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Behavior Modification

  
  Education
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Behaviour ModificationThe big mistake made by traders is thinking and expecting trading to be a favorable game. Trends both short- and long-term do exist but not 100% of the time.

The correct way to control positions is to only hold them once they prove to be correct. Let the market tell you your position is proven correct, but never let the market tell you that your position is wrong. You, as a good trader, must always be in command of knowing and telling yourself when your position is bad.

Your exposure and risk is much higher if you let the market prove you wrong instead of your actions removing positions systematically unless or until the market proves your position correct. You decide what is correct according to your plan.

You never want to be in a position that is never proven correct. By making the market prove you correct in order to hold a position is acknowledging that trading is a losers’ game and not a winners’ game.

What makes this strategy more comfortable is that you must take action without exception if the market does not prove the position correct. Most traders do it the opposite by doing nothing unless they get stopped out, and then it isn’t their decision to get out at all — it is the market’s decision to get you out. Over time it has proven to be the rule which keeps the losses small and keeps a trader swift and fast to take that loss.

Give It Up

  
  Education
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Sometimes, it’s the right thing to do. Traders must learn to honor stops and accept losses — that’s just part of the game.

Honor Your Stop

Why is it so hard to honor your stops? It is because we are taught not to quit in life. In trading, quitting is often the thing to do. If you are new to trading or lack discipline, you must place actual stops. You cannot say that you will exit the market if it goes against you by X amount and then sit there like a deer in the headlights as the market blows past that stop.

Placing actual stops makes your decision a passive one and not an active one. The market will make the decision for you if you are wrong.

Once you gain experience, confidence and discipline, you can use mental stops to help avoid being stopped out under certain specific conditions. However, when learning or having difficulties following your plan, you should place actual stops.

View A Potential Loss As A Cost

There is a cost to doing business in any field. You will have to pay for office supplies, computers, printers, and inventory if you are selling something tangible. When you run low on supplies or inventory, you accept the fact that you have to buy more. A loss in trading must be viewed the same way. It is simply the cost of doing business.

5 Naked Truth about Trading

  
  Education
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  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.

How does the mind of a trader work?

  
  Education
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MindpowerIn order to understand behavioral finance and crowd behavior on the capital market, first of all we need to understand the factors that influence the trader mindset. Traders are “misled” by many things. Let us put these factors in two main categories, depending simply on their source, external or internal.

The most important external factor is “everyone else”, the trading crowd, the general opinion. We form an opinion about the others. We believe them to be either smart or stupid, either right or wrong, then choose one of the two main psychological trading strategies: “go along to get along” or be a contrarian. Then we have other external factors like payoffs, scale, psychological and academic background, social structure, external advisory and resources. (more…)

Quetions after the Loss

  
  Education
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When you take a hit, you have got to think your way through it logically.

Questions to ask yourself when you have taken a hit.

What is the lesson here???

What did I learn????

How can I avoid this next time????

What is my strategy the next time I encounter this situation????

Did I remember to pat myself on the back for the good trades this month?????

Did I remind myself that I have had many more successes this month??????

Did I remind myself that this is just an opportunity to do it better next time?????

Did I use proper discipline????????

Did I wait for a proper trade set-up??????

Did I follow my trading rules????????

How long am I going to wallow here???????

Did I remind myself that the market is very generous and will always give me plenty of opportunities for profit???????

Do I have more money now than I did at the beginning of the month????

If YES, you are ok.
You are out to win the war, though you may lose a few battles.

If the answer is NO and you are consistently taking hits,
then STOP and RETHINK your strategy, There is something WRONG!

No one can tell you how to trade; all they can do is share their experience and you will have to tweak it to fit your trading style. Thinking through your losses logically will give you the best advantage over reacting emotionally .

Irrational Exuberance

  
  Education
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k6779Robert J. Shiller

Shiller’s book presents yet another correct view of the issues that so many people refuse to confront. These are the very issues that cause people to lose. Perhaps, one day investors will begin to appreciate uncertainty as something that can be managed. If people refrained from being overconfident or indulging in their magical thinking and then started to manage uncertainty as Trend Followers do — there might actually be the risk of no more trends!

Is it likely? No. For trends to stop investors would need to realize that news, personal opinions, tips, etc. have no relevance to properly making a decision. Trend Following trading takes advantage of the psychological weaknesses that most people possess. Trend Followers disarm the magical thinkers by winning their losses in the great zero sum game.

Ponder the wisdom:

Everyone wants to be rich, but few want to work for it.

9 Trading Wisdom for Traders

  
  Education
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NEVER THROW MORE MONEY AFTER A LOSING POSITION

Never add to a losing position under any circumstances. Throwing more money at a losing trade will burn your capital faster than you can imagine. This is the main contributor that eliminates losing investors from the trading game. The only thing that happens when you buy more of a losing position is that your net worth declines. You hope that it may turn around eventually and your decision to buy will prove fortuitous. For every example of a fortune from an unexpected turnaround, there are ten examples of bleak outcomes.  

 

ALWAYS INVEST ON THE WINNING SIDE

Do not worry about trading on the bullish or bearish side, but always trade on the winning side. This is a brilliant piece of wisdom. Learn to master the art and science of investing on the winning side. You should be willing to change sides immediately when one side has gained the upper hand. You cannot stay rigid in your positions because the market is dynamic. Keep a close eye to see if the facts have changed regarding the company. If the facts have changed, you must change.

 

DO NOT HANG ONTO A LOSING POSITION

Failure to admit you were wrong and holding onto losing positions will cost you money. Watching your capital deplete in front of your eyes is de-motivating and mentally exhausting. However, your mind will be even more exhausted if you hold onto a losing trade. You will get more and more fearful with each passing minute, day and week.

In the meantime, you are missing out on a treasure chest of potentially profitable stocks that are waiting to make you money. Bad decisions are valuable sources of learning to master your trading technique. Cut your losses, adapt your trading strategy to include your new knowledge, and search for stocks that will make you money. In the stock market, time is money; there is no time to watch your stock fall all the way to the bottom. (more…)

Don't

  
  Education
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dontsign“Don’t think that trading is fun. The trading game should be boring the vast majority of the time, just like the real-life job you have right now.”

Don’t try to get even. This isn’t a game of catch-up. Every action you make has to stand on its own merits. Take your losses with detachment and make your next trade with absolute discipline.

Don’t ignore the warning signs. Big losses rarely come without warning. Don’t wait for a lifeboat before you abandon a sinking ship.

Don’t ignore your intuition. Listen to that calm little voice that tells you what to do and what to avoid. That’s the voice of the winner trying to get into your thick head.

Don’t project your personal life onto your trading. Trading gives you the perfect opportunity to find out just how messed up your life really is. Get your own house in order before you play the financial markets.

How to Trade in Stocks by Jesse Livermore

  
  Education
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howtotrade
I will just write what  the market is going to do tomorow, for that just have some patience  for time being till then  few quotes from Jesse Livermore’s book How to Trade in Stocks (one of my favorites, originally written in 1940). Pay particular attention to the first quote!

  • “Successful traders always follow the line of least resistance – follow the trend – the trend is your friend”
  • “Wall Street never changes, the pockets change, the stocks change, but Wall Street never changes, because human nature never changes”
  • “Just because a stock is selling at a high price does not mean it won’t go higher” (more…)
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