Be willing to stop trading and re-evaluate the markets and your methodology when you encounter a string of losses. The markets will always be there. Gann said it best in his book, How to Make Profits in Commodities, published over 50 years ago: “When you make one to three trades that show losses, whether they be large or small, something is wrong with you and not the market. Your trend may have changed. My rule is to get out and wait. Study the reason for your losses. Remember, you will never lose any money by being out of the market.”
Archives of “methodology” tag
rssNot Having a Trading Plan
“If you fail to plan, then you plan to fail”. I don’t know who first said that, but it’s a very sound piece of advise indeed. Planning is something that is all too often overlooked by traders, and yet a well drafted trading plan is one of the most important tools for success and profit.
In talking to struggling traders, I am constantly amazed at not only how many don’t have a trading plan, but how many don’t even know what such a plan is. In fact a trading plan is quite simple, it’s a document that details every aspect of your trading strategy. It is literally a blue-print for your trading methodology.
What should be in this document? Here are the most important areas it should cover: (more…)
Hallmark of a Position Day Trader
When does trading become 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. Here are some of the sign posts that you have crossed the line. I love Jeff Foxworthy so I will steal his “you just might be a redneck.”
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.
7 Crucial Points for Traders
- You don’t choose the stock market; it chooses you. A little bit of early trading success can have a profound effect on a person’s soul. If it does choose you, you’ll have to accept that your life and investing will become forever connected.
- Your methodology must provide an unshakeable foundation that you believe in totally, and you must have the conviction to trade based upon it. If your belief is tentative or if you don’t have complete faith in your methodology, then a few bad trades will destabilize and erode your confidence.
- A calm mindset that can focus on the execution and not on the outcome is what produces profits. It takes total emotional control. You must maintain your balance, rhythm and patience. You need all three to stay in the game.
- The markets are always conniving with ingenious techniques to get you to lose your patience, to get you frustrated or mad, to bait you to do the wrong thing when you know you shouldn’t. A champion doesn’t allow the markets to get under his skin and take him out of his game.
- Like a great painting, all good trades start with a blank canvas. Winning traders first paint the trade in their mind’s eye so that their emotional selves can reproduce it accurately with clarity and consistency, void of emotions as they play it out in the markets. (more…)
Mirage
Profits resulting from the violation of one’s own system or methodology constitute the most treacherous mirage of success. We’ve all been tempted at one time or another to suspend our collection of pre-defined rules (so painstakingly accumulated, yet so easily put aside) for the possibility that for this one particular moment, distinguished from all others, things might be different. And perhaps we were right — this time — and the register rung. Yet for those of us who have chosen the way of the System, the momentary suspension of discipline is a transgression beyond profit or loss. For no matter the what the outcome of the trade executed, the damage has already been done (more…)
A Bad Teacher
The World’s Worst 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. |
INQUISITIVENESS & COMPREHENSION for Traders
INQUISITIVENESS: Just another word for curiosity and is the ever-present desire for information and understanding. Unfortunately this characteristic can easily turn into analysis paralysis, wherein the sheer quantity of information overwhelms the decision making process itself. The solution is to remain focused on a very small segment of the market and is at the very heart of successful trading. There is just too much information out there to ever be able to make sense of it all. Instead, the idea should be to direct your energy toward your trading methodology and not stray when tempted to.
COMPREHENSION: This is the trader’s ability to attend to the smallest details of his or her trading plan. I believe a trader must have rules for entering and exiting a trade before the trade is made. In the beginning these rules can be in the form of a checklist wherein before each trade all the details of your rules are checked and verified. With time, the rules become such as a part of your psyche that the checklist is in your head and can be confirmed with quick precision. The key is to never change the rules. When the rules stay the same your mind will not be able to play tricks on you.
Trading Secret
I feel certain that my discipline in executing each and every trade according to my trading methodology is the secret to my 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.
Open Mind
Nothing is infallible in the stock market — no theory, no measure of the market be it technical, fundamental, or cyclical. The basic tenet of any investment or trading methodology worth its salt should be that it’s not infallible.
Those that demand the least from a method will gain the most from it. Those who demand the most from a method will be the ones most frustrated by it.
The only way to gain control is to give up control. The only way to gain control is to give up the idea of trying to have control.
The market is more art than science: The good and bad part of any genuine approach to the market is that it requires interpretation, which is what makes markets and opportunity, but is bad because it’s frustrating.
The study of the market is part theoretical and part philosophical. That’s what makes it so intriguing. The market is a mystery. Despite all the artificial intelligence and computer power available, no one has solved the mystery. There’s no sure thing in the markets.
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This is no-man’s-land. Every technical benchmark and data point seem but an island in the market’s stream of confusion.
As a trading bro said to me over the weekend, “If you have an opinion in this market, you’re wrong.”
Keep an open mind.
Nothing is infallible in the stock market — no theory, no measure of the market be it technical, fundamental, or cyclical. The basic tenet of any investment or trading methodology worth its salt should be that it’s not infallible.