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3 Trading Principles

  
  Education
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Sharpen Your Edge

“Gaining a competitive advantage is like having a two-edged sword, and you need to keep both of them sharp.  On edge is internal-knowing what unique skills you bring to the table.  The other is external and comes from gathering knowledge that makes it more likely you’ll succeed” 

Keep Your Cool

“Deciding when to cut your losses is one of the toughest decisions for anyone to make, but traders at the top of their game know that they always have to make the decisions they need to make, which may or may not be the ones they wantto make” 

 Get Comfortable With Being Uncomfortable

“In the trading world, you will either make money or lose money on any given trade. All that matters in the end is making more money when you’re right than you lose when you’re wrong.  Knowing this, traders have learned to accept failure as part of the game, but they also use the information they acquire from their mistakes as a learning tool.  Frequently, what they learn from losing money is more valuable than what they learn when they make money” 

Control in Trading

  
  Education
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New traders may get lucky for awhile and bad traders may win big in the short term but in the long term the market gives every trader exactly what they have earned. While traders can win in the long term with many different types of robust trading methods a trader with no self control will not even survive long, they will not be able to make a plan and follow it, they will let fear and greed over take their mind and end up with large losses and the belief  “trading is just too hard” but trading is not hard what is hard is self control, discipline, focus, and keeping the ego in check.

What a trader can control:

  1. Their entry.
  2. Their exit.
  3. Their trading plan.
  4. Their emotions.
  5. Their ego.
  6. Their method.
  7. Their position size.
  8. Whether to trade or not to trade.
  9. How much you are willing to risk per trade.
  10. Themselves.

What a trader can not control.

  1. Market movements.
  2. Volatility.
  3. The trend.
  4. Whip saws.
  5. Political decisions.
  6. News Headlines.
  7. Macro economics.
  8. Every other traders decisions.
  9. The future.
  10. The past.

One  key to trading is to only focus on what you can control, do not worry and stress about what you can not control, and most importantly, be able to know the difference.

Five Rules for Traders

  
  Education
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You can avoid the emotionalism, the second guessing, the wondering, the agonizing, if you have a sound trading plan (including price objectives, entry points, exit points, risk-reward ratios, stops, information about historical price levels, seasonal influences, government reports, prices of related markets, chart analysis, etc.) and follow it. Most traders don’t want to bother, they like to ‘wing it.’ Perhaps they think a plan might take the fun out of it for them. If you’re like that and trade futures for the fun of it, fine. If you’re trying to make money without a plan-forget it. Trading a sound, smart plan is the answer to cutting your losses short and letting your profits run.

Do not overstay a good market. If you do, you are bound to overstay a bad one also.

Take your lumps, just be sure they are little lumps. Very successful traders generally have more losing trades than winning trades. They don’t have any hang-ups about admitting they’re wrong, and have the ability to close out losing positions quickly.

Program your mind to accept many small losses. Program your mind to ‘sit still’ for a few large gains.

Recognize that fear, greed. ignorance, generosity, stupidity, impatience. self-delusion, etc., can cost you a lot more money than the market(s) going against you, and that there is no fundamental method to recognize these factors.

Discipline-Risk Managment-Passion for Traders

  
  Education
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  1. DISCIPLINE: The trader must have the ability to control themselves and follow a plan. Discipline is a required skill in trading without it there is no edge, you are either a gambler or simply trading off fear and greed. You will not be successful, instead you will be gamed by those in control of their emotions.
  2. RISK MANAGEMENT: Risk management must be a top skill for a trader to even survive in the markets. You must structure your risk per trade to be no more than risking 1% or 2% of your trading capital. You have to be able to survive 10 losses in a row. These strings of losses come around more often than a new trader would suspect. If you lose just 5% of your trading capital in each of ten trades you will be down almost 50% and need a 100% return just to get back to even. At this point you are ruined.
  3. PASSION: A trader must love to trade, without a passion for the markets and trading the new trader will not survive the learning process because anyone with common sense would believe that it was not worth the struggle. Passion will be needed to bring a trader through the learning curve and later the losing streak.

Trading Wisdom – Michael Marcus

  
  Education
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winningtradeWhat is the best thing a trader can do to increase their chances for long-term success? Market Wizard Michael Marcus gives us a glimpse with this insightful quote: “Taking advantage of potential major winning trades is not only important to the mental health of the trader but is also critical to winning. Letting winners ride is every bit as important as cutting losses short. If you don’t stay with your winners, you are not going to be able to pay for the losers. In addition to not overtrading, it is important to commit to an exit point on every trade. Protective stops are very important because they force this commitment on the trader.” True words of wisdom!

Greed & Hope

  
  Education
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Always take your profit too soon.

Sell too soon. Don’t hope for winning streaks to go on and on. Don’t stretch your luck. Expect winning streaks to be short. When you reach a previously decided-upon ending position, cash out and walk away. Do this even when everything looks rosy, when everyone else is saying the boom will keep roaring along.
The ONLY reason for not doing it would be that some new situation has arisen, and this situation makes you all but certain that you can go on winning for a while.
Except in such usual circumstances, get in the habit of selling too soon. And when you’ve sold, don’t torment yourself if the winning continues without you.

When the ship starts to sink, don’t pray. Jump.

Learning to take losses is an essential speculative technique. MOST never learn it. Take losses at once and move on. Take small losses to protect yourself from the big ones.
Beware the 3 obstacles to jumping ship:
– fear of regret ( that the loser will turn out to be a winner when you’ve bailed-out )
– Unwillingness to abandon part of an investment ( become willing to abandon )
– Difficulty of admitting you made a mistake.

50 Trading Rules

  
  Education
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1. Plan your trades. Trade your plan.
2. Keep records of your trading results.
3. Keep a positive attitude, no matter how much you lose.
4. Don’t take the market home.
5. Continually set higher trading goals.
6. Successful traders buy into bad news and sell into good news.
7. Successful traders are not afraid to buy high and sell low.
8. Successful traders have a well-scheduled planned time for studying the markets.
9. Successful traders isolate themselves from the opinions of others.
10. Continually strive for patience, perseverance, determination, and rational action.
11. Limit your losses – use stops!
12. Never cancel a stop loss order after you have placed it!
13. Place the stop at the time you make your trade.
14. Never get into the market because you are anxious because of waiting.
15. Avoid getting in or out of the market too often.
16. Losses make the trader studious – not profits. Take advantage of every loss to improve your knowledge of market action.
17. The most difficult task in speculation is not prediction but self-control. Successful trading is difficult and frustrating. You are the most important element in the equation for success.
18. Always discipline yourself by following a pre-determined set of rules.
19. Remember that a bear market will give back in one month what a bull market has taken three months to build.
20. Don’t ever allow a big winning trade to turn into a loser. Stop yourself out if the market moves against you 20% from your peak profit point.
21. You must have a program, you must know your program, and you must follow your program.
22. Expect and accept losses gracefully. Those who brood over losses always miss the next opportunity, which more than likely will be profitable.
23. Split your profits right down the middle and never risk more than 50% of them again in the market.
24. The key to successful trading is knowing yourself and your stress point.
25. The difference between winners and losers isn’t so much native ability as it is discipline exercised in avoiding mistakes.
26. In trading as in fencing there are the quick and the dead.
27. Speech may be silver but silence is golden. Traders with the golden touch do not talk about their success.
28. Dream big dreams and think tall. Very few people set goals too high. A man becomes what he thinks about all day long.
29. Accept failure as a step towards victory.
30. Have you taken a loss? Forget it quickly. Have you taken a profit? Forget it even quicker! Don’t let ego and greed inhibit clear thinking and hard work. (more…)

Costly Mistakes!

  
  Education
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Oops!!A system’s purpose is to ensure that we do not miss a breakout when a real trend comes, because missing a really strong trend is lethal – so lethal that we are willing to pay the price of many small losses, just in case the real one emerges.

Each entry doesn’t guarantee a profit, in fact, each entry likely becomes losses. However, the odds is that if you follow it consistently, in the long run, you come out ahead.

Investing vs Gambling

  
  Education
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“Investors are the big gamblers. They make a bet, stay with it, and if it goes the wrong way, they lose it all.”

Jesse Livermore

Not having an exit strategy before initiating a trading position is worse than gambling, where you realize that the chance to lose is too big, therefore you risk only money you can afford to lose. Not having a stop loss means that you are most likely risking more than you could afford to lose. As they say amateurs go out of business because of taking big losses. Professionals go out of business by taking small profits. Cut your losses short when your stop level is hit. Even more, make sure to put your stop loss order immediately after you initiate a trade. Put your stop loss at a place where the trend you are following will be over. Let your profits run by gradually lifting you  profit protection stop order. In order to maximize your profits you have to be willing to give some of them back.

I” don’t believe anyone ever gets wiped out in the market because of bad luck; there is always some other reason for it. Either you were off when you did the trade, or you didn’t have the experience. There is always a mistake involved.”

5 Fundamental Truth about Trading

  
  Education
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5 Fundamental Truth about Trading

  1. Anything can happen.
  2. Does not need to know what’s going to happen next to make money.
  3. Random distribution between wins and losses for any given set of variables that defines an edge
  4. Edge is nothing more than an indication of a higher probability of one thing happening over another
  5. Every moment in the market is unique.

If you truly believe in this as well, I’d encourage you to write this down and look at it every day before you look at your charts. Make it a point to remember, embrace and apply it.

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