Here is a quiz that will help you decide. Answer Yes or No to the following questions.
1. Do you sometimes buy newsletter recommendations without having a real plan for how you’ll get out of the trade?
2. Do you occasionally (or often) take trades based upon some interesting indicator that you learned in a workshop (i.e., when you see that indicator go, you usually get into a trade, but again you have no real plan about how you’ll get out of the trade)?
3. Do you trade three or more different systems in the same account?
4. Do you trade more than ten different systems?
5. Do you sometimes enter a trade and later not remember why?
6. Are you unsure of how many systems you have?
7. Do most of your systems lack a complete set of rules to guide your behavior?
8. Are your systems equivalent to the setups used to get into the trades and nothing more?
9. Are you unable to list the rules for the last trade you made?
10. Are you able to list the rules for any of the last five trades you made? (more…)
Archives of “mistake” tag
rssLearn To Lose
Unfortunately, it is the sad reality that the majority of people reading this are not profitable traders. If I could single out the most common culprit for sabotaging your trading it would have to be not being able to take a loss. This is especially prevalent amongst new traders, but I’ve seen this single trading mistake cripple even more experienced traders. In fact, I’ve run across countless traders that are generally successful if not for a few outsized losses. The problem is that these outsized losses are what cripple your account and push you into the negative column. You will never be a successful trader, EVER, until you learn how to take a loss.
The Importance of Timing the Market
Any investor can find and research the “greatest” stock on the market; one with huge potential but if the general indexes are negative, it will most likely be the wrong time to buy. A stock with accelerating earnings, rising sales, an up-trending chart pattern and a strong industry group may sound excellent to buy on the surface but will mean absolutely nothing if the market is positioned to move in the opposite direction of your expectations. As soon as a stock is purchased, the time comes for an investor to make a decision to hold or to sell. If the position shows a profit, hold as your judgment is correct. If the position shows a loss, cut it quickly and don’t rationalize the situation before the loss doubles in size. Timing will play an important role in determining if you are right or wrong.
Losers must be cut quickly, long before they materialize into enormous financial disasters. The company and underlying stock may not be a loser but rather your timing may be premature to a strong movement, forcing you to sell on a pullback. After a stock is cut from your portfolio, the transaction must be forgotten about and eliminated from your subconscious mind and/or emotional bank. This may sound as if I am contradicting myself from Monday but I am not. I said the transaction must be eliminated from your memory bank but not the actual trade. (more…)
Bernard Baruch's Ten Rules.
1. Don’t speculate unless you can make it a full-time job.
2. Beware of barbers, beauticians, waiters, of anyone, bringing gifts of ‘insider’ information or ‘tips.’
3. Before you buy a security, find out everything you can about the company, its management and competitors, its earnings and possibilities for growth.
4. Don’t try to buy at the bottom and sell at the top. This can’t be done – except by liars.
5. Learn how to take your losses quickly and cleanly. Don’t expect to be right all the time. If you have made a mistake, cut your losses as quickly as possible.
6. Don’t buy too many different securities. Better have only a few investments which can be watched.
7. Make a periodic reappraisal of all your investments to see whether changing developments have altered their prospects.
8. Study your tax position to know when you can sell to greatest advantage.
9. Always keep a good part of your capital in a cash reserve.
10. Don’t try to be a jack of all investments. Stick to the field you know best.
Are You A Successful Speculator ?
If you never trade, can you be a successful speculator?
If you cost average, and are disciplined, are you a successful speculator?
If you compound at 50% per year for 10 years, and then lose everything in an afternoon, are you a successful speculator?
If you lose everything in an afternoon, and then learn from your mistake, and then compound at 50% for the next 10 years, are you a successful speculator?
If you compound at 6% per year for 10 years, and never have a meaningful drawdown, are you a successful speculator?
If the risk free rate is 6%, and you are making 12%, are you a more successful speculator then if the risk-free rate is 0% and you are making 6%?
If you think you are a successful speculator, can you really be a successful speculator?
If you think you are not a successful speculator, can you be a successful speculator?
Who are the most successful speculators of the past 100 years? Who are the least successful speculators of the past 100 years?
Getting Back Up
Sometimes in trading you have to pick yourself up and dust yourself off. It is the simple truth and anyone who has been involved in the game for longer than a cup of coffee will tell you the same. There will be times when you are caught with a blow up, caught in a squeeze or simply caught leaning in the wrong direction but over the years what I have learned is it is always about getting back into the ring for another round.
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It’s important to have a routine for handling those times when not only your financial capital gets bitten but your emotional capital sinks as well.
1) Reposition: Whether you are caught in a downturn or short squeeze, removing the position is often the best way to remain objective. So often when people start to see a position run against them they freeze up and start to rely on hope rather than remaining in control of the trade. When I see stocks breaking down or acting poorly, they are sold immediately and I am able to start fresh.
2) Check the Charts and your Bias: I have written many times before that price action is never wrong. If you are caught on the wrong side of price action it is a must to re-evaluate the charts you are viewing and check any bias you may have. It is imperative to embrace the prevailing direction and avoid seeing what is not there. Having raised cash and avoiding any further significant draw, take a fresh look at the action and once again analyze your position accordingly.
3) Embrace the New Day: Trading is unique in that each and every day presents a new opportunity. This must be embraced as it is one of the features that makes trading so great. Rather than dwelling on the past, embrace the future. Each and every day presents new opportunities but not unless you are looking for them.
4) Move Slow and Small: Most people make the mistake in believing that restoring financial capital will improve emotional capital when I would argue it is actually the opposite. One can only trade at peak performance when his emotional tank is filled and confidence is high. Regardless of how long you have been trading there will be times when this tank takes a dip and before moving on to make any new financial progress, it is imperative to restore the emotional side first. The best way to do this is to move very slow and small. Rather than taking full positions, take quarters or even tenths. Paper trade if you need to and analyze results. As time goes on your emotional capital will be restored and you will soon have the confidence to re-enter the game at full speed.
If you trade, one thing is for sure, you will have good times and you will have bad times. The best way to handle the bad times is to know they will come and have a plan in place to follow so that you may bounce back quickly and put them in the past.
Sometimes in trading you have to pick yourself up and dust yourself off. It is the simple truth and anyone who has been involved in the game for longer than a cup of coffee will tell you the same. There will be times when you are caught with a blow up, caught in a squeeze or simply caught leaning in the wrong direction but over the years what I have learned is it is always about getting back into the ring for another round.14 Questions for Traders
1) Do I treat my trading/investing like a business? Have I prepared for it the way I would for any other business?
2) Do I have a business plan – a working document to guide my trading business?
3) Do I have a set of written rules to follow?
4) Am I following a regular procedure to prevent mistakes? A mistake means not following your rules that you have laid out for yourself.
5) Do I have a tested trading methodology?
6) Do I know how my methodology will perform in different kinds of markets?
7) Do I know what kind of market we are currently in now and what to expect from my methods in such a market? Should I be trading these markets?
8) Do I trade with exact exit points that are preplanned for every trade (position) I take?
9) Have I developed specific objectives for my trading/investing?
10) Do I understand that I achieve my objectives through a POSITION SIZING METHOD? Have I developed a specific position sizing method to meet my objectives?
11) Do I truly understand the importance of all the questions mentioned above?
12) Do I understand that I create my own trading/investment results through my thoughts and beliefs?
13) Do I accept full responsibility for that creation?
14) Do I regularly work on myself to make sure that I follow the very important points (questions) above? (more…)
13 Trading Rules
- Let winners run. While momentum is in phase, the market can run much further than might be expected.
- Corollary to that rule: Do not exit winners without reason!
- Be quick to admit when wrong and get flat.
- Sometimes a time stop is the right solution. If a position is entered, but the anticipated scenario does not develop then get out.
- Remember: if one thing isn’t happening the other thing probably is. Historically, this has never been good for me…
- Be careful of correlations. Several positions can often equal one large position bearing unacceptable risk. Please think.
- I am responsible for risk management, money management, trade management, doing the analytical work and putting on every trade that comes.
- I am not responsible for the outcome of any one trade. Markets are highly random. I do not have a crystal ball. I am not as smart as I think I am.
- Risk management is the first and last responsibility. I can make almost any mistake and be ok as long as I do not violate my risk management parameters.
- Opportunity comes every day. Do not neglect the work. Must do analysis every day.
- Opportunity comes every day. Get out of poor positions. Move on.
- I am a better countertrend trader than a trend trader. Sometimes the crowd is right, and they will run me over at those times if I’m not quick to admit I’m wrong.
- If you’re going to do something stupid, at least do it on smaller size.
The Power of Elimination
One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity.” – Bruce lee
So what do Bruce Lee and Leonardo Da Vinci have in common? They both understood, as any good trader should, the essentials of making an impact…the power of subtracting noise.
As a trader you should do the same:
1) Subtract your emotional baggage
In close to twenty years of trading, I have yet to meet ONE successful trader that is emotionally unbalanced. Bring your emotional baggage, your demons, your insecurities to your trading terminal, and you likely to make wrong decisions.
2) Subtract financial entertainment
Blue Channels and other financial media are a great source of info-tainment and you can surely learn a lot. But if you sit in front of the TV all day without having a solid plan thinking that’s what professional traders suppose to do, you virtually guarantee to trade yourself out of capital very shortly. Understand that the delivery of TV news is designed to hit the emotional part of your brain. You might benefit from shutting it off in the short run.
3) Subtract noise
Good trading is not about having 8 screens, 1500 indicators, live steaming news, Twitter feeds, and a phone line with direct connection to god. Clean up your charts to the essence, price, volume and maybe one or two indicators. Clean up your screens and eliminate as much noise as possible, go over your trading diary and identify which inputs produced the most output, then go back and close the applications that add nothing but flicking lights and funny sounds, subtract until you are left with the essence of your system. (more…)
10 signs you’re a narcissistic investor
Some amount of narcissism (a strong belief in yourself) can be helpful in giving you the confidence to apply for a new job or ask for a raise but sometimes these same traits can become too extreme and you can find yourself part of the “narcissism epidemic” that psychologist Jean Twnege and Keith Campbell coined in their book of the same name.
The more you identify with these characteristics, the more likely you are to be a narcissistic investor.
- You always know what you’re doing.
- “I know I’m good because everybody keeps telling me so.”
- Everybody likes to hear your stories and you often boast about your latest or greatest winning trade during conversations.
- “Seeking admiration is like a drug for narcissists”, said Mitja Back a psychologist at Johannes Gutenberg University in Mainz Germany. “In the long run it becomes difficult because others won’t applaud them so they always have to search for new acquaintances from whom they get the next fix.”
- If an investment loses money it’s because someone else made a mistake, not you.
- I almost always hear how my broker sold me this (name a losing investment) vs. I bought this (name a winning investment).
- You’re a workaholic.You get upset when people don’t notice how well you’re doing financially. (more…)