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Trading with No Regrets

  
  Education
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Trading is really not as much of a numbers game as it is a mind game. Winning or losing in the long term will come down to whether you quit or keep going on your trading journey. Trading is not for everyone, there is no easy money in the markets. You will fight for your dollars, you will make money by doing the uncomfortable you will lose money when you think you are in a trade that just can’t lose. The emotional and mental pain will be unbearable if you do not believe in yourself and your method. If you are trading with no plan, no rules, and no system or method you will tend to be very hard on yourself for every losing trade. It was your decision that made you lose money, you will beat yourself up, and feel stupid. You will have 100% accountability for your mistake.This will not work.

What you must do is transition the accountability from yourself to your system or method. You must trade a proven methodology that will win based on the market action not your personal actions. You can not control odd out of left field events.  You can not help it if you trade a trend or a pattern and suddenly it loses. All you can do is take trades with great probabilities that match your beliefs about the market and if they are losers then you can’t blame yourself you can only cut your losses and look for the next trade that meets your parameters.

When you can shrug off a loss with no emotional or mental pain and move on to the next one you are at the next level. All you can control is your entry parameters, risk management, position size, exit, and mind set, the market determines whether you win or lose, not you.  You must have self confidence and faith in a proven method, take your trades let the market separate the winners from the losers.

Expect To Be Wrong

  
  Education
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The reason I bring this up was to share with you two reactions I got when describing these recent trades and cash holdings. I had two separate conversations in July — one with a well known Trader, the other with a Fund Manager (known in the industry, but not a household name) — about our posture prior to yesterday’s drop.

The two responses were polar opposites, 180 degree apart.

The trader respected the discipline of honoring stop losses. Good traders know that opportunistic speculation is a process. Ignore any one single outcome, focus on the methodology that can consistently avoid catastrophic losses, manage risk, preserve capital. A good process can be replicated, a random spin of the wheel cannot.

The fund manager, who was having a decent year being long high vol names (at least before Wednesday), was having none of it. “Stops are for losers” is a quote I shall long remember (and email him after he blows up). Apparently, real men have the courage of their convictions.

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Rather than fight our foibles, people should admit this error stream is real, and repair the errors of our ways as soon as we discover them. I have noticed over the years the difficulty some people have in cutting losses, admitting an error, and moving on. Way back in 2005, I wrote a piece advising investors that they should Expect to Be Wrong (originally published 04/05/05). I noted that “I am rather frequently — and on occasion, quite spectacularly — wrong.” However, if we expect to be wrong, then there will be no ego tied up in admitting the error, honoring the stop loss, and selling out the loser — and preserving the capital.

This is a recipe for investing disaster. We humans make 6 billion errors per day, at the very least. The biggest one is not acknowledging this simple truism.

5 Lessons From Legendary Traders: Michael Marcus

  
  Education
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Lesson #1: Each Trader has A Distinct Style
“You also have to follow your own light. Because I have so many friends who are talented traders, I often have to remind myself that if I try to trade their way, or on their ideas, I am going to lose. Every trader has strengths and weaknesses. Some are good holders of winners, but may hold their losers a little too long. Others may cut their winners a little short, but are quick to take their losses. As long as you stick to your own style, you get the good and the bad in your own approach. When you try to incorporate someone else’s style, you often wind up with the worst of both styles. I’ve done that a lot.”
This is a very important point: You have to find out your strength and weaknesses and develop a trading style that suits your personality best. If you are good at holding winners – trade trend-following systems. If you are comfortable with several consecutive small losses and several big wins – trade chart patterns. If you are highly disciplined and not too aggressive – you could focus only on high-quality trades which come rarely. Let your personality choose your trading style.

Lesson #2: Always Use Stops
“Always use stops. I mean actually put them in, because that commits you to get out at a certain point”
This one’s a no-brainer, but worth mentioning. Many beginners tend to discard stop losses after seeing several trades touching their stop loss and then continuing in their direction. Very wrong approach. Putting stop loss is crucial for your trading success and performance. If you stop loss is placed in logical place (A.K.A: Support or Resistance level), you should have no reason not to respect it – if price touched it, the basis for your position has voided and staying in the position is highly risky. Also, always have an emergency stop in case of sudden news or catastrophe. (more…)

Do You want to Win or Lose at Trading?

  
  Education
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There are things that make you win in the stock market over the long term and then there are things that make you lose quickly even in the short term. The key to trading success is learning the difference quickly and doing what really works not what you emotions or opinions tell you to do.
If you want to win then you must create your own trading plan and follow it, if you want to lose just trade whatever you want whenever you want based on your own opinion.
If you want to win then you must control your risk carefully with only 1% or 2% of your capital at stake in every individual trade, if you want to lose then just trade huge position sizes, put all your chips on the table.
If you want to win plan your entries and exits before you enter a trade then follow them, if you want to lose ask for everyone’s opinion and just make decisions based on other people.
If you want to win cut your losses short and let your winners run, if you want to lose hold your losers and hope that they come back and sell your winners quickly to lock in gains.
If you want to win trade only the best high quality stocks in the market, if you want to lose trade the junk and hope for a miracle come back.
If you want to win then build complete confidence for your system through chart studies and back testing, if you want to lose trade with no idea of if what you are doing even works.
If you want to win go with the current trend of the market, if you want to lose fight the trend and trade against it.
If you want to win then go long the hottest stocks in a bull market, if you want to lose short the hottest stocks in a bull market.
Do what makes money not what you feel like doing.

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

  
  Education
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winners-and-losers1Well, 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.

4 Rules for Traders

  
  Education
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1. Average Winners Not Losers.  It is not “don’t frown, average down”; it is applying the discipline to cut losers short and adding to winners that separates the successful from the unsuccessful.  If you have a winning stock then add to it.  If you have a losing stock then get rid of it. 

2.  Never Let a Winner Turn Into A Loser.  Greed is the cause of this mistake.  Let the market tell you when to exit a trade, not whether you have a profit or not.  “If your trade is acting well, as defined by key indicators, and the market activity is supporting your position, stay in.  If not, its go time!” Do not let a good profit vanish into thin air because you want more than the market is willing to give.

3. Never Mix Disciplines.  If you day trade then day trade and do not let a day trade turn into a swing trade.  If you swing trade do not let your swing trade turn into an investment. Follow the rules based on the discipline of your time frame.

4.  Never Try To Trade Back A loser.  In other words, each trade is a new one and should not be used to win back money lost in the last trade.  Always trade in the present not in the past where too many emotional and psychology factors can affect the current trade.  Revenge does not pay in or out of the market. 

Patience & Confidence

  
  Education
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The market, as much as anything in life, has a way of transforming us from cool, calm, collected individuals into irrational, impulsive, disoriented speculators. Clearly it’s in our best interest in terms of long-term profitability to spend the majority of our time in the former group rather than the latter.

Acknowledging when things aren’t going our way is the first step to becoming a more patient trader, but it’s having the patience to wait things out until we find a more harmonic rhythm that contributes immeasurably to our success.

It’s the losing positions that invariably do traders in. A number of the bigger losers many traders experience come as a result of not being patient and waiting on the right opportunity. Many of us tend to press when things aren’t working out, or we’ve just had a losing trade.

Traders can begin to play catch-up and go on an emotional tilt. It’s the paradox of trading in many ways. The same competitive drive we use to achieve our success has components that can hasten our failure.

When going through my daily checklist, I send out to members of my mentoring program, I always emphasize that the markets provide a multitude of chances to trade. One need not force action when the setups aren’t right. Traders who get into positions with “the best of it” or “an edge” significantly increase their chances for success in the long run.

Confidence comes from a number of sources and is developed through successful implementation of a strategy. It is also a byproduct of the unwavering belief that what you are doing will be successful. This is critical because, at the moment of truth, when you are in a position, self-doubt has a way of creeping in. It’s tempting to deviate from your plan at these times.

While I’m not suggesting that you be inflexible in your position management, I am saying that having belief in what you are doing goes a long way toward your success. In fact, it’s the confidence in your trading skill set that can give you the ability to make a decision to get out of a position, knowing that things aren’t working out. This conviction is a hallmark of great leaders and inspires others.

10 Things that each Trader Must Master

  
  Education
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THE THREE M’s: Mind (psychology), Method (a trading edge) and Money (risk or money management).
But what does each of those things mean? Many of these answers came from other great traders sharing their wisdom in books and my own successful trading through all types of markets with bigger and bigger accounts that created a need for me to up my game and get better and better.
Mind (psychology) You must have the right winning mind set to make it in trading.
Discipline to follow your trading plan.
Perseverance to keep going through the losing periods.
Faith that your trading method works. (more…)

Letting Winners Turn in to Losers

  
  Education
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Trading problem that I want to focus on is allowing winning trades to turn in to losers. Many of us have probably had a time when a trade was making big loot, and we started to count the profits like they were ours before we exited the trade. When the stock started to lose the ground it had gained, we avoided selling because we had built up an emotional attachment to the paper profits we had seen. Instead of selling the stock to lock in some gain, we opted to hold out for the stock to go back to where it used to be, promising to sell when it came back to the point where we felt good about the trade. The stock drifts lower, and eventually the gain turns in to a loss. We ultimately sell it at the bottom, swearing never to do it again. But without some reprogramming, we probably will.

The Solution

Like Kenny Rogers used to sing, “Don’t count your money, when you are sitting at the table, there will be time enough for counting, when the dealing’s done.” Do not calculate your profits before you lock them in. Avoiding the profit watch will help you avoid an emotional attachment to the paper profits, giving you greater clarity to take the exit door when the market tells you it is time to do so.

I hope this outline of mental problems and some solutions helps you become a better trader. The difference between those who succeed in trading and those who fail is not the system they play, but how well they play it. Your mind is a powerful thing, don’t let it beat you in the market.

The Psychology of Trading

  
  Education
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There is an old saying that the market is driven by fear and greed. Anyone that has placed more than a couple of trades will surely have experienced these two emotions. All traders experience emotion. The distinction between a successful trader and an unsuccessful trader comes down to how they deal with that emotion. Let’s look at how these emotions affect a successful trader and an unsuccessful trader in various scenarios.

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. Of course, this trade is a winner. Now to make the situation worse, you then ‘chase’ the move, and as soon as you enter the trade it immediately reverses, thus giving you another loss – this is now 3 in a row. Ok, one more ‘try’ – this can’t happen on every trade can it? (more…)

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