Be willing to stop trading and re-evaluate the markets and your methodology when you encounter a string of losses. The markets will always be there. Gann said it best in his book, How to Make Profits in Commodities, published over 50 years ago: “When you make one to three trades that show losses, whether they be large or small, something is wrong with you and not the market. Your trend may have changed. My rule is to get out and wait. Study the reason for your losses. Remember, you will never lose any money by being out of the market.”
Archives of “losses” tag
rssA Good Reminder
Trend follower Ken Tropin: In this business you need to have ample payoffs from your winning trades but make sure your losing trades do not generate big losses—so the returns have a fat right tail but not much left tail! Suppose over time you make money on half your trades and lose money on the other half. If the winning trades are double the size of the losing trades, then you have a pretty profitable investment.
Tips to stop the self-destruction
1. Take a Break
When you have experienced successive losses, you should quit trading for a day. Some traders even have a “punishment” that is assumed by a trading plan: had loss, no trading for a week! Market will not disappear and tomorrow have even more opportunities for you. Do not do anger trades, just take a breath and give yourself a break.
2. Shorten Size
Shorten the size of amount traded considerably. In such a way you will be able to distract your mind of trading for a while and become sensible again. Give yourself time and get back to the right size trading only when you are really ready.
3. Add Money You Didn’t Win
Put the amount equal to the winning trade you didn’t take in your forex account. When you see money in your account, it will make you feel better and take wise decisions.
4. Add Amount You Lost
If you experienced a loss, you can add to the amount you have lost back to the account. You will be surprised at how easy it can become normal again when you do not see your account with losses.
5. Use Visual Effects!
Create a poster or make a note which can remind you of not making unreasonable decisions after bad trades. The note will help you to stay sensible and take only the trades that you can completely understand and pass on all the rest.
6. Trade With Reason
Psychology is a critical factor that influences success or failure in trading. You should have the right psychological reasons to do trades.
7. Be Precise
You should be disciplined. Actually, you should become army disciplined. Bear in mind that emotions should have nothing to do with your decision taken as for the trades.
8. Confess and Talk It All Out
Confess about your losses to somebody nearby or even over the internet, a fellow trader or somebody who can understand your pain. Talking will free your mind from negative thoughts and will bring you back to real life.
Four Stages Of Awareness in Trading
Have you ever noticed that awareness is the first step toward future growth? If you
want to improve in any area, read on below to understand the four stages of
awareness as they relate to good trading.
The learning curve in any endeavor involves four stages:
Unconscious incompetence (where the trader has no idea how much he doesn’t
know about trading)
Conscious incompetence (where the traders realizes after initial losses that he has a
lot to learn)
Conscious competence (where the trader has developed and is now doing well as
long as he works his system and its rules)
Unconscious competence (where the trader has mastered the rules and also knows
when to break the rules as conditions change, in a complete flow with the markets
based on great experience)
Ed Seykota On Trading
“Pyramiding instructions appear on dollar bills. Add smaller and smaller amounts on the way up. Keep your eye open at the top.”
“It can be very expensive to try to convince the markets you are right. Markets are fundamentally volatile. No way around it. Your prolem is not in the math. There is no math to get you out of having to experience uncertainty.”
“Here’s the essence of risk management: Risk no more than you can afford to lose, and also risk enough so that a win is meaningful. If there is no such amount, don’t play.”
“To avoid whipsaw losses, stop trading.”
Eckhardt on Losses
The people who survive avoid snowball scenarios in which bad trades cause them to become emotionally destabilized and make more bad trades. They are also able to feel the pain of losing. If you don’t feel the pain of a loss, then you’re in the same position as those unfortunate people who have no pain sensors. If they leave their hand on a hot stove, it will burn off. There is no way to survive in the world without pain. Similarly, in the markets, if the losses don’t hurt, your financial survival is tenuous.”
Losses happen and they are part of our trading education. If you don’t learn anything out of them, it is money wasted. Always ask yourself: what did I learn form that loss? What could I do, not to repeat it again.
Jesse Livermore’s trading rules
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. (more…)
Secrets of Jesse Livermore
1. Money Management:
* “I trade on my own information and follow my own methods.”
* “The desire for constant action irrespective of underlying conditions is responsible for many losses on Wall Street, even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.”
2. Business of Investing:
* “I believe that anyone who is intelligent, conscientious, and willing to put in the necessary time can be successful on Wall Street. As long as they realize the market is a business like any other business, they have a good chance to prosper.”
3. The Investor Self:
* “My satisfaction always came from beating the market, solving the puzzle. The money was the reward, but it was not the main reason I loved the market. The stock market is the greatest, most complex puzzle ever invented – and it pays the biggest jackpot…it was never the money that drove me. It was the game, solving the puzzle, beating the market that had confused and confounded the greatest minds in history. For me, that passion, the juice, the exhilaration was in beating the game, a game that was a living dynamic riddle…”
4. Market Analysis:
* “What beat me was not having the brains enough to stick to my own game – that is, to play the market only when I was satisfied that precedents favored my play.”
* “It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibly expressed by a brilliant mind.”
5. Routines:
* “It is what people actually did in the stock market that counted – not what they said they were going to do.”
* “The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.” (more…)
* “I believe that anyone who is intelligent, conscientious, and willing to put in the necessary time can be successful on Wall Street. As long as they realize the market is a business like any other business, they have a good chance to prosper.”
3. The Investor Self:
* “My satisfaction always came from beating the market, solving the puzzle. The money was the reward, but it was not the main reason I loved the market. The stock market is the greatest, most complex puzzle ever invented – and it pays the biggest jackpot…it was never the money that drove me. It was the game, solving the puzzle, beating the market that had confused and confounded the greatest minds in history. For me, that passion, the juice, the exhilaration was in beating the game, a game that was a living dynamic riddle…”
4. Market Analysis:
* “What beat me was not having the brains enough to stick to my own game – that is, to play the market only when I was satisfied that precedents favored my play.”
* “It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibly expressed by a brilliant mind.”
5. Routines:
* “It is what people actually did in the stock market that counted – not what they said they were going to do.”
* “The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.” (more…)
Not Having a Trading Plan
“If you fail to plan, then you plan to fail”. I don’t know who first said that, but it’s a very sound piece of advise indeed. Planning is something that is all too often overlooked by traders, and yet a well drafted trading plan is one of the most important tools for success and profit.
In talking to struggling traders, I am constantly amazed at not only how many don’t have a trading plan, but how many don’t even know what such a plan is. In fact a trading plan is quite simple, it’s a document that details every aspect of your trading strategy. It is literally a blue-print for your trading methodology.
What should be in this document? Here are the most important areas it should cover: (more…)
Gems of Jesse Livermore
What beat me was not having brains enough to stick to my own game — that is, to play the market only when I was satisfied that precedents favored my play. 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. No man can always have adequate reasons for buying or selling stocks daily — or sufficient knowledge to make his play an intelligent play.
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 every day, as though they were working for regular wages.
It takes a man a long time to learn all the lessons of all his mistakes. They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side. It took me longer to get that general principle fixed firmly in my mind than it did most of the more technical phases of the game of stock speculation.
Nobody offered to point out the essential differences or set me right. If somebody had told me my method would not work I nevertheless would have tried it out to make sure for myself, for when I am wrong only one thing convinces me of it, and that is, to lose money. And I am only right when I make money. That is speculating.