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William Eckhardt-Quotes

  
Analysis, Education
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I take the point of view that missing an important trade is a much more serious error than making a bad trade. 

Buying on retracement is psychologically seductive because you feel you’re getting a bargain versus the price you saw a while ago. However, I feel that approach contains more than a drop of poison. 
You shouldn’t plan to risk more than 2 percent on a trade. Although, of course, you could still lose more if the market gaps beyond your intended point of exit. 
I haven’t seen much correlation between good trading and intelligence. Some outstanding traders are quite intelligent, but a few aren’t. Many outstanding intelligent people are horrible traders. Average intelligence is enough. Beyond that, emotional makeup is more important. 
The answer to the question of whether trading can be taught has to be an unqualified yes. Anyone with average intelligence can learn to trade. This is not rocket science. 
If you bring normal human habits and tendencies to trading, you’ll gravitate toward the majority and inevitably lose.  (more…)

Fear and Greed in Financial Markets: A Clinical Study of Day-Traders

  
  Education
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GreedkillsContrary to common folk wisdom that financial traders share a certain set of personality traits, e.g., aggressiveness or extraversion, we found little correlation between measured traits and trading performance. The study finds that subjects whose emotional reaction to monetary gains and losses was more intense on both the positive and negative side exhibited significantly worse trading performance. Psychological traits derived from a standardized personality inventory survey do not reveal any specific \trader personality profile”, raising the
possibility that trading skills may not necessarily be innate, and that di erent personality types may be able to perform trading functions equally well after proper instruction and practice.

One Liner-Trading Wisdom

  
  Education
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If your not sure and don’t have an edge, cash IS a strategy.
If you are on a cold streak, reduce size by 70% and tighten stops for a week.
Stocks aren’t people, they cant be trusted, an algorithm doesn’t care that you think you know the story or the chart.
Don’t be “all in” in any name, you will blow up your account.
It’s totally cool to change your mind right after a trade, the market changes by the minute, so should you.
Pick one strategy and stick to it. This may take time if you are a beginner.
You have to break a few eggs to make an omelet, so take losses but keep them very small.
I haven’t taken someone else s idea in a long time, you have just as good a chance of being right or wrong as some other putz.
Don’t have 15 technical indicators on your screen, that’s and EKG not a chart. Less is more.
Don’t trade pissed off, it will crush your P&L
Guess who wins when you “revenge” trade?
Take partial profits on the way up and raise your stops.
When you have three losing trades in a row, take a walk around the block. You may get an epiphany, at the very least it’s therapeutic.
Realize early that the market will always be smarter than you.

6 ways to think about risk

  
  Education
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1  Risk is not the same as volatility. Assets can be volatile on the upside as well as the downside. Risk should instead be viewed as the permanent loss of purchasing power.

2 A risk should not be evaluated based its frequency. Some risks only have to happen once to be catastrophic.

3 Sophistication and knowledge are not a form of or substitute for risk management.

4 Although following the crowd may feel comfortable, risks are just as catastrophic whether you suffer with company or suffer alone.

5 Bullish consensus manufacturers the greatest risks because nobody is prepared and everyone runs for the exits at the same time. Strong optimistic consensus provides a sense that nothing can go wrong. This is why the greatest catastrophes seem to come out of the blue.

6 Activity, research and analysis provides a false sense of control over the future. However devastating losses rarely due to a lack of brain power or analytical prowess.

10 Points for Traders

  
  Education
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1. “Between stimulus and response, lies our freedom to choose” – Steven Covey
This quote is very important. What it tells us as traders is that there should be a specific setup you’re looking for (a pattern of sorts) and then aspecific protocol that follows it. Too many traders just “wing it” when they are trading instead of having a specific setup and plan that they know works and they know what their risk/reward is. If you don’t know what you’re looking for and you don’t know exactly what you’re doing when you see it, you’re likely headed down the wrong path.
2. Stick to your plan.
It’s extremely easy to lose focus of what you’re doing and start doing what someone else is doing. Stick to your trading plan and what you know works.
3. Ignore the noise.
Noise comes in a variety of ways. At times it’s economics news, at times it’s other traders. It’s not uncommon for traders to seek what other traders think about their trades because they are unsure about their trade setups. Noise for many traders usually results in less profits and larger losses.
4. Be patient.
Anyone who is successful at anything has patience. Whether it’s an athlete, your favorite musician or successful entrepreneurs, they all have patience. You don’t become successful without having patience. Just as important it is to have a set plan and rules, patience is just as important. (more…)

Suggestions to Speculators

  
  Education
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Be a Cynic When Reading the Tape

We must be cynics when reading the tape. I do not mean that we should be pessimists, because we must have open minds always, without preconceived opinions. An inveterate bull, or bear, cannot hope to trade successfully. The long-pull investor may never be anything but a bull, and, if he hangs on long enough, will probably come out all right. But a trader should be a cynic. Doubt all before you believe anything. Realize that you are playing the coldest, bitterest game in the world.

Almost anything is fair in stock trading. The whole idea is to outsmart the other fellow. It is a game of checkers with the big fellows playing against the public. Many a false move is engineered to catch our kings. The operators have the advantage in that the public is generally wrong.

They are at a disadvantage in that they must put up the capital; they risk fortunes on their judgment of conditions. We, on the other hand, who buy and sell in small lots, must learn to tag along with the insiders while they are accumulating and running up their stocks; but we must get out quickly when they do. We cannot hope to be successful unless we are willing to study and practice—and take losses!

But you will find so much in Part Three of this book about taking losses, about limiting losses and allowing profits to run, that I shall not take up your thought with the matter now.

So, say I, let us be hard-boiled cynics, believing nothing but what the action of the market tells us. If we can determine the supply and demand which exists for stocks, we need not know anything else.

If you had 10,000 shares of some stock to sell, you would adopt tactics, maneuver false moves, throw out information, and act in a manner to indicate that you wanted to buy, rather than sell; would you not? Put yourself in the position of the other fellow. Think what you would do if you were in his position. If you are contemplating a purchase, stop to think whether, if you act contrary to your inclination, you would not be doing the wiser thing, remembering that the public is usually wrong.

EXIT in Trading

  
  Education
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exit_strategy1Exit– The exit is critical to being a successful trader. Let your winners run and your losers run out quickly. Two factors determine your exit, the Target and the Stop loss you have set on entering the trade.

1. The Target is determined by the type of market and the trading history of the stock.

2. If the trade proceeds in your direction move the Stop loss keeping it tight.

3. It the trade continues to move, you may want to take your money off the table!

4. Profits should be taken before reaching a S/R. SO WHAT if it continues to run after you left!

5. Take Profits quickly and often! And remember discretion is the better part of valor.

6. The two most important factors in determining the Stop loss are the last S/R and providing enough margin for the trade to be successful. You must balance these against each other.

7. The Stop loss can be predetermined by your maximum loss limit but understand a small loss limit can positively impact your probability of success.

8. I must balance courage and common sense when staying in the trade. The money may be better used in another trade.

9. Remember small losses are the key to success in an environment where you may be wrong greater than 50% of the time.

10. Don’t give back, remember you can always get back in!

11. Don’t change my rules and therefore my settings.

Daily Trading Plan

  
  Education
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Risk: your loss limit in per trade and the total dollar loss per day. What you will do after x number of losses in a row. Your strategy for increasing and decreasing your trading size.

Goals: how many R’s you are trying to make today. How many trades do you plan to make. How long do you plan to hold winners and losers 

Reporting: your plan for writing a brief narrative of the day’s trading your plan to keep statistics of your trades (hold times, results, et cetera). How you will mark your trades on the same charts you use to trade. 

Contingencies: what phone number do you call to get out of trades should your system crash. Who can you contact to troubleshoot or repair your computer. Who do you call to get your Internet connection checked and fixed, if needed.

 With a well developed, clear plan you will be ahead of the majority of traders and, through this detailed planning, you can concentrate on achieving your stated goals.

Booking Losses Before They Occur

  
  Education
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There is a meaningful difference between trading to win and trading to not lose. The average person feels more psychological pain over a loss than they feel pleasure over a gain–particularly once they have already “booked” that gain mentally.

When we enter a trade, we expect to be paid out. Mentally, we book a potential profit. When a loss materializes, it is the unexpected event–and we respond more strongly to the unexpected than to the familiar.

What is the solution to this dilemma? The answer, surprisingly, is to book losses before they occur.

It’s human nature to not want to think about such unpleasant things as losses. But by knowing our maximum possible loss in advance and by mentally rehearsing what we’ll do on those occasions when the loss occurs, we normalize the losing process. That divests it of its emotional grip.

We can never eliminate loss from life or trading; nor can we repeal the basic uncertainties of markets. What we *can* do is develop an edge in the marketplace and, over the course of many trades, let that edge accumulate in our favor.

Profile Of The Successful Trader:

  
  Education
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Profile Of The Successful TraderTrading 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. (more…)

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