Over trading is the single most damaging thing to an account. the commissions alone will eventually slowly eat away at capital and that’s not even taking into consideration the mental and emotional drain you will go thru. Your soul goes into a dark place when you over trade and get poor results. Sometimes it made me even angry and i used to lash out at others.It took me years to figure out that trading more ironically meant more losses, (more…)
1) Wins initially, and keeps winning. 2) Wins initially, but then reverses to become a loss. 3) Loses initially, and keeps losing. 4) Loses initially, but then reverses to become a win. If you average down, you only get the chance to add to trade types 2, 3 and 4. If you average up, you only get the chance to add to trade types 1, 2 and 4. Averaging down tends to be attractive to people, since it allows the possibility of trade type 4 i.e. a trade that goes against you, but then reverses to recover your losses and more. However, that comes at the material risk of trade type 3 i.e. the trade that never recovers. Averaging down virtually guarantees that your biggest positions will be in trade type 3 i.e. the trades that never win. Pyramiding up avoids this risk, and also allows you to add to trade type 1 i.e. the trades that start off winning and keep winning. To be clear, there is a legitimate strategy of picking a range of entry into a trade. Rather than picking a particular price point, you may choose to scale into a position over a range of entries. The distinction here is that you must decide this plan before the first entry is made, rather than in response to a trade going against you. |
Here are some thoughts on deception in the stock market:
1. It is a known signal that when the broker gets an odd number of shares to buy or sell, it is the last part of the order. Why not start with the odd number instead?
2. So as not to signal panic, always cover the short going against you with a limit order, not a market order.
3. Don’t always ask why xyz stock is up ( or down) just because the position is going against you.
4. When you meet the management of the stock you’re short, play extra nice to charm them and commend them on all their accomplishments.
5. Pretend you do not know anything about the stock when speaking to the analyst. This way you will find out what he/she really knows about the company.
6. Emphasize your losses and hide your winnings when talking to people outside your firm.
7. When meeting your broker tell him or her that you haven’t been active in his or her region lately but that you’re about to enter it shortly. Then continue to use dma.
8. Call the analysts with the opposite recommendation of your position first to find out their story.
“I absolutely believe that price movement patterns are being repeated; they are recurring patterns that appear over and over. This is because the stocks were being driven by humans- and human nature never changes”.
-Jesse Livermore (Considered by many to be the greatest stock market operator ever. Made 100 million dollars in 1929 stock market crash. Made several other multi-million dollar fortunes in his trading career).
————————————————————————————————————
“You have to cut your losses fast. The secret for winning in the stock market does not include being right all the time. The key is to lose the least amount possible when you are wrong”.
-William J. O’Neil (In my opinion, the best stock market operator in the world today. Has made an incredible fortune trading the stock market. O’Neil is the founder of Investors Business Daily. Much of my stock market education and training has been from William J. O’Neil).
——————————————————————————————————
“Whatever method you use to enter a trade, the most critical thing is that if there is a major trend, your approach should assure that you get in that trend”.
-Richard Dennis (Turned 400 dollars into a fortune of at least 200 million dollars by using his remarkable trading skills).
——————————————————————————————————
“I am primarily a trend trader. In order of importance to me are: (1) the long-term trend, (2) the current chart pattern, and (3) picking a good spot to buy or sell”.
-Ed Seykota (One of the greatest traders of all time. Turned 5000 dollars into an incredible 15 million dollars or more).
——————————————————————————————————
“The most important rule of trading is to play great defense”.
-Paul Tudor Jones (An amazingly consistent and successful trader. In 2006, earned a whopping 750 million dollars).
——————————————————————————————————
“Being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong”.
-Bernard Baruch (Fantastic trader who earned ten’s of millions of dollars in the first part of the 20th century).
——————————————————————————————————
“The greatest safety lies in putting all your eggs in one basket and watching that basket”.
-Gerald M. Loeb (Amassed many millions in the stock market during his long career).
——————————————————————————————————
“I am looking for the strongest stocks in the market, in terms of both earnings and the technical picture”
-David Ryan (Multiple time winner in the stock division of the U.S. Investing Championships).
——————————————————————————————————
“Most of my success has been due to my hanging on while my profits mounted. There is the big secret”.
-Arthur W. Cutten (Gained wealth and prominence, early in the 20th century, as a commodity trader, mostly in the wheat market.
——————————————————————————————————
“I think the secret is cutting down the number of trades you make. The best trades are the ones in which you have all three things going for you: fundamentals, technicals, and market tone”.
– Michael Marcus (In a ten-year period, he multipled his company account by an incredible 2500 times).
——————————————————————————————————
“Whenever I enter a position, I have a predetermined stop. I know where I’m getting out before I get in”.
-Bruce Kovner (One of the world’s largest traders in the 1980’s. Made profits of over 300 million trading for himself).
——————————————————————————————————
“I try to assemble facts and decide what kind of scenario I think will unfold”.
-Bill Lipschutz (One of the most successful currency traders ever).
——————————————————————————————————
“Virtually every successful trader I know ultimately ended up with a trading style suited to his personality”.
-Randy McKay (Turned $2000 into $70,000 his first year of trading. Went on to double digit million dollar gains).
——————————————————————————————————
“The biggest misconception is the widespread belief that it is easy to make a living trading in the stock market”.
-Stuart Walton (Fantastic stock trading track record in the 1990’s).
——————————————————————————————————
“If you decide to trade for a living, you have to treat it just like any other business endeavor and go into it with a plan”.
-Mark D. Cook (Great annual returns trading the markets).
A few quick caveats:
Even the best traders in the world book small losses on a regular basis. If you manage your emotions with consistency and if you strive for a disciplined trading mindset, then you should have no problem surviving a string of bad trades and showing profits at the end of the year.
You stop trading your plan and start “shooting from the hip” you are losing or winning so you believe that you are above your own rules, you start trading your opinions instead of your plan.
When you actually disagree with the market and believe it is wrong and you are right. Price is reality wherever it is, your job is to trade trend and price action not your own opinion.
Many of you spend too much time worrying about things like other peoples trading signals, what price pattern it is you are looking at, which strike price to select, how to read implied volatility, etc when you haven’t constructed the basic tenets of portfolio management or asset allocation.
Shame on you.
To your defense, I can’t make any assumptions when I have no idea what your time frame is, what your financial standing is, your risk tolerance, your investing objectives, or anything else looks like about you. What I do know is this… I don’t care who you are or what you are trying to accomplish, you will not last long in the pursuit of becoming a decent trader without creating a firm foundation of these basic principles, which are…
Risk management- Plan your loss before planning your profit.
Diversification- Be bullish, be bearish, be involved in various groups/markets.
Proper Position Sizing- Trade small, trade safe.
Effective Trading Plan- Make sure your plan works, and/or makes money.
Cutting Losses Short- Enter a trade that offers a small loss.
Letting Winners Run- Don’t kill your winners.
Curbing Your Emotion- This is a bi product of trading small.
To win the mental game you must have…
The 10 Bad Habits of Unprofitable Traders
METHOD:
PSYCHOLOGY:
RISK MANAGEMENT:
