Archives of “losses” tag

rss

Why does it happen?

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

There seems to be a consistent pattern when it comes to these trading teachers turned rogue traders. The story usually is that a trader struggled for years, then “made it”, and decided to teach others. Students etc began offering them money so they set themselves up as a money manager and then *bling* collapse in flames and do a runner.

One obvious theory is that their trading psychology had adapted to trading their own money at a certain equity level, and they might even have been very successful at that, thus making them confident and bold. But then all of a sudden they are thrust into new territory in terms of both a massive influx in equity and thus volume to have to trade, and the burden of being the crux for investors hope and fear all day.

Imagine it – you are happy trading 1 or 2 standard lots and you have a good rate of return on your own account, but now all of a sudden you are trading 100 lots per trade, and the phone is going every half an hour with someone yapping “So?! How’s it going? What level is my investment at now?! Has their been any losses??!!”

*Brring Brrring!!* – “Someone grab that god damn phone, I’m trying to focus here!”

You could almost feel how this would cause your heart to start pumping and you would break out into a sweat; your mind would go foggy – yet you are supposed to stay cool and trade. I personally sense that many of these guys just didn’t consider this at all. They thought they were ready; they weren’t.

Add to this possible new market issues that throw a spanner in the works, such as trying to get filled with bigger volume, slippage – your positions maybe starting to show up on the radar of other market players and drawing interest to yourself.

The trusty old scalping system seems to not work like it used to work. One bad day and you’ve drawn down 20% of the account and you can’t sleep at night. You can’t bring yourself to tell the investors right now until you try to reduce that loss, so you tell a bit of a white lie.

Down the rabbit hole you go. Soon everyone is calling you scum and saying the honourable thing to do is commit suicide and you are facing six years jail. The moral of the story – think twice before becoming a home-brew money manager.

Trading Rules: Strategies For Success

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

tradingrulesforsuccess
1. Divide your trading capital into ten equal risk segments
2. Use a two-step order process
3. Don’t overtrade
4. Never let a profit turn into a loss
5. Trade with the trend
6. If you don’t know what’s going on, don’t do anything
7. Tips don’t make you any money
8. Use the right order to get into the markets
9. Don’t be whimsical about closing out your trades
10. Withdraw a portion of your profits
11. Don’t buy a stock only to obtain a dividend
12. Don’t average your losses
13. Take big profits and small losses
14. Go for the long pull as an outside speculator
15. Sell shorts as often as you go long
16. Don’t buy something because it is low priced
17. Pyramid correctly, if at all
18. Decrease your trading after a series of successes
19. Don’t formulate new opinions during market hours
20. Don’t follow the crowd – they are usually wrong
21. Don’t watch or trade too many markets at once
22. Buy the rumor, sell the fact
23. Take windfall profits when you get them
24. Keep charts current
25. Preserve your capital
26. Nothing new ever occurs in the markets
27. Money cannot be made every day from the markets
28. Back your opinions with cash when they are confirmed by market action
29. Markets are never wrong, opinions often are
30. A good trade is profitable right from the start
31. As long as a market is acting right, don’t rush to take profits
32. Never permit speculative ventures to turn into investments
33. Don’t try to predetermine your profits
34. Never buy a stock because it has a big decline from its previous high, nor sell a stock because it is high priced
35. Become a buyer as soon as a stock makes new highs after a normal reaction
36. The human side of every person is the greatest enemy to successful trading
37. Ban wishful thinking in the markets
38. Big movements take time to develop
39. Don’t be too curious about the reasons behind the moves
40. Look for reasonable profits
41. If you can’t make money trading the leading issues, you aren’t going to make it trading the overall markets
42. Leaders of today may not be the leaders of tomorrow
43. Trade the active stocks and futures
44. Avoid discretionary accounts and partnership trading accounts
45. Bear markets have no supports and bull markets have no resistance
46. The smarter you are, the longer it takes
47. It is harder to get out of a trade than to get into one
48. Don’t talk about what you’re doing in the markets
49. When time is up, markets must reverse
50. Control what you can, manage what you cannot

Profile Of The Successful Trader

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #

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.

Good traders offer no excuses, make no complaints. They live willingly with the vagaries of life and the markets.

In the early stages of your trading career, pay attention not only to whether you should buy or sell but also to how you have executed your trading ideas. You will learn more from your trades this way.

Never assume that the unreasonable or the unexpected cannot happen. It can. It does. It will.

Remember, you can learn a lot about trading from your mistakes. When you make a mistake – and you will – do not dwell on the negatives. Learn from the mistake and keep going.

Never forget that markets are made up of people. Think constantly about what others are doing, what they might do in the current circumstances, or what they might do when those circumstances change. Remember that, whenever you buy and hope to sell higher, the person you sell to will have to see the same opportunity at that higher price to be induced to buy.

Traders who lose follow one of several typical patterns. Some repeatedly suffer individual large losses that wipe out earlier gains or greatly increase a small loss. Others experience brief periods during which their trading wheels fall off: they lose discipline and control and make a series of bad trades as a result.
Wise traders make many small trades, remain involved, and constantly maintain and sharpen their feel for he market. For all of their work, they hope to receive some profit, even if it is small in terms of dollars. In addition, continual participation allows them to sense and recognize the few real opportunities when they arise. These generate large rewards that make the effort of trading truly worthwhile.

At the end of the chapter he lists specific observations that have a high enough probability of reoccurring he considers them rules:

  • If you find yourself holding a winning position, adding up your profits, and confidently projecting larger gains on the horizon, you are probably better off exiting the trade. The odds are that the trade has run its course.
  • When entering a trade with a market order and your fill is clearly better than expected, odds are it will end up being a losing trade. Good fill, bad trade. Get out!
  • If all your ‘trading buddies’ agree with your expectations regarding the next big move, it probably will not work out. If everyone’s conviction level is as strong as the consensus, do the opposite.

Book Review : The Disciplined Trader by Mark Douglas

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

 This is one heck of a slow read. Douglas dangles a carrot in front of you each chapter saying ” I will show you how to do this”; but never actually does! I thought there was quite a bit of carry over between this book and “Trading in the Zone”, so by one or the other but on the whole I would say Trading in the Zone would be the one to plump for as there are more trading references. In The Disciplined Trader Douglas does go off on a tangent for many pages and you wonder whether you are reading a book on amateur psychology.

The first 5 Chapters read well with some nice takeaways even in the Intro and Preface. Such as defining Self Confidence as “an absence of fear and self-trust”. I think we all know what he means ny that definition don’t we ?!

Chapters 6 thru to 14 were laboured in my view. Where the depth of Douglas’ attempt to describe the mental state of the trader really was a little abstract at times and to be honest lost me.

For me the best bit of the book was his penultimate chapter on the Steps for Success :

1)Stay focussed on what you need to learn

2)Deal with Losses

  • Predefine the loss at time of trade is vital
  • Execute them immediately on their occurence

3)Become an expect at just one market behaviour

4) Learn how to execute your trading system flawlessly

5) Learn to think in Probabilities

6) Learn to be Objective

  • You feel no Pressure to do anything
  • You have no feelings of fear
  • You have no sense of rejection
  • There is no right or wrong
  • You recognise what the market is telling you and you know what you have to do
  • You can observe the market from the perspective of not being in a position even when you are.
  • You are not focussed on money but the structure of the market

7) Learn to Monitor yourself

So if you can borrow this from a friend, download it as an e-book cheaply or get a 2nd hand one on ebay for the beginning third and last 2 chapters – it’s worth it.

Must Read…….!!

7 ways someone can claim a 90% winning rate

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

1. Mr. Hindsight

This person can point to any chart, and identify his buy and sell points with absolute precision. Usually recognized as an expert in his field of analysis, he can create stunning buy and sell signals for past data. Problem is, he usually can’t do it going forward. ADVICE: Ignore past “predictions,” and only follow Mr. Hindsight in real time. You’ll soon see his true ability.

2. Ms. Vague

Her market predictions are akin to reading the works of Nostradamus. She’ll say “the market will be up today, unless GDP figures are disappointing.” After the numbers come out, the prediction can be made to fit the outcome – “well, the numbers were only somewhat disappointing” or “other forces overpowered the market, so even though I was right, the market fell.” ADVICE: Turn off financial TV shows, since this is where Ms. Vague and here cohorts lurk.

3. Mr. Sneaky

This guy will have an ad that states “95% winning closed trades.” Sounds great, BUT it usually means that 5% of his trades are currently open losers, usually big losers, that he has held onto for a long time. ADVICE: Make sure all open trades are disclosed, too. Treat open and closed trades as the same. Don’t fall for the “this losing trade can always come back and be profitable” ploy.

4. Ms. Quick Exiter

In and out like a flash on winning trades, Ms. Quick Exiter will typically have losses 5-10 times her winners. But, she gets a lot of winners, and she wants to dazzle you with winning percentage. ADVICE: Look at total net profit. You probably will see a losing strategy, even with a 90%+ winning percentage.

5. Mr. Liar

If Mr. Liar can do anything to cheat, he will. In the past, he has stuck all his losing trades in one account, put all his winners in another account, and of course, only shows you the winning account. But, he has many other tricks up his sleeve, certainly more than I can name here. ADVICE: Track his trades in real time. Make sure they are specific and detailed enough so they cannot be misinterpreted.

6. Mr. Long Term

“The stock market will rise,” says Mr. Long Term. He is absolutely right, if you don’t pin him down on time. It may take 100 years, but stocks will eventually rise. But, the first 99 might wipe you out. Long term forecasters hope you’ll forget their predictions if they are incorrect. ADVICE: Treat any prediction, especially long term ones, with extreme suspicion. The fact is most experts are just guessing.

7. Ms. Really Can Do It

A rare and exceptional talent, this person is the real deal. No gimmicks, no tricks – just super high winning percentage and super high profits. ADVICE: Ask yourself “why would this person sell me their amazing secrets for $79, when if she is so good, she can trade and make unlimited amounts of money?” Answer: No one will ever sell you the ultimate key to trading success, and if they did, it would cost a lot more than you could afford.

So, now you know the seven members of the 90% winning trade club. Avoid these folks, and you’ll almost certainly become a better trader.

Three things to make trading less hard

  
  Education
#  #  #  #  #

Trading is not easy but it also isn’t as hard as we make it.  Here are three things that will help it be less hard.

Trading Plan

Have a plan already.  You are just guessing and putting yourself through unnecessary stress if you don’t.  You are taking a test without studying.

Fall in love with the L’s

You have to live with the idea of loss and learning.  They are connected.  They are always fighting each other. Losses makes you want to ignore the learning and not losing makes you think you don’t need it.

Perspective

When you lose your optimism shrinks, when you win it expands.  Chances are you have only accepted winning. One trade does not make a trend, either direction.  But it is easy to connect the losses.  Step back and see it for what it really is.

Trading Profits in relations to Time and Accuracy

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

The size of profits of a trading system, is related to time and accuracy. They are inter-related and it is not possible to get the best out of all 3 factors in any trading system.

Before I elaborate further, I shall define what these 3 factors mean.

Size of profits – I am referring to the average amount of profits the system will earn per trade.

Time – The average length of time you held on to a trade.

Accuracy – The percentage that the system is correct and earns you a profit.

Big Profits = Long Time = Low Accuracy

For systems that aim for big profits, they must allow a greater range of fluctuations for the trade. By having a large trading range will in turn prevent you from getting stopped out so soon. Hence, you will be in a trade for a longer period of time. Besides having a larger profits, it will also serve you losses that are bigger, because your stop loss limit has to be further from your entry point. It is more difficult to grasp for the relationship with accuracy.

Small Profits = Short Time = High Accuracy

On the contrary, a highly accurate trading system allows you to be right most of the time but each time when you are right, you take very small profits. This is possible by making very tight stops in your trades such that you lock in profits as soon as you make them. Hence, you will be in and out of the trades very fast and frequently. This is typical to intraday trading or mean reversion models or even band trading. (more…)

Key to winning at trading

  
  Education
#  #  #  #  #  #  #

key-asrThe real secret to making money in the markets is simply by having bigger winners than losses. A robust system may only have a 50/50 win rate but the half that are winners are much bigger than the other half that are losers. That is the key to winning at trading, not stock picking, not some secret formula that will get you in at the bottom and out at the top. Winning traders simply have small losses when they are wrong and big wins when they are right. They don’t have to be right every time they just have to be right big and wrong small. It makes no difference what method you use to achieve this you just have to be consistent in your method once you have found a winning one.

 

9 Things-Jesse Livermore said regarding excessive trading

  
  Education
#  #  #  #  #  #  #  #  #  #

“Money is made by sitting, not trading.”

2. “It takes time to make money.”

3. “It was never my thinking that made the big money for me, it always was sitting.”

4. “Nobody can catch all the fluctuations.”

5. “The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money everyday, as though they were working for regular wages.”

6. “Buy right, sit tight.”

7. “Men who can both be right and sit tight are uncommon.”

8. “Don’t give me timing, give me time.”

and finally, the most important thing:

9. “There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. Not many can always have adequate reasons for buying and selling stocks daily – or sufficient knowledge to make his play an intelligent play.” (more…)

4 Wisdom Thoughts for Traders

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Give up reliving your past trades.

Each trade is a new trade do not hold grudges against stocks and think they ‘owe’ you for past losses. Do not fall in love with a stock and hold it as it falls lower and lower.

Give up letting your trading define your self worth.

Do not let your trading define you. Diversify your life with friends, family, hobbies, and other interests. It is not healthy to become overly obsessed with the markets.

Give up on losing trades quickly when your stop is hit.

Your best trades will be the ones that are profitable from the start, if they immediately go against you be prepared to be stopped out. You can destroy your trading account when you start the “It will come back, I just have to wait” chant in the midst of a death spiral.

Give up on price targets let your winners run as far as they will go.

In the right market conditions trends can go on to unbelievable levels, the big wins during these trends can make your entire year profitable if losses are small on losing trades. If you set a predefined profit target you will miss the opportunity when the big move comes. Let a trailing stop take you out.

Go to top