Momentum Signals:
Buying Support:
Money can be made buying dips and buying break outs. The keys to profitability lie in the winning percentage and the risk/reward ratio.
New Traders do not understand what all the fuss is about risk management and trader psychology they do not need all that they are special.
The mechanics of trend following:
– know what to trade
– know when to enter the trade
– know what to do once in the trade
– know when to exit the trade
Stock operator’s reminiscences useful in today’s market
If you ask traders to choose the most influential trading book, more than likely, they’ll mention Reminiscences of a Stock Operator by Edwin LeFevre. This book describes the experiences of one of the world’s greatest stock speculators, Jesse Livermore.
Many of the anecdotal lessons included in the book are well known to experienced traders. For example: the market is always right; don’t over-trade; never argue with the tape; use stop losses, and always trade with the primary trend of the market.
Almost anyone can learn the mechanics of trading. It’s the psychological pitfalls that make trading one of the most challenging activities. No matter your skill level, it’s important to remember and obey the rules of engagement — another word for discipline.
With that in mind, this book contains dozens of important lessons. Here are a few of my favorites:
1. Learn how to lose
Livermore (speaking through the fictional character of Larry Livingston) complains how he’s made a series of trading mistakes that cost him a lot of money, although he wasn’t completely wiped out. The losses, he admits, were painful but educational:
“There is nothing like losing all you have in the world for teaching you what not to do,” he says. “And when you know what not to do in order not to lose money, you begin to learn what to do in order to win.”
After going broke three times in less than two years, Livermore has this advice: “Being broke is a very efficient educational agency.” He says that you learn little from your winners because they often take care of themselves. It’s the losers that will teach you lessons to last a lifetime. And as long as you don’t make the same mistake twice, you always have the opportunity to trade another day. (more…)
The mechanics of trend following:
– know what to trade
– know when to enter the trade
– know what to do once in the trade
– know when to exit the trade
When you’re working toward a goal, you are essentially saying, “I’m not good enough yet, but I will be when I reach my goal.”
The problem with this mindset is that you’re teaching yourself to always put happiness and success off until the next milestone is achieved. “Once I reach my goal, then I’ll be happy. Once I achieve my goal, then I’ll be successful.”
SOLUTION: Commit to a process, not a goal. (more…)
So true. Tony Robbins also said “Success for anything is 80% of psychology and 20% of mechanics”. A trading system is mechanics of trading. If a trader has an absolutely winning trading system, but he/she has failed to execute it. This system is failure. For who can follow it consistently, it is a great system. So who is more important? It is the trader or the system?
Some people say it is hard to design a winning system. Or I don’t know how to do? Does it really true? Read what Richard Dennis said.
The key is consistency and discipline. Almost anybody can make up a list of rules that are 80% as good as what we taught. What they can’t do is give (people) the confidence to stick to those rules even when things are going bad.
Richard Dennis has also proved that trading is a skill not talent. Tony Robbins also said “Every skill is learnable”
As of this Friday, the S&P 500 has gone 980 days without a 10% decline, according to Birinyi Associates, the fifth-longest such stretch on record. This past week’s nervousness, set off by the insurgency in Iraq and the surprise defeat of U.S. Rep. Eric Cantor, is thus the perfect pretext for investors to think about what they will do when the market takes a serious beating.
For, sooner or later, it surely will—and those investors who have honestly prepared for it will stand the best chance of surviving unscathed. In a downturn, you won’t be the same investor that you are now—unless you rely on rules and procedures, rather than willpower alone, to regulate your behavior.
New research shows that the kind of stress brought on by a collapsing stock market fundamentally changes how people make financial decisions. (more…)
RULE # 1:USE MONEY YOU CAN AFFORD TO LOSE
If you are trading With funds
1) You need for some family projects, you are doomed to failure.this is because you wont be able to enjoy the mental freedom to make sound trading decisions.
2)your trading funds should be viewed as money you are willing to lose. your position should be careful analysed so you don’t jeopardize other funds or assets.
3)one of the keys to successful trading is mental independance.
4)you have got to trade outside influencing factors and that means your trading freedom must not be influenced by the fear of losing money you really have earmarked for a specific need.
RULE # 2: KNOW YOURSELF
1)you need an objective temperament, an ability to control emotions and carry a position without losing sleep. Although trading discipline can be developed, the successful traders are unemotional about their positions.
2)there are many exciting things happening in the market everyday so it takes a hard nosed type of attitude and an ability to stand above short term circumstances.If you do not have this attitude you will be changing your mind and your positions every few minutes.
RULE # 3: START SMALL
1)Test your trading ability by making paper trades. then begin to trade small.start with mini account.
2) beginning traders should learn the mechanics of trading before graduating to more volatile contracts.
RULE # 4
O NOT OVER COMMIT
1)One rule of thumb is to keep three times the money in your margin account than is needed for that particular position.Reduce your position if necessary to confirm to that rule.this rule helps you avoid trading decisions based on the amount of money in your margin account.
2) If you are under margined you may be forced to liquidate a position early at a costly loss that could have been avoided.
RULE # 5: ISOLATE YOUR TRADING FROM YOUR DESIRE FOR PROFIT.
1)do not hope for a move so much that your trade is based on hope. The successful trader is able to isolate his trading from his emotion. Although hope is a great virtue in other areas of life, it can be a real hindrance to a trader.
2)When hoping that the market will turn around in their favor beginners often violate basic trading rules. (more…)
