Archives of “making money” tag

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What is the Purpose of Trading?

  
  Education
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It seems clear, doesn’t it? The purpose of trading is to make money. The trade is planned, entered, and exited with the goal of increasing the size of one’s trading account. What other purpose would there be?

The dictionary says this about purpose:

“something set up as an object or end to be attained : intention b: resolution, determination”

What about:

The purpose of trading is to not lose money.
The purpose of trading is to practice discipline.
The purpose of trading is to use my talents.
The purpose of trading is to grow.

Or how about:

The purpose of trading is to express my true nature. I was meant to be a trader.

Maybe the purpose of trading is simply to trade. Because that is what you have been called to do, or what you are meant to do, or it’s the highest expression of your nature as a producer rather than a consumer. When you trade successfully, you are disciplined, you are growing, you are using and developing your talents, you are making money, and you are creating wealth from scratch. But most of all, you are trading because it’s the right thing to do for you.

5 Facts for Speculators & Traders

  
  Education
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1) It’s not by making large profits that money is made over time. It’s by consistently keeping losses small in relation to profits. 
2) Making Money and Being Right are at opposite ends of the performance spectrum, and — very surprisingly to most — most professional traders admit their primary job is to minimize losses, NOT focus on being right. Why? Minizing losses (well over 50% of the time losses can’t be avoided) ensures their average winner will be greater in relation to the average loser. 
3) No one knows FOR SURE how much profit any trade is likely to make. Fortunately, it is possible to know THE INITIAL RISK a trader is willing to lose. 
4) Projection of future prices are only a BEST GUESS, never a 100% certainty. 
5) Top traders only control three things all the time: Initial Risk, Exits, and EMOTIONS…  

The need to be Right

  
  Education
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right_wrongGood trading is not about being right, it is about making money.   If you trade to be right you are most likely trading too often in order to 1) impress someone other than yourself, and 2) feed your ego.  If this is your problem it mostly stems from a failure to focus on your trading plan, if you have one.  If you don’t then you are really heading for disaster.  Sticking to a well thought out plan of action based on a high probability trading edge will keep you from making frequent, unnecessary trades.  This is where the professionals pull way ahead of the masses.  The professionals wait for the market to come to them instead

False Beliefs About Trading the Markets

  
  Education
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1) What goes up must come down and vice versa.

That’s Newton’s law, not the law of trading. And even if the market does eventully self-correct, you have no idea when it will happen. In short, there’s no point blowing up your account fighthing the tape.

2) You have to be smart to make money.

No, what you have to be is disciplined. If you want to be smart, write a book or teach at a university. If you want to make money, listen to what the market is telling you and trade to make money — not to be “right.”

3) Making money is hard.

Nope. Sorry. Making money is actually easy. Statistically, you’re going to do it about half the time. Keeping it, now that’s the hard part. (more…)

The market is the calculator

  
  Education
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If you are attempting to reach 10 via the calculator, there are many and various ways of getting there:  5+5, 2+8, 15-5, 25 –15, or even  2 + 2 –1 –1 –2 –2 +3 +3 +3 + 3.  When it comes to making money in the market our calculator may want to make it to 10 much quicker than the market does and we may want to add 5 + 5 to get there but be prepared for the market to take its own sweet time adding things up.  If all that matters is getting to 10, then make sure the road you take is paved with minuses along with pluses along the way or all your money will be going to the 5508 (punch this number into your calculator and turn it upside down to see what it spells), which will make the employee a very unhappy and broke individual.

Three Types of Traders

  
  Education
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A trader that performs worst than their trading plan.  These traders often have a weak understanding and belief in their trading plan.  How they feel is more or as important as making money.  They fail to see past the current trade.

A trader that performs the same as their trading plan.  These traders have a strong understanding and belief in their trading plan.  They get a majority of their satisfaction from making money.  They can see past the current trading day.

Those that perform better than their trading plan.  These traders have spent time in the previous two groups so they not only understand and believe their trading plan, they have 100′s or thousands of experiences that “prove” it to them.  The only satisfaction is following their plan and knowing that the money will follow. They can see past the current trading year.  They find areas and times to be aggressive and times to hold back.

Dont Take Too Much Risk

  
  Education
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Dont Take Too Much RiskOne of the most devastating mistakes any trader can make is risking too much of  their capital on a single trade. One thing is certain in trading and that is if you lose all your capital you are out of the game. Why risk so much you could be prevented from continuing? There is a saying in poker than going all-in (risking all your chips) works every time but once. This is true of trading.

If you risk all your account on every trade it only takes one loser to wipe you out (and no trading method is 100% accurate), so you will be out of the game at some point it is only a question of time.

In general, we only risk 1-3% of the available capital allocated to a system on any individual trade. This is calculated using the size and, the difference between our entry price and our maximum stop price, and the amount of capital allocated to the system. With the win probability and ratio of size of winning trades to losing trades we are almost certain never to lose all of our trading capital. In fact, the chance of us hitting our maximum drawdown for the year is tiny. (more…)

7 Bad Habits of Traders

  
  Education
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  1. 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.BAD-HABITS

  2. 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.
  3. “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.
  4. 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.
  5. 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.
  6. 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.

  7. 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.

Emotional Satisfaction

  
  Education
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TeachingWilliam Eckhardt once said that “If you’re playing for emotional satisfaction, you’re bound to lose, because what feels good is often the wrong thing to do.” If any trade makes you feel like “kicking yourself,” then you’re likely trading for emotional satisfaction and that’s a problem. In other words, if every trade you make has the purpose of trying to make you feel good, prove you are right, feed your ego, eliminate pain from a prior mistake you refused to deal with early on, or something other than just making money for you, you need to learn how to put trading in the proper frame of mind if you desire to become a better trader and investor.

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