on the percentage of winning trades.

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