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Trading Wisdom

Successful traders:
1) are very solid with what he called the “basics” (tape reading, execution, preparation for the trading day),
2) have discovered the trades that fit your personality and became excellent at those and
3) realize that successful trading is about pulling a small bucket of profit water out of the market well multiple times (in other words they are not greedy).

4) a passion for trading,
5) the willingness to admit you are wrong in your bias and to change your bias or terminate a losing trade and
6) to work really hard to become better each day.

7) an ability to recognize what trades truly work for you and to STICK with them and
8) calmness in the midst of market volatility.

Unglamorous as it may sound, it looks like the clear winner is hard work and learning the basics. Should this be that big of a surprise? Wasn’t it Thomas Edison who said ” genius is 1% inspiration and 99% perspiration”? But it is interesting to note that two of the three put a very high premium on recognizing your trading strengths and focusing on those types of trades primarily.

4 Elements Required to Trade Successfully

There are 4 elements you must master:

  • Idenifying support and resistance. If you are trading in the middle of the range, you will be more suseptible to what seem to be reversals, but are actually just noise in between a trading range. Do not enter if your stock has moved more than 5 percent above support or the breakout point.

  • Identifying volume patterns. If you buy a dip on high volume, there’s a higher probability of getting caught in the midst of a reversal. Same goes for low volume breakouts.

  • Set appropriate stops, based on support, resistance and percentage of your trading portfolio. Even if you take the appropriate cautions, you can still get reversed. It shouldn’t hurt when you do.

  • Do not trade scared. Trust your analysis and risk parameters.

It has taken me time to master these four elements to trading, and at times I still fall into my old habits. The key is to constantly assess both the technical and mental aspects of your game. There are 4 elements you must master:

  • Idenifying support and resistance. If you are trading in the middle of the range, you will be more suseptible to what seem to be reversals, but are actually just noise in between a trading range. Do not enter if your stock has moved more than 5 percent above support or the breakout point.

  • Identifying volume patterns. If you buy a dip on high volume, there’s a higher probability of getting caught in the midst of a reversal. Same goes for low volume breakouts.

  • Set appropriate stops, based on support, resistance and percentage of your trading portfolio. Even if you take the appropriate cautions, you can still get reversed. It shouldn’t hurt when you do.

  • Do not trade scared. Trust your analysis and risk parameters.

It has taken me time to master these four elements to trading, and at times I still fall into my old habits. The key is to constantly assess both the technical and mental aspects of your game.

Inexorable Change

Since change is ubiquitous and permanent, we might as well become experts at adapting. We can get comfortable with change and look forward to its permutations and surprises. We can train ourselves to become adept at learning, unlearning, and relearning.

On the other hand, we don’t want to be whipsawed back and forth through too rapid repositioning. Nor do we want to keep switching methods and systems.  We need to find the balance between being steady and too speedy a responder. We need to comprehend that markets, like the ocean, have waves, tides, and tsunamis. Each needs to be handled differently.

We want to make change an acceptable reality rather than a soap opera. We need to be flexible and versatile. In being flexible we observe reality clearly and adjust our actions. In being versatile we utilize our trained ability to perceive and react effectively.

Volatility in markets can be embraced as opportunity or feared as danger. That shot of adrenaline you feel as you trade can be exciting or terrifying depending on how you view the situation. Interpretation is at the essential core of our trading.

A good way to start each trading day is by asking some questions: Where are the opportunities today? Are there any impending risks to my positions? Where might the opportunities or risks develop?

In the midst of unfolding turmoil or stagnant stalling, we need to distinguish between the fundamental and technical changes that are structural and therefore important and possibly extensive, and those that are merely headlines passing through and therefore only interesting and probably short lived.

In any event, accept whatever is happening, utilize your methods and guidelines, take a deep breath, and do your best. Remember, as it has been said, “All you can do is all you can do, and all you can do is enough.”

Why do only 5% of the traders who day-trade end up successful?

5percentTwo reasons – #1) Many just want an indicator that is going to reveal the market to them and it is too competitive for that to work.

#2) The vast majority don’t approach the challenge in a way that will work. To a large degree, this isn’t the trader’s fault because most do what they have been taught by scores of “experts”.

Here is what will work. Guaranteed.

1. Never forget that the only thing you want to do is predict that others will buy higher or sell lower in your timeframe.

2. Settle on a strategy (and set of tactics) that suits your personality and thinking patterns.

3. Plan to use your judgment in the midst of making decision and entering trades! You are not a robot and you will never become one. Your brain is going to kick-in with its built-in facility for decision making in uncertain situations. In other words, you won’t be able to stop it from making judgments and compelling you to act so… work with it.

4. Learn to optimize that judgment through simplicity, practice, keeping records and knowing your feelings and emotions.

5. Manage your Psychological Capital (Mental Energy) more carefully than you manage your trades.

The money will follow. Your brain will work, your pattern recognition will work and your plan (a realistic one) will indeed be realized.

4 Wisdom Thoughts for Traders

Give up reliving your past trades.

Each trade is a new trade do not hold grudges against stocks and think they ‘owe’ you for past losses. Do not fall in love with a stock and hold it as it falls lower and lower.

Give up letting your trading define your self worth.

Do not let your trading define you. Diversify your life with friends, family, hobbies, and other interests. It is not healthy to become overly obsessed with the markets.

Give up on losing trades quickly when your stop is hit.

Your best trades will be the ones that are profitable from the start, if they immediately go against you be prepared to be stopped out. You can destroy your trading account when you start the “It will come back, I just have to wait” chant in the midst of a death spiral.

Give up on price targets let your winners run as far as they will go.

In the right market conditions trends can go on to unbelievable levels, the big wins during these trends can make your entire year profitable if losses are small on losing trades. If you set a predefined profit target you will miss the opportunity when the big move comes. Let a trailing stop take you out.