Don’t speculate unless you do it full time
Take your losses swiftly and clearly; the first loss is the your easiest loss
Don’t trade too many securities; focus on a few investments that can be monitored carefully.
Archives of “losses” tag
rssLivermores Seven Trading Lessons
Lesson Number One: Cut your losses quickly.
As soon as a trade is contemplated, a trader must know at what point in time he’ll be proven wrong and exit a position. If a trader doesn’t know his exit before he takes the entry, he might as well go to the racetrack or casino where at least the odds can be quantified.
Lesson Number Two: Confirm your judgment before going all in.
Livermore was famous for throwing out a small position and waiting for his thesis to be confirmed. Once the stock was traveling in the direction he desired, Livermore would pile on rapidly to maximize the returns.
There are several ways to buy more in a winning position — pyramiding up, buying in thirds at predetermined prices, being 100% in no more than 5% above the initial entry — but the take home is to buy in the direction of your winning trade – never when it goes against you.
Lesson Number Three: Watch leading stocks for the best action.
Livermore knew that trending issues were where the big money would be made, and to fight this reality was a loser’s game.
Lesson Number Four: Let profits ride until price action dictates otherwise.
“It never was my thinking that made the big money for me. It always was my sitting.”
One method that satisfies the desire for profit and subdues the fear of a losing trade is to take one half of your profit off at a predetermined level, put a stop at breakeven on the rest, and let it play out without micromanaging the position. (more…)
Think -Prepare -Act
Trading can be difficult at times, especially when the market is a mess. But there are two simple things to remember: know when to sell, when not to, and cut your losses so you can stay in the game.
Even if you make a lot of mistakes in your trading business, you’ll still be net profitable at the end of the year if you simply do two things right; cut your losing trades as soon as they hit their stops and let your winners ride until there is a technical reason to sell. The challenging part, of course, is applying this in actuality, not only understanding it theoretically. |
Losers Average Losers
There are so many concepts about the stock market that are taught in the classrooms, promoted throughout the media, and passed along from generation to generation but, unfortunately, most of them are FLAT OUT WRONG!
I decided to write a 5-part series (this is part 2 of 5) on the common misconceptions that really need to stop being promoted. Keep in mind, these are all my humble opinions, but after 16 years of trading and studying market history, one really begins to notice what works and what doesn’t.
Common Misconception #2 – Dollar Cost Averaging
Paul Tudor Jones is one of the greatest traders in market history. Why? Because he’s consistently profitable. The best “anything” in the world are the best because they perform at a consistent, superior level for long periods of time. Michael Jordan isn’t considered the best basketball player ever because he scored 30 points ONCE in a game. It’s because he averaged 30 points per game over his ENTIRE career. (more…)
The Ten Things Profitable Traders Do Differently
The following 10 reasons may be why the 10% of long term profitable traders take the money from the 90% that are unprofitable. I see these differences in real life all the time. There is a big difference between profitable and unprofitable traders that usually comes down to homework, mental discipline, and risk management.
- Winning traders let winning trades get as big as possible before exiting. They have the really big winners to pay for all the losers.
- Winning traders have no patience for losing trades, they keep losses small. They know how not to give back their profits with big losing trades.
- They are focusing on trading actual price action not their own opinions or beliefs.
- They are experts on the trading vehicles that they trade.
- The trade with the trend in their time frame.
- Good traders know that their trailing stops are smarter than they are.
- Profitable traders know that it is their robust methodology that makes them profitable not any one trade.
- Winning traders are great risk managers. Their #1 concern is how much they can lose, their #2 concern is how much they can make.
- Profitable traders have put in the time, usually years and thousands of hours to learn what really makes money in the markets.
Profitably traders have studied historical price data, chart patterns, trends, and price action.
Trading Truths
- It’s all about risk management … never risk what you can’t comfortably lose.
- Never fall in love with a stock.
- To be succesfull in trading; study, understand and practice. The rest is easier.
- Always start by assuming your analysis is WRONG and that people much smarter and with more recent information are already positioned opposite you.
- Never take on a position larger than your comfort zone. (Don’t overtrade)
- Patience. never chase a stock.
- Before entering the trade very think carefully what will make you wrong, write it down clearly and put it infront of you where you trade, and when your wrong get out happy you’ve followed your trading discipline.
- Buy strength, sell weakness. Most traders are essentially counter-trend; most traders lose.
- No one ever went broke taking a profit!
- Once you find a good one, hang on unless of course they do you wrong.
- Never add to a losing position! (Unless scaling in was part of the plan).
- Whenever you think you’ve found the key to the lock, they’ll change the lock.
- Do not overtrade.
- Trade price not perception.
- Know the difference between stocks that you want to stay married to and those that are just a fling.
- The only sure way to make a small fortune is to start with a large one.
- Cut your losses quickly and you may have a chance.
- An indicator works until it doesn’t.
- “MR. MARKET” IS ACTUALLY “MRS. MARKET” ONLY WOMEN CAN THINK, AND ACT THE WAY THE MARKET DOES. THAT IS WHY -ON AVERAGE -WOMEN ARE BETTER TRADERS THAN MEN, THEY UNDERSTAND WHAT THEY DEALING WITH! (more…)
and to paraphrase Will Rogers: Buy only stocks that will go up. Don’t buy the ones that don’t go up. “THIS is GAMBLING.”
Taking losses
Taking losses is a tough part of doing Day Trading and no one is immune to making mistakes. In fact, professionals know that the sin isn’t in taking a loss, but rather not taking a loss and letting a loser continue to eat away at the equity in a portfolio.
Losers not dealt with are like a cancer which can quickly spread throughout the body if it is left untreated.
Trading in the Zone with these 12 steps
The 5 Fundamental Truths of Trading:
1. Anything can happen.
2. You don’t need to know what is going to happen next to make money.
3. There is a random distribution between wins and losses for any given set of
variables that define an edge.
4. An 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.
The 7 Principles of Consistency:
1. I objectively identify my edges.
2. I predefine the risk of every trade.
3. I completely accept the risk or I am willing to let go of the trade.
4. I act on my edges without reservation or hesitation.
5. I pay myself as the market makes money available to me.
6. I continually monitor my susceptibility for making errors.
7. I understand the absolute necessity of these principles of consistent success
and, therefore, I never violate them.
Why Trading is Difficult
1. Need to internalize lots of trading simulation of specific set-ups in real-time to trade effortlessly
2. Need to trust money management system to weather +10 losses in a row
3. Tuff to internalize that its the 5-6 huge monthly runners that is the big pay-off days
4. Must master +3 trade set-ups to make money consistently month to month.
5. It takes considerable time to mathematically think and act like a trader
6. Trading is a performance skill which requires mastery of every element of trading
7. It requires time capital and considerable effort to achieve the experience to make it effortless and automatic (more…)
Fear & Greed
When trading there are two emotions that are more common, and more dangerous, than all the rest; fear and greed.
Fear and greed can ruin even the best trading strategies
One moment of fear or greed can lead to a moment of madness and months of hard won profits going down the drain
Uncontrolled emotions should not be an excuse for losses and losses should not be an excuse for uncontrolled emotions
Remember!! Trading affects psychology as much as psychology affects trading
Greed
“You can’t feed on greed” (more…)