- The market pays you to be disciplined.
- Be disciplined every day, in every trade, and the market will reward you. But don’t claim to be disciplined if you are not 100 percent of the time.
- Always lower your trade size when you’re trading poorly.
- Never turn a winner into a loser.
- Your biggest loser can�t exceed your biggest winner.
- Develop a methodology and stick with it. don�t change methodologies from day to day.
- Be yourself. Don�t try to be someone else.
- You always want to be able to come back and play the next day. Once you reach the daily downside limit, you must turn your PC off and call it a day. You can always come back tomorrow.
- Earn the right to trade bigger. Remember: if you are trading poorly with two lots you must lower your trade size down to a one lot.
- Get out of your losers. (more…)
Archives of “methodologies” tag
rssDay Trading Methodology
I have been reading the latest book from Van Tharp, Super Trader and I want to highlight this passage about daytrading methodologies:
“For example, if you are a daytrader, open up a position and either take a small loss or get out at the end of the day. When you do that, you are not tied to the market all day, and you may find that you take small losses and get huge profits. Simplify your entry technique and concentrate on exits”
Now, lets cross this with Jesse Livermore remarks on the speculative line of least resistance:
“It sounds very easy to say that all you have to do is to watch the tape, establish your resistance points and be ready to trade along the line of least resistance as soon as you have determined it.”
So, we have a powerful daytrading methodology in these two market generalizations. But JL added, “But in actual practice a man has to guard against many things, and most of all against himself – that is, against human nature.”
Rings a bell? Maybe we should all print this post and have it by the trading desk.
25 rules of trading discipline
- The market pays you to be disciplined.
- Be disciplined every day, in every trade, and the market will reward you. But don’t claim to be disciplined if you are not 100 percent of the time.
- Always lower your trade size when you’re trading poorly.
- Never turn a winner into a loser.
- Your biggest loser cant exceed your biggest winner.
- Develop a methodology and stick with it. dont change methodologies from day to day.
- Be yourself. Dont try to be someone else.
- You always want to be able to come back and play the next day. Once you reach the daily downside limit, you must turn your PC off and call it a day. You can always come back tomorrow.
- Earn the right to trade bigger. Remember: if you are trading poorly with two lots you must lower your trade size down to a one lot.
- Get out of your losers.
- The first loss is the best loss.
- Dont hope and pray. If you do, you will lose. (more…)
Ten Anecdotal/Historical Book Ideas for Investors
About a month or so ago, I finally got around to reading Marty Schwartz’s classic, Pit Bull, which I can best describe as a colorful autobiography that uses the 1980s options world as a palette for many amusing anecdotes that are expertly conveyed. The book was such a fun read that I went through the whole thing in no more than 2-3 days, cobbling together bits and pieces of ‘free time’ in order to do so.
Schwartz’s book is pure entertainment and touches only briefly on methodologies and techniques, yet I was able to pull quite a few investment-related nuggets from it in a short period of time, with the added benefit that the learning process was all fun and no pain. The process got me thinking that perhaps the fastest way to effortlessly bombard the brain with useful investment ideas are those easy reads that provide a personal historical window into the markets.
I am contrasting this process with the process I went through in trying to read and digest the ideas in Alan Farley’s The Master Swing Trader, which, despite the many interesting ideas, is about as fun to trudge through as Hegel.
With this in mind, I offer the following ten books as relatively effortless ways to cross-pollinate your investment thinking with that of some of the better minds in the field, both past and present.
Roughly in order of how quick and easy they are to read:
- How I Made $2,000,000 in the Stock Market (Nicolas Darvas) – You can probably read this book in a little over an hour. There are only a few salient ideas, but these are destined to stick with you long after you have read the book. I also found that the path Darvas took along the way to developing his system bears a strong resemblance to my own.
- Pit Bull (Marty Schwartz) – A fast-moving and superbly written account of a champion options trader. A great companion for a cross-country plane trip.
- Reminiscences of a Stock Operator (Edwin Lefevre) – This is on almost everyone’s reading list, so I will say little about it, other than to point out that it is chock full of insight, yet still reads like a novel.
- A Journey Through Economic Time (John Kenneth Galbraith) – A very different book from the others on this list, this is certainly one of the easiest economics reads out there, yet the survey of the economic landscape from WWI to after the fall of the Berlin Wall will give the reader a lot to think about.
- My Life as a Quant (Emanuel Derman) – Another physicist who writes extremely well, Derman provides a thoughtful accounting of his personal journey through the (then) unlikely intersection of theoretical physics, finance and risk.
- Investment Biker (Jim Rogers) and Adventure Capitalist (Jim Rogers) – These two books are probably best read back to back, in chronological order, starting with the Investment Biker’s 1990-1992 world tour, then using the 1999-2001 Adventure Capitalist jaunt to see how the world had changed over the course of a decade. This is first-person global macro analysis at its best, though you may not have the stamina to do your own world tour in one sitting…
- Market Wizards (Jack Schwager), The New Market Wizards (Jack Schwager), and Stock Market Wizards (Jack Schwager) – I never thought I’d willingly place the Schwager wizards trilogy at the bottom of any list, but they end up here because they are more densely packed than the other books. Like the Jim Rogers duo, these are best consumed in small bites, on an empty stomach, leaving ample time for proper chewing and digestion. Schwager’s interview style and editing is such that he is able to deliver an astonishing amount of information in an easy to read fashion. The best news of all is that while the books are a great place for beginners to start, they somehow manage to improve with repeated reading.
Discipline Trading
-The market pays you to be disciplined.
-Be disciplined every day, in every trade, and the market will reward you. But don’t
claim to be disciplined if you are not 100 percent of the time.
-Always lower your trade size when you’re trading poorly.
-Never turn a winner into a loser.
-Your biggest loser can?t exceed your biggest winner.
-Develop a methodology and stick with it. don?t change methodologies from day to
day.
-Be yourself. Don?t try to be someone else.
-You always want to be able to come back and play the next day. Once you reach
the daily downside limit, you must turn your PC off and call it a day. You can always come back tomorrow.
-Earn the right to trade bigger. Remember: if you are trading poorly with two lots you
must lower your trade size down to a one lot.
-Get out of your losers.
-The first loss is the best loss.
-Don?t hope and pray. If you do, you will lose.
-don?t worry about news. it?s history.
-Don?t speculate. if you do, you will lose.
-Love to lose money. What I mean is to accept the fact that you are going to have
losing trades throughout the trading session. Get out of your losers quickly. Love to get out of your losers quickly.
-If your trade is not going anywhere in a given timeframe, it?s time to exit.
-Never take a big loss. Only a big loss can hurt you. consistency builds confidence and control.
-Learn to sweat out (scale out) your winners.
-Make the same type of trades over and over again ? be a bricklayer.
don?t over-analyze. don?t procrastinate. don?t hesitate. if you do, you will lose.
all traders are created equal in the eyes of the market.
-It?s the market itself that wields the ultimate scale of justice.
Principles of Peak Performance
The first principle of peak performance is to put fun and passion first. Get the performance pressures out of your head. Forget about statistics, percentage returns, win/loss ratios, etc. Floor-traders scratch dozens of trades during the course of a day, but all that matters is whether they’re up at the end of the month.
Don’t think about TRYING to win the game – that goes for any sport or performance-oriented discipline. Stay involved in the process, the technique, the moment, the proverbial here and now.! A trader must concentrate on the present price action of the market. A good analogy is a professional tennis player who focuses only on the point at hand. He’ll probably lose half the points he plays, but he doesn’t allow himself to worry about whether or not he’s down a set. He must have confidence that by concentrating on the techniques he’s worked on in practice, the strengths in his game will prevail and he will be able to outlast his opponent.
The second principle of peak performance is confidence. in yourself, your methodology, and your ability to succeed. Some people are naturally born confident. Other people are able to translate success from another area in their life. Perhaps they were good in sports, music, or academics growing up. There’s also the old-fashioned “hard work” way of getting confidence. Begin by researching and developing different systems or methodologies. Put in the hours of backtesting. Tweak and modify the systems so as to make them your own. Study the charts until you’ve memorized every significant swing high or low. Self-confidence comes from developing a methodology that YOU believe in. (more…)