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7 Deadly Sins of Trading

  
  Education
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7 Deadly Sins of TradingPerfectionism: There is no perfection in trading as far as making money on every trade or having a perfect system. All you can hope to be perfect at, is following your system, rules, and trading plan. A winning trade should be measured as one in which you followed all your preset guidelines. Even the best traders only average about a 50%-60% win rate at best over long periods of time. The key is having bigger winners than losers, not being perfect. Like in baseball where a .300 hitter can get into the hall of fame. A .500 trader in the market can become wealthy if his wins outpace his losses.

Fear:  Faith in your system is the only way to overcome your fear of trading. You must complete enoughback testing on your system until you know that you have a valid edge over the market in the long term. You must see opportunity in trading not possible losses. You must take your systems trade signals each time and if you can’t overcome your fear of loss and failure then perhaps trading is not the best profession for you.

Pride:  We are not our trading account and staring at our profit and loss too much is a major detriment in one’s trading. Traders must cut losses at their predetermined stop, not pridefully hang on trying to prove they are right. We must separate ourselves from the trading. A person’s value is not tied to a trade or performance record. If we followed our system then we can’t view that as a personal loss. Our system failed us. (more…)

Ed Seykota Quotes

  
  Education
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Markets
The markets are the same now as they were five or ten years ago because they keep changing-just like they did then.
Short-Term Trading
The elements of good trading are cutting losses, cutting losses, and cutting losses.
Outcomes
Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.
I think that if people look deeply enough into their trading patterns, they find that, on balance, including all their goals, they are really getting what they want, even though they may not understand it or want to admit it.
Market Trends
The trend is your friend except at the end where it bends.
Charles Faulkner tells a story about Seykota’s finely honed intuition when it comes to trading: I am reminded of an experience that Ed Seykota shared with a group. He said that when he looks at a market, that everyone else thinks has exhausted its up trend, that is often when he likes to get in. When I asked him how he made this determination, he said he just puts the chart on the other side of the room and if it looked like it was going up, then he would buy it… Of course this trade was seen through the eyes of someone with deep insight into the market behavior.
Predicting the Future
If you want to know everything about the market, go to the beach. Push and pull your hands with the waves. Some are bigger waves, some are smaller. But if you try to push the wave out when it’s coming in, it’ll never happen. The market is always right.
Trading
To avoid whipsaw losses, stop trading.
Here’s the essence of risk management: Risk no more than you can afford to lose, and also risk enough so that a win is meaningful. If there is no such amount, don’t play.
Pyramiding instructions appear on dollar bills. Add smaller and smaller amounts on the way up. Keep your eye open at the top.
Markets are fundamentally volatile. No way around it. Your prolem is not in the math. There is no math to ge you out of having to experience uncertainty.
It can be very expensive to try to convince the markets you are right.
System Trading
Systems don’t need to be changed. The trick is for a trader to develop a system with which he is compatible. (more…)

A Delicate Balancing Game

  
  Education
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“Damage control can prevent failure, but it will never elevate you to excellence.” 

“Now Discover Your Strengths”, by Buckingham and Clifton

When I ran across this quote, I was stunned. “Is that true?” I pondered. Then almost immediately I said, “Of course.”

As traders we need to do both. We need to pursue excellence even as we maintain damage control. We must protect against undue loss even as we seek opportunities for maximum gain.

It’s an emotional, artistic, and technological balancing act summed up by the trading cliché, “Cut your losses, and let your profits run.”

It’s easier said than done. How many times have you skipped a promising trade because you sought to avoid loss? How many times have you jumped out of a winning trade to secure your current profits only to despair as the trade soars into the stratosphere without you?

Computers have been programmed to play checkers not to lose, but the set up turned out not to be sufficient. In order to succeed, the computer had to be trained to play to win.

Many traders have failed because they abhorred loss and feared consequent failure. Other traders have failed because they ignored the possibility of loss in their reckless hunt for gain.

Risk management is necessary, but if it is your primary focus, you’ll have a hard time getting to the pot of gold at the end of the rainbow. On the other hand, if all you think about is the possibility of gain and overlook the potential for loss, you could find yourself falling off a financial cliff.

Trading is a delicate balancing game where optimism requires a seasoning of caution, but the primary goal still needs to be excellence and profit.

5 Characteristics of Successful Trader

  
  Education
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Knowledge – A trader must put in the time and effort to study and learn the proper skills in order to be successful. Whether that is through technical or fundamental analysis, one must invest in their education. They must completely understand their market, and its ideal as a beginner to focus on one market and be a specialist. A part of the knowledge and education is devising a game plan or strategy for trading. Writing down your rules and sticking to your trading plan is a key to success.

 Controlling your emotions – The ability to control your fear and greed is paramount to success. A successful trader will have a balanced emotional state regardless if he/she is winning or losing. Ensuring the trader has a clear head and is able to pull the trigger and take trades every time an opportunity presents itself.

  Patience – A successful trader can sit on the sidelines for days waiting for the proper setup. They don’t jump into a trade just for the sake of trading. Yes there may be opportunities, but the smart trader waits for trades that meet their trading rules and system. Over trading by beginner traders is a big obstacle to overcome. A need to always be in the market will lead to taking trades that are likely too risky. Learn patience, it’s a key to success. A winning trader usually has an extraordinary amount of self control, and often the best trade is no trade.

 Discipline – There are no 100% winning traders and taking losses are part of the trading profession. It is about finding high probability opportunities and managing the risks on each trade. A trader must stick to their trading plan and discipline is the key to success.

Confidence – Having the confidence in yourself and your system to make your profit or take a loss when your method tells you to is a winning trait. Confidence usually comes from experience and knowledge.

Reasons why traders lose money

  
  Education
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  • Reason
    Over trading
  • Lack of knowledge & lack of experience
  • Trading without a plan
  • Not having enough capital
  • Over confidence
  • Lack of confidence
  • Emotional trading
  • Afraid to lose money
  • Trading with complex system
  • Relying on others
  • Not willing to take it as a business
  • No giving enough time to be a trader
  • Trying to be successful overnight
  • Running Losses

Profile Of The Successful Trader:

  
  Education
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profile

Trading is being young, imperfect, and human – not old, exacting, and scientific. It is not a set of techniques, but a commitment. You are to be an information processor. Not a swami. Not a guru. An information processor.

Participating in the markets can only develop your trading skills. You need to become a part of the markets, to know the state of the markets at any given time, and most importantly, to know yourself. You need to be patient, confident, and mentally tough. (more…)

Perfectionism:

  
  Education
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There is no perfection in trading as far as making money on every trade or having a perfect system. All you can hope to be perfect at, is following your system, rules, and trading plan. A winning trade should be measured as one in which you followed all your preset guidelines. Even the best traders only average about a 50%-60% win rate at best over long periods of time. The key is having bigger winners than losers, not being perfect. Like in baseball where a .300 hitter can get into the hall of fame. A .500 trader in the market can become wealthy if his wins outpace his losses.

Conquering Your Negative Trading Emotions

  
  Education
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The trader has two emotions that must be controlled in order to become successful. I call them ‘the two sides of a coin’ and they are commonly known as FEAR & GREED.

The beginning or new trader will first encounter FEAR. There are two types of FEAR. The fear of losing money and the fear of being wrong.
The fear of losing money usually derives from a trader risking money that should be used for the rent, food, children’s education etc. ‘Scared money’ will render one incapable of pulling the trigger when a trade setup comes along. The only way to overcome this paralysis is to be well capitalized with funds that you can risk.
The fear of being wrong is simply that part of all of us that feels that to make a wrong decision is reflective on our personal competency. The cure for this is to simply realize and accept that losses are part of this game. Think about this? A baseball player needs to hit the ball once for every three times at the plate and this will get him into the Hall Of Fame. Whenever you feel the fear of being wrong, just remind yourself that… “My approach for trading has both historically and real-time produced over (number)% winning trades.” This will give you the confidence to step up to the plate and keep swinging. Also tell yourself that the only way to earn the big money is to get into the game. Have confidence in your trading system that when properly executed, it will make much more money than it loses.
So, why is GREED the flip side of fear?
Greed is caused by the fear of not making enough money. Traders who are greedy are often the exact opposite of the ones who are fearful. They have no fear and usually are very aggressive traders, which can get them into big trouble fast. Greed will usually lead to overtrading, failure to follow the trading rules, and not applying the system consistently. One of the biggest problems when greed sets in is the inability to know when to take profits. These traders are so bent on making a killing that they are never satisfied. If they have significant profits they don’t even think about cashing out, as they want more. This often leads to the inability to see the trade turning against them and they will allow winning trades to turn into big losing ones. (more…)

The MASTER TRADER

  
  Education
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The MASTER TRADER…
…is rational.  He does not trade for egotistical reasons.
…is skilled in self-mastery thus able to deal with market reality.
…is able to see through the noise in the markets and find low-risk, high reward trade opportunities.
…is hard working and has the discipline to follow through with well thought out plans.
…is committed to his methodology and able to cut losses when called upon to do so.
…is humbled by his need to rely on the support of others.
…is adaptable to market changes.
…is up to the challenge of the trading game.  Enjoys profits and endures losses.
…is able to handle both success and failure without self-destructing. 

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