- Managing your risk, you will not be around to win if you do not control your risk per trade. How many losses in a row can you survive? Surviving the market is magic at times.
- Trading a consistent methodology is magical because you will be consistent enough to make money when a market environment rolls around that it works in, single trades by themselves mean nothing outside the context of a method.
- Trading a methodology you believe in will enable you to trade it through draw downs instead of giving up.
- Understanding your edge will enable you to have the mental toughness to trade knowing eventually you will get the pay off.
- Trading price action versus your own opinion will help you magically be on the side of the majority most the time.
- Trading in the direction of the trend will enable you to be right more times than wrong most of the time.
- Cutting losses short and letting winners run will make you profitable. Now that is the magic of asymmetry.
- Only trading in markets and trading vehicles you understand will keep you safe from many big mistakes.
- Doing nothing when you do not know what to do is a plan that will save you much money.
- Spending thousands of hours studying charts, reading books from successful traders, and doing the right homework will make you successful eventually so all your friends can tell yo how lucky you are. Then you can tell them that is isn’t magic, trading is a lot of hard work.
Archives of “market environment” tag
rss10 Trading Rules
Always wait for the setup: no setup – no trade. Agree. If your strategy doesn’t provide you a good risk/reward trade to make, then your job is to be patient until it does. Ironically, this often requires you to sit out some very good moves in the market and be inactive at the very same times you want to be aggressive.- The best trades work almost right away. Agree, but with one important caveat – this rule greatly depends upon your strategy. Some strategies will require greater patience than others. If trading short-term, this rule is almost always correct, but if your time frames are longer, then you also have time on your side which requires more patience but that patience can pay off if your analysis is correct.
- Never take a big loss. If it doesn’t ‘feel’ right. Remove it! Disagree. Sometimes you have to take a big loss to prevent the risk of an even greater loss. Refusing to take a big loss when a mistake has been made can be very costly. I also disagree with the view that “If it doesn’t feel right, remove it.” Actually, some of the best trades you will ever make in your career are those trades that feel wrong and about as far from “right” as you can make it. Don’t believe me? Think over the last month or so about the trades you missed because they didn’t feel right but your strategy told you to hold or buy them anyway! It is also interesting to me that this rule says to trade by feel and at the same time advises in another rule not to trade by emotion. You can’t do one without the other!
- Always perfect your craft and sharpen your skills – good traders are constantly learning. Agree. No matter how skilled, intelligent, and successful you have been, there is always room for improvement. Moreover, because of the ever-growing changing nature of the market, what you do now to trade successfully won’t always work in every situation and the next market environment. Only experience and constant dedication to your job will provide you with the weapons for enduring market success.
- Be patient with winning trades – impatient with trades that fight back. Agree. Another good ways of saying – let your winners run and cut your losers short. The truth is that most individual traders and investors do the exact opposite – they sell winners too quickly and they hold losers far too long letting trades that went awry become long-term “trapped” investments. (more…)
What Kind of Person is Best Suited to Trading?
Great traders have a few personality traits that do give them a natural advantage. That’s not to say you can’t succeed without them, just that it’ll be an uphill battle and a greater degree of reflection and self-correction will be required. The trader with the best chance of success will be –
Independent. Being happy with a good deal of autonomy will allow you to confidently execute your plan without needing 25 people to concur with your analysis. Trading is a solitary game, and you need to be able to thrive on your own, to a large extent. Support is great but when it comes down to it, it’s all up to you.
Decisive. If you take hours to do something simple like choose a burger off a menu, the odds of you being able to see a trade set-up and coolly pull the trigger are greatly diminished. Especially if you trade short time-frames that can be the difference between success and failure.
Insightful. If a trader can honestly look at their skills, motivations and short-comings and actively work to rectify them, they have the tools to over-come nearly anything the market throws their way. (more…)
10 Mental Errors
The weakest link to any trading strategy is the trader that is suppose to be executing it. It is usually the mental and emotional errors of the trader that cause the 90% of unprofitable traders to lose money. Trading success is determined more by the mindset of the trader than their skills with math, economics, or macro knowledge.
- The ego takes over the trader and being right becomes the #1 priority. This causes the trader not to take losses becasue they don’t want to be proven wrong.
- Greed causes traders to trade too big because they want to make a huge amount of money in one trade.
- Fear causes a trader to exit to early with a very small profit because they are afraid it will disappear.
- Discouragement causes a trader to quit before they have given themselves or their systems enough time to win.
- Coat tailing is when a trader follows a guru’s trades instead of learning to trade correctly themselves.
- Style drift is when a trader changes their method instead of sticking to it and letting it play out when the right market environment emerges.
- Arrogance leads a trader to trade too big and take on too much risk, this usually happens after a big winning streak or outsized win. (more…)
10 Rules for Traders
Always wait for the setup: no setup – no trade. Agree. If your strategy doesn’t provide you a good risk/reward trade to make, then your job is to be patient until it does. Ironically, this often requires you to sit out some very good moves in the market and be inactive at the very same times you want to be aggressive.- The best trades work almost right away. Agree, but with one important caveat – this rule greatly depends upon your strategy. Some strategies will require greater patience than others. If trading short-term, this rule is almost always correct, but if your time frames are longer, then you also have time on your side which requires more patience but that patience can pay off if your analysis is correct.
- Never take a big loss. If it doesn’t ‘feel’ right. Remove it!Disagree. Sometimes you have to take a big loss to prevent the risk of an even greater loss. Refusing to take a big loss when a mistake has been made can be very costly. I also disagree with the view that “If it doesn’t feel right, remove it.” Actually, some of the best trades you will ever make in your career are those trades that feel wrong and about as far from “right” as you can make it. Don’t believe me? Think over the last month or so about the trades you missed because they didn’t feel right but your strategy told you to hold or buy them anyway! It is also interesting to me that this rule says to trade by feel and at the same time advises in another rule not to trade by emotion. You can’t do one without the other!
- Always perfect your craft and sharpen your skills – good traders are constantly learning. Agree. No matter how skilled, intelligent, and successful you have been, there is always room for improvement. Moreover, because of the ever-growing changing nature of the market, what you do now to trade successfully won’t always work in every situation and the next market environment. Only experience and constant dedication to your job will provide you with the weapons for enduring market success. (more…)
20 Trading Rules for your weekend
1. KNOW THYSELFWhat kind of trading style fits your personality…Trend following? Day Trading? Buy and hold (please NO)? Next, what do you want to accomplish with your trading…Monthly Income? Long-Term Growth? Risk Aversion? And finally, you must have a grip on your emotions, because you will experience failure and success in trading and you need to know how you will react to both.
2. KEEP IT SIMPLE
You should be able to describe each trading strategy in your war chest on a 3×5 index card. There are so many different trading tools and indicators out there that it is easy to make trading and investing harder than it is. Find a few technical and/or fundamental indicators that you can apply to your trading, and master them.
3. DIVERSIFY
Specialize in a few different trading strategies and then spread your risk out across multiple asset classes using those trading strategies. Make sure all of your trades are not dependent on the same sector, commodity, industry, or idea.
4. LOSERS AVERAGE LOSERS
Only losers add to losing positions. If a trade is going against you, move on and find another trade. It’s not about pride, it’s about profits.
5. NEVER STOP LEARNING
You must constantly make an investment in your trading education. Read books, go to seminars, or talk to other traders, because over time the traders that make a commitment to never stop learning will be the traders that stay in the game and are able to adjust their trading style to any market environment.
6. CREATE A TRADING PLAN
Having a trading plan creates discipline. Why are you making this trade? What’s your risk? What’s your reward? How much margin is required? What will you do if things get bad, or really good? These are questions you should be able to answer on every trade you execute.
7. BAD TRADE MOVE ON
I don’t care who you are, you are going to have bad trades. When you have a bad trade, take a break from trading, go to a movie, or kick the dog (once), but don’t sit around and pout. It’s important that you move on and start planning how you are going to get it back.
8. TRADE WITH CONFIDENCE
Trust your research, feel confident in the time and energy you have put into your trading strategy and know that no matter what the market does in the short term, you have the ability to make money in the long term.
9. THE MARKET IS GOING…????
Nobody knows where the market is going and you don’t either. So pick trading strategies that allow a little wiggle room in case you wake up one morning and the market doesn’t do exactly what you told it to. (See trade schools)
10. DICSIPLINE
This word sums up a long term trader. You must have the discipline to follow your systems and manage your emotions hour after hour, day after day, year after year. If you are undisciplined in other areas of your life, don’t be surprised if one day you break your trading rules. You must practice discipline 24 hours a day. (more…)
Over-trading
Today I want to consider the subject of over-trading. This can take two forms:
- Frequency of trading: we over trade when we take trades in breach of our strategy.
- The amount at risk relative to our capital: we over trade when the size of our position threatens risk of ruin.
Frequency of trading assumes that firstly we have some sort of strategy and that you have have developed some rules to implement that strategy. And, secondly, we execute trades in breach of those rules – we take trades not within our rules. (more…)
The Tortoise and the Hare
Once upon a time, there was a young hare, a hotshot rabbit investor who would always brag to anyone that would listen and that he was the smartest, fastest, best performing investor in the world. He would constantly tease the old tortoise about his slow, solid investment style.
Then, one day, the annoyed tortoise answered back: “There is no denying that you are very aggressive in your investment strategy. You take very high risks and get high returns. But even you can be beaten.”
The young hare squealed with laughter. “Beaten? By whom? Surely not by you. I bet there’s nobody in the world that can win against me, because I’m so good. If you think that you can beat me, why don’t you try?”
Provoked by such bragging, the tortoise accepted the challenge. Each of them put an equal amount of money into a new account and the race was on. The hare yawned sleepily as the meek tortoise trudged slowly off.
As might be expected, the tortoise invested in high quality blue chips, companies with household names.
The hare, as anticipated, invested his money in dotcom stocks and options.
You know the story. The aggressive hare jumped out to a big early lead. In a rising market, the highest risk stocks perform the best. This is called momentum investing. Money flows into the investments that are performing the best.
The hare, having jumped out to such a large early lead, stopped paying attention to the market environment. Basically, he fell asleep. He thought to himself, “I’ll have 40 winks and still remain way ahead of that stupid old turtle.” (more…)
Practical Aspects of Trading…
Successful traders examine the current market conditions to determine if they are bullish, bearish, or a trading range environment. After determining the current market environment traders can select the tools from the their trading tool box that perform best in the current conditions. When the market conditions change then traders need to adapt to the new market environment by selecting new tools that are most appropriate for the new market conditions.
In addition to adapting to the current market conditions by using the appropriate tools from the trading tool box there are several practical aspects of trading that traders need to master.
Never enter a position without having a plan for exiting the position. If you Do not know where to get out of a position you should not enter it in the first place. In swing trading time frames stocks often run to the next resistance or Support level and then stall. We have seen that stocks rarely remain outside the Bollinger bands for long, so when a position reaches the Bands it is often a good Place to look at profit taking, especially in trading range environments.
There is usually no need to rush in when the markets trend changes. Any trend worthTrading does not require you to be in on the first day, by definition. It is usually better to make sure the trend change is real and then react rather than assuming that the first Day of a potential change is something that is going to continue.
There are a lot of jobs where people get paid every Friday. Trading is not one of them. There will be profitable weeks and losing weeks as the normal statistics work out. Remember that if you make enough trades there is a reasonable probability of seeing…
ten losing trades at some point, even with good trading systems. This is part of trading and traders need to allow for it when they work out position sizing and money management techniques.
You do not have to trade every day or take trades just because they came upon the evening scan. Carefully consider the recent price and volume action in the market before taking positions. Look for the best trades, consider long trades that have not shown a lot of recent distribution and have ‘room to run’ before hitting the next resistance area or the upper Bollinger Band.
Make sure that your position sizing is such that if all your current positions were stopped out that the total loss is something that is still comfortable. This happens from time to time and wishing it did not will not change it. Be prepared by using sensible position sizes.
Review each of your positions every evening and determine if it is something you still want to be holding based on the recent market action and the price volume patterns of the position. Longs going up on declining volume are showing weakness and I generally close out those positions and put the money to work in something stronger. You are hiring a stock to do a job for you, if it is not doing the job fire it and hire another. (more…)
3 Dos and Don’ts Most Traders Learn the Hard Way from Market Wizard Mark Minervini
The following article is an excerpt from Trade Like a Stock Market Wizard: How to Achieve Super Performance in Stocks in Any Market by Mark Minervini with permission from McGraw Hill Publishing.
How to Handle a Losing Streak
A losing streak usually means it’s time for an assessment. If you find yourself getting stopped out of your positions over and over, there can only be two things wrong:
1. Your stock selection criteria are flawed.
2. The general market environment is hostile.
Broad losses across your portfolio after a winning record could signal an approaching correction in a bull market or the advent of a bear market. Leading stocks often break down before the general market declines. If you’re using sound criteria with regard to fundamentals and timing, your stock picks should work for you, but if the market is entering a correction or a bear market, even good selection criteria can show poor results. It’s not time to buy; it’s time to sell or even possibly go short. Keep yourself in tune with your portfolio, and when you start experiencing abnormal behavior, watch out. Jesse Livermore said, “I’m never afraid of normal behavior but abnormal behavior.” (more…)