There is a random distribution between wins and losses for any given set of variables that defines an edge.In other words ,based on the past performance of your edge ,you may know that out of the next 20 trades ,12 will be winners and 8 will will be losers.What you don’t know is the sequence of wins and losses or how much money the market is going to make available on the winning trades.This truth makes trading a probability or numbers game.When you really believe that trading is simply a probability game ,concepts like “right “and “wrong ” or “win ” and “lose ” no longer have the same significance.As a result ,your expectations will be in harmony with the possibilities.
Archives of “losses” tag
rssEgo & Nervous Traders
There are a whole host of characters who regularly lose money in the market place, and most fall into two catogories:
False Ego Traders
& Nervous Traders The false ego mistakes come from a mixture of false pride and bravado and are the most dangerous mistakes to make. The trader, generally a beginner or intermediate — call him Tader A — gets an opinion in his head about market direction. His analysis may have even been sound, but his opinion keeps him from reading/seeing the signs that a change is occuring in the market he has targeted. He subconsciously see the changes, but false pride is the devil, and blocks the information from making it into his conscious decision making process. The change he needs to see may even be pointed out to him by a fellow trader –Trader B– but Trader A’s false ego blocks this because he knows “I’m smarter than Trader B…In fact I think its a good idea to fade Trader B”.
Trader A is also likely someone who is accustomed to being listened to. He may have been upper management in a company, or even owned the company. “People better listen to me” is how he sees it. He is likely more accustomed to talking rather then listening.
Despite trader A’s previous success’ Mother Market will bring him down quickly. Any early success he has in the market will only make for bigger losses down the road as he gets caught in the spiral of trying to make up for lost money and still make money. He doesn’t just want to get his money back, he wants that and then some. His time is valuable. He is going to make the market pay.
Well we all know how that works out, which is to say we won’t be seeing Trader A around for long. (more…)
7 Bad Habits of Traders
Trading with no stop losses. You can’t control your profits but you can control and limit your losses with a planned exit. Not having an exit plan can be very expensive when a trend takes off against you and you start hoping instead of just cutting your losses and moving on.
- Your opinion can be very expensive. Trading your opinion against all other market participants can be very expensive. The market goes where it wants and when you disagree with where it is going it will cost you.
- “Egos are expensive things.” – Ray C. Freeman. Inflated egos cause a trader’s #1 priority to be proving they are right and refusing to admit when they are wrong. It is very expensive for ego gratification to be above making money.
- Trading off predictions can cost a lot of money when they are wrong. There is more to be made by reacting to what the market is doing instead of predicting what you think it will do later.
- Stubbornness causes small losses to become big losses. It causes a trader to make the same mistake over and over becasue they do not assimilate feedback they keep doing the same thing over and over and getting the same results.
- Not having an exit strategy for a winning trade can be very expensive, it is possible to ride a big winning trade into being a big loser if you do not have a set way to take profits. Trailing stops and targets can put the profits in the bank.
Trading too big of position sizes for your account size can be very costly because no manner how good your winning trades are you are set up to give back the profits with a few big losing trades.
25 Golden Rules
#25-3/4. Do as I do – not as I say – but do it without delay! (NB: 13F-HR’s are too late!)
#25-1/2. The trend is your friend….errrr….ummm…..except when its not.
#25-1/4. Whatever kind of metaphorical market animal you are (bull, coq, chicken, weasel, whatever), always remember that Pigs Get Slaughtered.
#25. Buy “The Best of Breed” companies…..unless they are priced at levels preceding the moment when Pigs Get Slaughtered, or when the trend is not your friend, or I am saying the opposite of what I am doing.
#24. NEVER short “Best of Breed” companies…except when Pigs Are Getting Systematically Slaughtered in other “Best of Breed” companies (but don’t get piggy puking out the pigs).
#23. Cut your losses short and let your winners ride – but not when pigs are getting slaughtered
#22. No one ever made a dime by panicking … unless apparently you’re following the previous rule #23 which says you should cut your losses short and let your winners ride.
#21. NEVER double-down (except when you have material non-public information and deep pockets) or if you’re Ed Thorp, or if you’re playing at The Martingale Room.
#20. “Systems” always stop working (Even if they DID actually work at one point). So forget about asking about their “system”: what you really want to know about is their Plans B&C for when it DOES stop working (and why they’re not using them NOW).
#19. Diversify to control risk – except if you are Eddie Lampert
#18. Don’t own too many names – unless you’re Ed Thorp or diversifying to control risk per the above rule
#17. Invest in what you know – unless you don’t know a whole lot about those things.
#16. Buy when others are (almost finished being) fearful.
#15. Buy when there is blood in the streets – but only after it has dried a little bit. (more…)
Trading Addiction
The tell-tale sign of trading addiction is a trader who cannot refrain from trading–even when markets are objectively offering no opportunity. Even when losses are mounting.
20 Trading Skills for Traders
1. Know the difference between trading and investing. We are traders, NOT investors. •• Disciplineis doing the right thing at the right time…every time! Survival in this business is dependent on the right decisions.
2. Don’t let losers run! Always use stops . Riskmanagement is very, very important in your trading. Don’t be stubborn in holding a position. Remember, while you may not be wrong often, The Market Is Always Right. The best traders are the first to admit (to themselves and the market) that they made a mistake.
3. Trade only price pattern set-ups.
4. Trade for skill, NOT the money. If you’re focused on the money aspect of trading…you’re not focused on the ‘trade’. And SCARED MONEY NEVER WINS!
5. Concentrate on what you are trade. Each market has personalities, habits and friends…get to know them all.
6. Focus on your executions. Remember, every execution is a trade. Money is valuable…don’t leave it on the table.
7. Model Yourself After Successful and Experienced Traders. You will be all you can be…but you need to start somewhere.
8. Be Teachable. Learn something new every day (or at least every week). The ‘Losing’ and ‘Winning’ trades can teach you a whole lot.
9. Remember that even the best of the best traders lose money. Learn to accept your losses and move on to the next trade. That’s just part of the business – you will NEVER win 100% of the time.
10. Use only 1 contract at the beginning. Large wins at the beginning generally means large exposure. (more…)
Learning to Trade from a Legend-Victor Niederhoffer
Study horse racing books. The odds against winning at a parimutuel racetrack are overwhelming. Yet some touts have systems that produce a profit (against all odds). Can you apply any of these horse racing principles to your trading? • Write down trading prices (by hand). There were a ton of computers in Victor’s trading room. Yet Victor made me do price analysis by hand. He felt there was enormous virtue about getting close and comfortable with trading figures. • All markets are related. Learn what a move in bonds does to gold. And to S&P futures or the Japanese yen. Don’t trade markets in isolation • Only make a trade when the odds are at least 60% in your favor. • Don’t take losses to heart. I lost $20,000 on a Friday, the first day I traded real money for Victor. I wiped out my trading account. After stewing over my losses all weekend, I offered to resign and refund my losses. Victor refused my resignation and put $20,000 back in my trading account. • Don’t take wins to heart. I remember making a lot of money following (I thought) Victor’s instructions while he was away. When Victor returned, he was not impressed by the fact the firm made money. He told me that I had traded erroneously and was lucky to have survived my trades. • Be a mentor. Victor was generous with his time and advice. Despite the fact that several employees exploited his generosity, Victor continued to help new traders. • Get out when the trade is over. All trades have a beginning and end (based on time and price). Get out whether you’re winning or losing when the time or price has been met. • Write down your moves. Learn from your mistakes. • Learn concentration and game strategy from champions in other disciplines (such as ping-pong and checkers). |
Ed Seykota Quotes – Trend Following Trading Wisdom
- 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.
- To avoid whipsaw losses, stop trading.
- Risk no more than you can afford to lose and also risk enough so that a win is meaningful.
- Trend following is an exercise in observing and responding to the ever-present moment of now.
- Fundamentalists and anticipators may have difficulties with risk control because a trade keeps looking ‘better’ the more it goes against them.
- Until you master the basic literature and spend some time with successful traders, you might consider confining your trading to the supermarket.
- I don’t predict a nonexisting future.
Trading Wisdoms
“Never let the fear of striking out get in your way” – Babe Ruth
“If you can’t take a small loss, sooner or later you will have to take the mother of all losses” – Ed Seykota
“Don’t think about what the market is going to do. You have absosutely no control over that. Think about what you are going to do if it gets there.” – William Eckhardt
“I turned from a loser to a winner when I was able to separate my ego needs from making money. When I was able to accept being wrong. Before that, admitting I was wrong was more upsetting than losing money” – Marty Schwartz
“The worst mistake a trader can make is to miss a major profit opportunity. 95% of the profits come from only 5% of the trades” – Richard Dennis
When You're Wrong, Get Out
Don’t fight the market! It sounds simple, but one of the hardest things for traders to do is to stop trying to impose their wills on the market. Virtually every successful trader ever interviewed has said that learning how to take losses (and keep them small) was one of the most important accomplishments in his career.