Capital flows from those who fight trends to those who follow them.
- In the long term money flows to those who manage risk and are able to hold on to their profits from those who don’t manage risk.
- Traders that persevere through the learning curve stick around long enough to make money from those that just trade with no understanding of what they are doing.
- Robust systems take money from traders with no edge over the markets.
- Traders that trade price action take money from those that trade opinions.
- Traders that enter a trade based on a reversal signal make money form those that stubbornly hold on to a losing trade and hope.
- Money flows to those who let winners run from those that hold losing trades and hope.
- Capital flows from those that trade a winning methodology from those that trade on emotions.
- Those with big egos pay a price to try to prove they are right by holding a losing trade those that admit they are wrong quickly keep hard earned profits.
Money flows from those who do not know how to trade to those who do.
Archives of “methodology” tag
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Speculation and Trading vs. Gambling
When does trading become gambling? There is a very thin line. I maintain that most traders ARE gamblers. They use markets as a substitute for a casino.
1. IF you enter trades without a clear trading plan, you just might be a gambler.
2. IF you trade just to be trading, you just might be a gambler.
3. IF your bored and enter a trade, you just might be a gambler.
4. IF you look at potential profit before assessing potential loses, you just might be a gambler.
5. IF you have no impulse control, you just might be a gambler.
6. IF you have no methodology, you just might be a gambler.
7. IF you rely on others for your trading decisions, you just might be a gambler.
8. IF you do not take full responsibility for your trading outcomes, you just might be a gambler.
9. IF you increase your risk due to losses, you just might be a gambler.
10. IF you do not use stop losses or do not adhere to them, you just might be a gambler.
And my all time favorite
11. IF you get an adrenaline rush when your entering trades, you just might be a gambler.
In summation I would like to say that I do enjoy casino gambling as a form of entertainment. I strive to over come the house’s edge when I do gamble. Gambling is entertainment and trading is a business and should be approached as a business enterprise. IF your using the markets as a gambling outlet, be my guest. Traders that approach trading with a positive expectancy WILL take all your money. They will send you stumbling out into the night, cross-eyed and mumbling to yourself. Be smart. You can either feed the trading gods or feed your head. Do the work and get educated before risking one thin dime. Employ laser like focus in your trading and use iron discipline. The end result can be well beyond your wildest expectation.
40 steps in the Traders Journey
They are as follows:
- We accumulate information, we learn- buying books, asking questions, maybe going to seminars and researching what really works in trading.
- We begin to trade with our ‘new’ found knowledge.
- We make profits only to give it back very quickly and then realize we may need more knowledge or information.
- We accumulate more information.
- We switch the stocks we are currently following and trading.
- We go back into the market and trade with our better system. this time it will work.
- We lose even more money and begin to lose of confidence that we can even be traders. The reality of losing money sets in.
- We start to listen to other traders and what works for them.
- We go back into the market and continue to lose more money.
- We completely switch our style and method.
- We search for more information.
- We go back into the market and start to see a little progress.
- We get ‘over-confident’ in a single trade and put on a big position believing it is a sure thing and the market quickly takes our money.
- We start to understand that trading successfully is going to take more time and more knowledge than we ever anticipated. MOST PEOPLE WILL GIVE UP AT THIS POINT, AS THEY REALIZE WORK IS INVOLVED.
- We get serious and start concentrating on learning a ‘real’ methodology.
- We trade our methodology with some success, but realize that something is missing.
- We begin to understand the need for having rules to apply our methodology.
- We take a sabbatical from trading to develop and research our trading rules.
- We start trading again, this time with rules and find some success, but over all we still hesitate when we execute.
- We add, subtract and modify rules as we see a need to be more proficient with our rules. (more…)
Mastering Impulse and Fear
The Trader/Subscriber
1. When what I am trading is not moving, I need to get better at sitting on my hands. Something in me keeps pushing me to pull the trigger — and it often wins.
2. For every trade, I need to place my stop at the “If the price gets here, I was wrong” location and no closer. If the size of that stop is just too scary, I need to pass on the trade. This is the way he sets his stop.
This is our response to this Subscriber
I think trading live for you is important. Though good for learning methodology, learning psychology does not happen when trading simulated. Different worlds. When risk enters the picture, our hidden assumptions about uncertainty comes to light — if you’re looking for them. In your scheme this is how you are discovering your placement of stops from what I can see. They appear to be a mixture of standard textbook knowledge of stop strategy and your emotional reaction to them. (more…)
A Bad Teacher
The market often rewards bad behavior. You exit a stock because your stop is hit. You are okay with this because you followed your plan. The market then immediately reverses. You begin to think, “If only I stayed with the position.” The next time the market goes against you, you decide you are not going to get tricked again. This time though, the market does not reverse and what started out as a small manageable loss is now huge. The market will give you loss after loss forcing you to abandon a methodology right before it takes off without you. On the flip side, the market will lull you into a false sense of confidence. You trade larger and larger, taking on excessive risk. You print money until your risks become so excessive that one or two bad trades wipe you out. Learn from the market, but realize that sometimes it can be a lousy instructor. |
Hesitation
You are watching a stock that has all the signals you look for in an opportunity. The proper point to enter comes, but you wait. You second guess the opportunity and don’t buy the stock. Or, you bid for the stock at a price that is not likely to get filled if the opportunity does pan out the way you anticipate it will. As a result, you get left behind while the market pushes the stock higher. A short while after the initial entry signal, when the stock has made a decent gain, you decide to finally enter the trade. After all, the market has proven your analysis correct, so you must be smart, and right! Not long after you enter, the stock turns south and you end up with a losing trade. If only you had bought when you first thought about it.
The Solution
This is really just a confidence issue. You are either not confident in your ability to analyze stocks, or you are not confident in the methodology that you are using to pick trades. Therefore, you have to research your method so that you have the confidence that it works. Then, you have to start small, making trades that have a potential loss that you are comfortable with. As you gain confidence in your method and your ability, increase the trade size. With your new found confidence, stand in a crowded room and scream, “I am great!” Well, maybe don’t carry it that far.
HOW DISCIPLINE HELPS IN TRADING
“Discipline in executing each and every trade according to your trading methodology is the secret to your success. If you want to improve your trading, what you need to do is very simple. Before you enter any trade, imagine that you will have to explain this trade to a panel of your peers, by explaining to them the reason for your entry, your money, trade, and risk management guidelines, and why you exited the trade. Imagine having to explain why you chose this particular market and this particular time frame, along with how you set objectives for the trade, and how you determined where your initial protection would be. If you can truly do this, I strongly believe that you can be successful.
Just prior to entering every trade, try to imagine yourself executing the trade perfectly. Imagine how it will feel when you enjoy having made money with your trading.
Yes I know, you don’t have time to do that. Why? Because you never plan your trades ahead of time. You probably don’t have a strategy, and instead of waiting patiently for trade that meets your well-defined parameters and your thought-out plan, you just jump in the minute you think you see something that looks good.
You need to take a lesson from a spider. The spider waits patiently in his web until some unsuspecting insect flies into the spider’s trap.
Have you been flying into any of my traps? I wait for trades that meet my expectations, trades that fit my plan. I wait patiently, and being kind-hearted I don’t want any of my readers to land in my web. I’d rather the unsuspecting are readers of someone else’s newsletter. But it’s amazing how often I get to feed.”
Hallmark of a Position Day Trader
27 Motivational Quotes for Traders
1. IF A TRADER DOES NOT UNDERSTAND WHAT HAPPENS TO HIM PSYCHOLOGICALLY WHILE IN A TRADE, HE IS DOOMED TO LOSE UNTIL HE DOES OR HE RUNS OUT OF MONEY.
2. THE MARKET PAYS YOU TO BE DISCIPLINED.
3. BE DISCIPLINED EVERY DAY, EVERY TRADE AND THE MARKET WILL REWARD YOU.
4. ALWAYS LOWER YOUR TRADE SIZE WHEN YOURE TRADING POORLY.
5. NEVER TURN A WINNER INTO A LOSER.
6. YOU’RE BIGGEST LOSER CANNOT EXCEED YOUR BIGGEST WINNER.
7. DEVELOP A METHODOLOGY AND STICK WITH IT.
8. BE YOURSELF. DON’T TRY TO BE SOMEONE ELSE.
9. YOU ALWAYS WANT TO BE ABLE TO COME BACK AND PLAY THE NEXT DAY.
10. EARN THE RIGHT TO TRADE BIGGER.
11. GET OUT OF YOUR LOSERS.
12. THE FIRST LOSS IS THE BEST LOSS.
13. DON’T HOPE AND PRAY.
14. DON’T SPECULATE.
15. NEVER TAKE A BIG LOSS.
16. HIT SINGLES NOT HOME RUNS.
17. CONSISTENCY BUILDS CONFIDENCE.
18. LEARN TO SWEAT OUT YOUR WINNERS.
19. MAKE THE SAME TYPES OF TRADES OVER AND OVER AGAIN.
20. BE A BRICKLAYER.
21. DON’T OVER ANALYZE.
22. ALL TRADERS ARE EQUAL IN THE EYES OF THE MARKET.
23. IT’S THE MARKET ITSELF.
24. ITS BORING. ITS A JOB. PATIENCE.
25. 70% OF THE MONEY FLOWING COMES FROM INSTITUTIONAL INVESTORS.
26. STRONG VOLUME IS 150% OF NORMAL VOLUME.
27. TRADE WHAT YOU SEE, NOT WHAT YOU THINK.
Ten Questions to ask Yourself Before Every Trade
If you are just randomly trading what you like with no real underlying system, method or planning then unfortunately your odds of success in the long term are slim. Trading a winning methodology is what creates an edge in trading.
Consistently trading a robust system or methodology enables you to trade in a way that historically wins, controls risk, and does not bring your ego and your emotions into your trading in a destructive way.
Ten questions to ask yourself before every trade:
- Does this trade fit my chosen trading style? Whether it is: swing trading, momentum, break out, trend following, reversion to the mean, or day trading?
- How big of a position do I want to trade? How much capital am I going to risk? Am I limiting my risk to 1% or 2% of my trading capital?
- What is my risk of ruin based on my capital at risk?
- Why am I entering the trade here? What is the trigger to trade?
- How will I exit with a profit? A price target or trailing stop? (more…)