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Speculation drives human progress

  
  Education
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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…)

What's the difference between winning traders and losing traders?

  
  Education
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Well, first, there are a few similarities. Both are completely consumed by the idea of trading. The winners as well as losers have committed to doing this, and have no intention of ‘going back’. This same black-and-white mentality was evident in their personal lives too. But what about the differences? Here’s what Williams observed:

The losing traders have unrealistic expectations about the kind of profits they can make, typically shooting too high. They also debate with themselves before taking a trade, and even dwell on a trade well after it’s closed out. But the one big thing Williams noticed about this group was that they paid little attention to money management (i.e. defense).And the winners? This group has an intense focus on money management, and will voluntarily exit a trade if it’s not moving – even if it’s not losing money at that time! There is also very little internal dialogue about trade selection and trade management; this group just takes action instead of suffering analysis paralysis. Finally, the winning traders focused their attention on a small niche in the market or a few techniques, rather than trying to be able to do everything. Hopefully the second description fits you a little better, but if the first one seems a little too familiar, you now at least know how to start getting past that barrier.

Symptoms of fear- For Traders

  
  Education
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  • Jumping into unplanned trades because you fear being left out 
  • Hesitate in pulling the trigger because you fear the prospects of a loss 
  • Cut winners short in fear of giving prof its back, affected by noise 
  • Hang on to losing trades because you fear taking the real loss 
  • Feeling helpless about trading results 
  • Fear of missing out on trade 
  • Afraid to pull the trigger on a trade

     

    Feeling paralyzed once in a trade 
  • Living in denial about results 
  • Rationalizing poor results 
  • Chasing big moves only to find you bought top and sold low 
  • Not taking stops 
  • Take small gains to “catch up”, market leaves you behind
  • Winners turn to losers and then you get out 
  • Wanting to get back at market 
  • Experiencing large mood swings; big highs, deep lows, anger and /or depression

Difference

  
  Education
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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. 

EXIT in Trading

  
  Education
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exit_strategy1Exit– The exit is critical to being a successful trader. Let your winners run and your losers run out quickly. Two factors determine your exit, the Target and the Stop loss you have set on entering the trade.

1. The Target is determined by the type of market and the trading history of the stock.

2. If the trade proceeds in your direction move the Stop loss keeping it tight.

3. It the trade continues to move, you may want to take your money off the table!

4. Profits should be taken before reaching a S/R. SO WHAT if it continues to run after you left!

5. Take Profits quickly and often! And remember discretion is the better part of valor.

6. The two most important factors in determining the Stop loss are the last S/R and providing enough margin for the trade to be successful. You must balance these against each other.

7. The Stop loss can be predetermined by your maximum loss limit but understand a small loss limit can positively impact your probability of success.

8. I must balance courage and common sense when staying in the trade. The money may be better used in another trade.

9. Remember small losses are the key to success in an environment where you may be wrong greater than 50% of the time.

10. Don’t give back, remember you can always get back in!

11. Don’t change my rules and therefore my settings.

Successful Traders Must Have Discipline

  
  Education
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Discipline is paramount for success over the LONG term. Every trader has a limited amount of capital (money) available to trade. The trader without discipline will make trades, be quick take the profit when he is right, and call his trade an investment when he is wrong. 

This action of cutting winners and letting losers run will almost certainly eventually lead to trading capital being wiped out. The natural tendency in humans is to take profits.  Learning to cut losing positions and let winners run is a skill that must be developed. 

 Have you ever caught yourself saying any of the following statements to justify inaction on cutting a losing position?

  •  I am holding on to this trade and hoping it recovers 
  • If I didn’t own it already I would be buying it here
  • I just want to get back to break even and then I will get out
  • The market is wrong

Everyone has said these things at some point in their trading lives, but let me tell you, any time your position requires HOPE it is likely HOPELESS!

If you say I would buy it here and you don’t want to buy more – you may be better off selling what you have!

The market doesn’t know or care what price you bought a position. The market price of a stock is the value of that stock right here, right now!  Even though the market presents opportunities, market pricing is not WRONG. 

While I am not giving buy sell or hold advice, I would strongly recommend that when you find yourself staring at a losing position consider selling it! If you  close it out completely,  you can really make an honest determination when you ask yourself, “Do I REALLY want to own it here?” 

Too often I see traders let their existing positions do the talking for them. Don’t fall into that trap!

‘A Trader’s Self-Evaluation Checklist’?

  
  Education
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Are trading losses often followed by further trading losses? Do you end up losing money in ‘revenge trading’ just to regain money lost? Do you finish trading prematurely when you’re up money, failing to exploit a good day?

Do you cut winning trades short because, deep inside, you don’t think you’ll be able to make large profits? Do you become stubborn in positions, turning small losers into large ones?

Is trading making you happy, proud, fulfilled, and content, or does it more often leave you feeling unhappy, guilty, frustrated, and dissatisfied? Are you having fun trading even when it’s hard work?

Are you making trades because the market is giving you opportunity, or are you placing trades to fulfill needs — for excitement, self-esteem, recognition, etc. — that are not being met in the rest of your life?

Focus On Playing To Win – Want To Know Why?

  
  Education
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The focus on avoiding losing is an easy condition to slip into.  I found it especially so if you’ve had some tough periods in your life.  Perhaps you lost a business, blew up a trading account or went for that promotion and failed to get it.  

It is particularly easy when you are taking down data to analyse your performance as most effective performers do.  That data is right in front of you.  Clear as day.  You can see exactly how many losing trades you have had, how many losing days, weeks etc.

You have an understanding that it’s all about probabilities and that if you follow the old saying “limit your losses and let your winners run” you can be a successful trader with a seemingly bad win rate (30-40%).  As long as your winners outshine your string of small losers you will be OK.   (more…)

What's the difference between winning traders and losing traders?

  
  Education
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Well, first, there are a few similarities. Both are completely consumed by the idea of trading. The winners as well as losers have committed to doing this, and have no intention of ‘going back’. This same black-and-white mentality was evident in their personal lives too. But what about the differences? Here’s what Williams observed:

The losing traders have unrealistic expectations about the kind of profits they can make, typically shooting too high. They also debate with themselves before taking a trade, and even dwell on a trade well after it’s closed out. But the one big thing Williams noticed about this group was that they paid little attention to money management (i.e. defense).And the winners? This group has an intense focus on money management, and will voluntarily exit a trade if it’s not moving – even if it’s not losing money at that time! There is also very little internal dialogue about trade selection and trade management; this group just takes action instead of suffering analysis paralysis. Finally, the winning traders focused their attention on a small niche in the market or a few techniques, rather than trying to be able to do everything. Hopefully the second description fits you a little better, but if the first one seems a little too familiar, you now at least know how to start getting past that barrier.

20 Trading Rules for your weekend

  
  Education
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1.        KNOW THYSELF
What kind of trading style fits your personality…Trend following? Day Trading? Buy and hold (please NO)? Next, what do you want to accomplish with your trading…Monthly Income? Long-Term Growth? Risk Aversion? And finally, you must have a grip on your emotions, because you will experience failure and success in trading and you need to know how you will react to both.
 
2.        KEEP IT SIMPLE
You should be able to describe each trading strategy in your war chest on a 3×5 index card.  There are so many different trading tools and indicators out there that it is easy to make trading and investing harder than it is. Find a few technical and/or fundamental indicators that you can apply to your trading, and master them.
 
3.        DIVERSIFY 
Specialize in a few different trading strategies and then spread your risk out across multiple asset classes using those trading strategies. Make sure all of your trades are not dependent on the same sector, commodity, industry, or idea. 
 
4.        LOSERS AVERAGE LOSERS
Only losers add to losing positions. If a trade is going against you, move on and find another trade. It’s not about pride, it’s about profits.
 
5.       NEVER STOP LEARNING
 You must constantly make an investment in your trading education. Read books, go to seminars, or talk to other traders, because over time the traders that make a commitment to never stop learning will be the traders that stay in the game and are able to adjust their trading style to any market environment.   
 
6.        CREATE A TRADING PLAN
Having a trading plan creates discipline. Why are you making this trade? What’s your risk? What’s your reward? How much margin is required? What will you do if things get bad, or really good? These are questions you should be able to answer on every trade you execute.   
 
7.        BAD TRADE MOVE ON
I don’t care who you are, you are going to have bad trades. When you have a bad trade, take a break from trading, go to a movie, or kick the dog (once), but don’t sit around and pout.   It’s important that you move on and start planning how you are going to get it back. 
 
8.        TRADE WITH CONFIDENCE
Trust your research, feel confident in the time and energy you have put into your trading strategy and know that no matter what the market does in the short term, you have the ability to make money in the long term. 
 
9.        THE MARKET IS GOING…????
Nobody knows where the market is going and you don’t either.    So pick trading strategies that allow a little wiggle room in case you wake up one morning and the market doesn’t do exactly what you told it to. (See trade schools)
 
10.    DICSIPLINE
 This word sums up a long term trader. You must have the discipline to follow your systems and manage your emotions hour after hour, day after day, year after year. If you are undisciplined in other areas of your life, don’t be surprised if one day you break your trading rules. You must practice discipline 24 hours a day.  (more…)
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