“One adage that is completely wrongheaded is that you can’t go broke taking profits. That’s precisely how many traders do go broke. While amateurs go broke taking large losses, professionals go broke by taking small profits. What feels good is often the wrong thing to do. Human nature does not operate to maximize gain but rather to maximize the chance of a gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance. Two of the cardinal sins of trading – giving losses too much rope and taking profits prematurely – are both attempts to make current positions more likely to succeed, to the severe detriment of long-term performance. Don’t think about what the market’s going to do; you have absolutely no control over that.
Think about what you’re going to do if it gets there. It is a common notion that after you have profits from your original equity, you can start taking even greater risks because now you are playing with “their money”. We are sure you have heard this.
Once you have profit, you’re playing with “their money”. It’s a comforting thought. It certainly can’t be as bad to lose “their money” as “yours”? Right? Wrong. Why should it matter whom the money used to belong to? What matters is who it belongs to now and what to do about it. And in this case it all belongs to you.”
Archives of “losses” tag
rss9 Steps for Traders
1- When you see a trade setup you like, pull the trigger without hesitationIt looks so simple but it isn’t! If your mind is not 100% ready to take the trades when they present themselves to you, you’ll miss them, you’ll be just watching and will let them go without any apparent reason why, and then when you realize what you just did, your reaction is to get angry! Just to make you jump into an unplanned trade and lose… Prepare in advance, market is like playing chess, you have to look ahead for the next move.
2 – Always use STOPs
In case you don’t like to use physical stops, make sure you’ll be able to stop in case it breaks the limits you’ve set for that trade
3 – Anything can happen
Try to start the morning with a free state of mind so that you’ll be able “to listen” to the market.
4 – Always lower your trade size when you’re losing
If you make two losing trades in a row, lower trade size until you get in tune with the market again.
5 – Never turn a winning trade into a loser
That’s the reason why I like to take small portions of profit when market makes it available to me, I hate to see a winner turn into a loser, manage your trades well.
6 – Buy or develop a system and stick to it, don’t change it from day to day
Find a trading system that fits your personality and once you have it, if it gives you an edge, stick to it, don’t change it because it didn’t work on one or two days, otherwise you’ll keep changing systems forever and that means: losing money.
7 – Get out of losers
One of the most known market adages is: “Cut your losses and let your profits run.” Much easier said than done, but it’s very important that you do it, usually it’s much easier to do exactly the opposite… make sure you bear that in mind.
8 – Don’t worry about news
This one I like very much, the only thing news will do is to accelerate the targets, nothing else, most of the time, I completely trash the news and just follow what I see on my map.
9 – Monitor your progress, create your own trading journal
It is very important that you have a trading journal to track your success, so that you’ll be able to stop what you’re doing wrong and keep your strong strategies. I’ll talk about this in detail on my next post.
Hope this helps, happy trading!
Technically Yours
ASR TEAM
Grade 3 Math Assignment
Grade 3 Math Assignment
Tom has 1 apple.
Tom has promised to give Robbie, Jim, Anne and Mary, half an apple each.
How does Tom get 4 half apples from 1 apple?
Bonus Question:
While Robbie, Jim, Anne, and Mary are waiting for their half apple, Tom gets hungry and takes a couple bites out of the apple. How does Tom now turn a half eaten apple into 4 half apples?
And you aren’t allowed to call it an iApple and say it can do anything.
Here is the basic problem and why Italian and Spanish bonds are getting crushed again today (ignoring horrific unemployment data out of Spain).
If Italy defaults with a 40% recovery, there is 1.613 trillion euro of debt affected (that is up about 10 billion in about a month). That means creditors would lose 970 trbillion. Spain with 663 billion would cost almost 400 billion (its debt has shot up about 15 billion in a month).
The problem is that EFSF doesn’t take default off the table. It may delay the time to default (by helping roll debts as they mature), but all it mainly does is shift who would take the loss. The guarantors can’t handle losses that big. (more…)
The Universal Principles of Successful Trading
A book review for Brent Penfold’s book “The Universal Principles of Successful Trading: Essential Knowledge for All Traders in All Markets”
This book is excellent for traders that are ready to accept its lessons. You need a foundation in trading to understand the importance of what the book is advising and take the principles seriously with an open mind. Once you are through the rainbow and butterfly phase of trading and realize that you will not be a millionaire in a year, this book will help you get focused and get serious about your trading and what really works.
Here are the six universal principles of successful traders:
1). Preparation
Author Brent Penfold is in the minority believing risk management is the #1 priority in trading. Brent believes that once you get your trading system and position size in place you must use the amount you will risk on each trade to determine your risk of ruin. The book shows exactly how to figure this out using Excel. His point is that if your risk of ruin is not zero then you will eventually blow out your account. Risking 1% to 2% of your capital in any one trade usually gives you a zero percent risk of ruin but it also depends on your systems win/loss ratio. But the point is to test any system with a minimum of 30 trades first then determine your risk of ruin. I would advise a larger sample size in multiple market environments a trend following system that looks brilliant in a trending market may result in a 50% draw down in a choppy or range bound market. (more…)
A Traders number 1 JOB is…..
A trader’s number one job is NOT:
- Stock Picking
- Chart Reading
- Trend Following
- Entries
- Exits
- Understanding the market environment
- Managing Emotions
- Managing Ego
- A Robust Method
- Or even Discipline
A traders #1 job is to be a great risk manager. (more…)
Always Remember
One must always remember Slansky’s admonition which is that you have to take account of whether you’re a winner or loser, and what your average rate of win is relative to the distribution of losses. If you’re a good player, never accept a bet with a small edge if it might subject you too close to gambler’s ruin, or getting stopped out of you position even if you have an edge. Many a good player doesn’t call bets in one’s favor if it has too high a variability relative to his bank roll. Many a t-grade should not be taken when the variables like an announcement put the normal tit and tat into jeopardy. I hate to force a weaker player, (assuming I might ever have that luxury again) into making a good shot. Board players are the same way. They can sometimes create a crisis, a tension where if the weaker player makes the rite move, he might pull out a draw or victory. Much better to grind the poor sinner or market into oblivion.
The Stock Trader's Steps to Success
Mark Douglas, in his classic book on trading behavior entitled THE DISCIPLINED TRADER: DEVELOPING WINNING ATTITUDES, describes what he believes are the three steps to a trader’s ultimate, long term success. The following steps have very little to do with technical anaysis and everything to do with the trader’s mental resources. Douglas explains that the “more sophisticated you become as a trader, the more you will realize that trading is completely mental. It isn’t you against the markets, it’s just you” (204). So, if it is just you what are the steps?
1. STAY FOCUSED ON WHAT YOU NEED TO LEARN. The trader needs to stay focused on mastering the steps to achieving his goals and not the end result, knowing that the end result, money, will be a by-product of what he knows and how well he can act on what he knows. A big part of what the trader needs to learn is how to accept missed opportunities. “Except for the inability to accept a loss, there isn’t anything that has the potential to cause more psychological damage than a belief in missed opportunities. When you release the energy out of the belief that it is possible to miss anything, you will no longer feel compelled to do something, like getting into trades too early or too late.” (205).
2. LEARN HOW TO DEAL WITH LOSSES: Douglas outlines two trading rules for dealing with losses both of which are designed to help the trader deal with any threat of pain and confront, head on, the inevitability of a loss. The first is to predefine what a loss is in every potential trade. By predefine Douglas means “determine what the market has to look like or do, to tell you that the trade no longer represents an opportunity” (206). Secondly, “execute your losing trades immediately upon perception that they exist. When losses are predefined and executed without hesitation, there is nothing to consider, weigh, or judge and consequently nothing to tempt yourself with” (207).
3. BECOME AN EXPERT AT ONE MARKET BEHAVIOR: Simplicity and focus is the mother of success. “You need to start as small as possible and then gradually allow yourself to grow into greater and greater amounts of market information. What you want to do is become an expert at just one particular type of behavior pattern that repeats itself with some degree of frequency. To become an expert, choose one simple traing system that identifies a pattern. Your objective is to understand completely every aspect of the system. In the meantime, it is important to avoid all other possibilities and information” (209).
Three simple steps yet ironically it is in the simplicity that traders find the most difficulty. Trading is not difficult, we make it so. Remember this the next time you enter a trade.
Dear Readers & Traders………..Don’t miss to read this Book !!101% it should be in your Library.-Technically Yours ,Anirudh Sethi
Learning From Losers
Traders will typically approach a large loss in one of two ways. First is the dumb way, and that is to become a petulant whiner and throw a fit. Next is the more-constructive way, and that is to use the loss as a means of developing as a trader and to “quote” — learn from your mistakes. But there is a third way. And that is to view the loss as the cost of information.
I don’t mean the cost of doing business per se. This is not typically associated with large losses. Small losses, yes. Because to make money you have to lose some along the way, as casinos do every day. And not the cost of tuition where the market charges a fee to school us. No, I mean information.
Instead of asking yourself about where you placed your stops and getting all personal about the whole thing, ask yourself what happened. Why did the market move the way it did? If you haven’t suffered a capital depletion, you are not likely to demand an answer and more likely to throw off the question with a wave of the hand and a shrug. “Who knows, who cares. I only play odds.”
Markets are a beast and if you want to play with them, you’ll have to be careful. Wear protective goggles and gloves. If you want to tame them though, you’ll need to wrestle with them. And sometimes you lose some body parts along the way.
10 Attributes Exceptional Traders possess
- A persistent unquenchable motivation to compete and achieve personal stock market mastery
- A personally developed hands-on strategy in writing that fits your personality.
- The ability to be brutally honest and objective about your beliefs and weaknesses.
- An inner resiliency to weather all market storms with little emotional scar tissue.
- Well-defined risk management rules and an ability to accept responsibility for losses.
- Unassailable confidence in your system and yourself.
- Discipline to follow your methodology and act decisively.
- A strong ethic for working hard but also working smart.
- Patience and an ability to wait for high probability trades to materialize.
- A willingness to embrace change, to modify your thinking, to rewrite your methodology and transform yourself.
Managing the fear of making a loss
Before entering a trade I know what type of loss I am happy to accept and I set my stop loss at about that level. Making a loss is part of trading. So long as the losses are small and the wins are large, life is great. Sometimes I have taken several losses in a row, which makes placing that next trade a bit harder because I think about the prior loss. I have overcome this by telling myself that the next trade “is just one of many thousands of trades that I will do in the future” and then I look forward to the next entry.
Cut your losses quickly, let your winning trades run, and allow trades to take their course. Be happy to make small losses, since the next trade may be the big one. Congratulate yourself when you have stuck to your plan, even if you have made a loss.