Simplicity and focus is the mother of success. “You need to start as small as possible and then gradually allow yourself to grow into greater and greater amounts of market information. What you want to do is become an expert at just one particular type of behavior pattern that repeats itself with some degree of frequency. To become an expert, choose one simple traing system that identifies a pattern. Your objective is to understand completely every aspect of the system. In the meantime, it is important to avoid all other possibilities and information”
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rssHOW TO LOSE MONEY IN THE STOCK MARKET
There are so many ways to lose money in the stock market but whether it is from blindly trusting what turns out to be a Bernie Madoff ponzi scheme to refusing to take a loss on a “sure thing”, the root cause of losses is our inability to objectively perceive market action without the many and varied biases associated with “money on the line”.
According to Mark Douglas…
In any particular trade you never really know how far prices will travel from any given point. If you never really know where the market may stop, it is very easy to believe there are no limits to how much you can make on any given trade. From a psychological perspective this characteristic will allow you to indulge yourself in the illusion that each trade has the potential of fulfilling your wildest dream of financial independence. Based on the consistency of market participants and their potential to act as a force great enough to move prices in your direction, the possibility of having your dreams fulfilled may not even remotely exist. However, if you believe it does, then you will have the tendency to gather only the kind of market information that will confirm and reinforce your belief, all the while denying vital information that may be telling you the best opportunity may be in the opposite direction.
There are several psychological factors that go into being able to assess accurately the market’s potential for movement in any given direction. One of them is releasing yourself from the notion that each trade has the potential to fulfill all your dreams. At the very least this illusion will be a major obstacle keeping you from learning how to perceive market action from an objective perspective. Otherwise, if you continually filter market information in such a way as to confirm this belief, learning to be objective won’t be a concern because you probably won’t have any money left to trade with (italics mine).
From Chapter Four of THE DISCIPLINED TRADER
Bottom line: successful trading is about making money…not about being right.
Fear & Euphoria
It is inordinate “fear” and “euphoria” that prevent us from achieving our investment goals. And, the impact of these excessive emotions can be seen across the spectrum of traders.
- The beginner who won’t put on a trade until he is certain the next trade will be a winner.
- The trader who “knows” what the market will do and as a result refuses to exit a losing position.
- The same trader who ignores market information that is contradictory to his position.
- The same trader who becomes paralysed with fear – “Dear God, just let me break even! I promise I won’t do it again!”
- The student who refuses to send in work because he doesn’t want to be told that his hours of work are “wrong”
- The trader who after a series of wins feels “he’s made it!” …and becomes reckless.
Four Fears
| Most often, traders have four fears. There’s the fear of being wrong, the fear of losing money, the fear of missing out and the fear of leaving money on the table. I found that basically, those four fears accounted for probably 90% to 95% of the trading errors that we make. Let’s put it this way: If you can recognize opportunity, what’s going to prevent you from executing your trades properly? Your fear. Your fears immobilize you. Your fears distort your perception of market information in ways that don’t allow you to utilize what you know.” |
3 minutes each day
THE TRADE DECISION
1. Never add to a losing position.
2. Always determine a stop and a profit objective before entering a trade. Place stops based on market information, not your account balance. If a “proper” stop is too expensive, don’t do the trade.
3. Remember the “power of a position.” Never make a market judgment when you have a position.
4. Your decision to exit a trade means you perceive changing circumstances. Don’t suddenly think you can pick a price, exit at the market.
THE MARKET HAS CHARACTER
5. In a Bull market, never sell a dull market, in Bear market, never buy a dull market.. (more…)
100 TRADING TIPS
1)Nobody is bigger than the market.
2)The challenge is not to be the market, but to read the market. Riding the wave is much more rewarding than being hit by it.
3)Trade with the trends, rather than trying to pick tops and bottoms.
4)There are at least three types of markets: up trending, range bound, and down. Have different trading strategies for each.
5)In uptrends, buy the dips ;in downtrends, sell bounces.
6)In a Bull market, never sell a dull market, in Bear market, never buy a dull market.
7)Up market and down market patterns are ALWAYS present, merely one is more dominant. In an up market, for example, it is very easy to take sell signal after sell signal, only to be stopped out time and again. Select trades with the trend.
8)A buy signal that fails is a sell signal. A sell signal that fails is a buy signal.
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HOW TO LOSE MONEY IN THE STOCK MARKET
According to Mark Douglas…
In any particular trade you never really know how far prices will travel from any given point. If you never really know where the market may stop, it is very easy to believe there are no limits to how much you can make on any given trade. From a psychological perspective this characteristic will allow you to indulge yourself in the illusion that each trade has the potential of fulfilling your wildest dream of financial independence. Based on the consistency of market participants and their potential to act as a force great enough to move prices in your direction, the possibility of having your dreams fulfilled may not even remotely exist. However, if you believe it does, then you will have the tendency to gather only the kind of market information that will confirm and reinforce your belief, all the while denying vital information that may be telling you the best opportunity may be in the opposite direction.
There are several psychological factors that go into being able to assess accurately the market’s potential for movement in any given direction. One of them is releasing yourself from the notion that each trade has the potential to fulfill all your dreams. At the very least this illusion will be a major obstacle keeping you from learning how to perceive market action from an objective perspective. Otherwise, if you continually filter market information in such a way as to confirm this belief, learning to be objective won’t be a concern because you probably won’t have any money left to trade with (italics mine).
Why Do I Want To Trade?
“I Want To Find Out Who I Really Am”
When you trade your monitor will do a funny thing. It will become a mirror. A special type of mirror. A mirror that reflects your self-confidence, your self-esteem, your self-worth. The numbers and lines you see on your screen are just that, numbers and lines. Market information. At your choosing, when you decide to become part of those numbers and lines (putting on/off the trade) a sort of test begins. A test about you.
If you see the test as threatening, you will feel threatened. If you see the test as war, you will be engaging in war. If you see the test as one more failure, you will fail. If you see the test as the need to prove yourself right, you will administered the pain of being wrong. If you see the test as certainty, you will be rudely introduced to uncertainty. If you see the test as a battle of wills, you will sacrifice your soul. If you see the test as fear or loss of money, you will be giving away your scared money.
If you see and believe the test to be an exchange of information, you now become the one to confirm or deny information. If you believe the test to be one of giving up what you want in order to get it, you will get it. Get it?
There is an irony in trading of both price and time. It is exactly what you have to give of yourself in order to trade it with understanding.
P.S. There are only two types of traders, “Long Lived” and “Short Lived.” Both know the markets well. The “Longed Lived” just choose know “Themselves” better.Anyone who contemplates trading should ask themselves one simple question…..”Why Do I Want To Trade?” There are many wrong answers to this question, and only one right one…..
HOW TO LOSE MONEY IN THE STOCK MARKET
There are so many ways to lose money in the stock market but whether it is from blindly trusting what turns out to be a Bernie Madoff ponzi scheme to refusing to take a loss on a “sure thing”, the root cause of losses is our inability to objectively perceive market action without the many and varied biases associated with “money on the line”.
According to Mark Douglas…
In any particular trade you never really know how far prices will travel from any given point. If you never really know where the market may stop, it is very easy to believe there are no limits to how much you can make on any given trade. From a psychological perspective this characteristic will allow you to indulge yourself in the illusion that each trade has the potential of fulfilling your wildest dream of financial independence. Based on the consistency of market participants and their potential to act as a force great enough to move prices in your direction, the possibility of having your dreams fulfilled may not even remotely exist. However, if you believe it does, then you will have the tendency to gather only the kind of market information that will confirm and reinforce your belief, all the while denying vital information that may be telling you the best opportunity may be in the opposite direction. (more…)
Essentials of a Winning Psychology
Four fears that block a winning psychology:
- Fear of Loss
- Fear of being wrong
- Fear of missing out
- Fear of leaving money on the table.
Realize that trading is based on probabilities, as such, every trade is unique. In other words, the past does not equal the future.
Probability thinking manifest other states and beliefs:
- Because we know that we will succeed in the long run and because we know we will protect ourselves no matter what the market does, we acquire the state of “self trust” and the state of being “carefree”.
In turn these states allow us to remain….
- Focused, confident and carefree when we are experiencing the inevitable prolonged drawdown.
- Because at the micro level we know that the market is random, we will not allow euphoria to set in and lead us to reckless trades. Each trade will only be one in a series of probabilities.
- We will view market information not as a source of pleasure or pain but merely as data providing us with opportunities.
Personal Attributes Essential to a Winning Mentality
- Awareness – the ability to step outside ourselves and observe. The more effectively we can do this, the easier our progress to “Acceptance”.
- Honesty – the ability to seek to perceive reality in spite of our filters.
- Courage – the willingness to bear the pain brought about by our awareness and honesty.
- Commitment – the willingness to do whatever is necessary to achieve our goals
To succeed, a trader must have a vision about where he is heading, and must internalise that a winning attitude is total submission to the trading outcome.
This means managing Fear and Euphoria. To do this, we need to ACCEPT, with every fibre of our body, the belief that at the micro level the market is uncertain and unpredictable and at the macro level it is relatively certain and predictable.