- Follow the trends. This is probably some of the hardest advice for a trader to follow because the personality of the typical futures trader is not “one of the crowd.” Futures traders (and futures brokers) are highly individualistic; the markets seem to attract those who are. Very simply, it takes a special kind of person, not “one of the crowd,” to earn enough risk capital to get involved in the futures markets. So the typical trader and the typical broker must guard against their natural instincts to be highly individualistic, to buck the trend.
- Know why you are trading the commodity markets. To relieve boredom? To hit it big? When you can honestly answer this question, you may be on your way to successful futures trading.
- Use a trading system, any system, and stick to it.
- Apply money management techniques to your trading.
- Do not overtrade.
- Take a position only when you know where your profit goal is and where you are going to get out if the market goes against you.
- Trade with the trends, rather than trying to pick tops and bottoms.
- Don’t trade many markets with little capital.
- Don’t just trade the volatile contracts.
- Calculate the risk/reward ratio before putting a trade on, then guard against holding it too long.
- Establish your trading plans before the market opening to eliminate emotional reactions. Decide on entry points, exit points, and objectives. Subject your decisions to only minor changes during the session. Profits are for those who act, not react. Don’t change during the session unless you have a very good reason.
- Follow your plan. Once a position is established and stops are selected, do not get out unless the stop is reached or the fundamental reason for taking the position changes.
- Use technical signals (charts) to maintain discipline – the vast majority of traders are not emotionally equipped to stay disciplined without some technical tools.
Archives of “money management techniques” tag
rssTop 26 Quotes From Ed Seykota On Trend Following, Trading And Life
Quote 1:
“Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.”
Quote 2:
“Fundamentals that you read about are typically useless as the market has already discounted the price, and I call them “funny-mentals”. However, if you catch on early, before others believe, you might have valuable “surprise-a-mentals”.”
Quote 3:
“If you can’t measure it, you probably can’t manage it… Things you measure tend to improve.”
Quote 4:
“The key to long-term survival and prosperity has a lot to do with the money management techniques incorporated into the technical system.”
Quote 5:
“There are old traders and there are bold traders, but there are very few old, bold traders.”
Quote 6:
“”I would add that I consider myself and how I do things as a kind of system which, by definition, I always follow.”
Quote 7:
“Systems trading is ultimately discretionary. The manager still has to decide how much risk to accept, which markets to play, and how aggressively to increase and decrease the trading base as a function of equity change.”
Quote 8:
“Trying to trade during a losing streak is emotionally devastating. Trying to play “catch up” is lethal.”
Quote 9:
“The elements of good trading are: 1, cutting losses. 2, cutting losses. And 3, cutting losses. If you can follow these three rules, you may have a chance.” (more…)
Step by step…
1. Create a clear, concise method that will serve you to find trading ideas. A method consist of simple to implement consecutive steps based on market anomalies. A method should be derived from your trading goals and it always incorporates in itself money management techniques for capital preservation.
2. Use those trading ideas to create a plan of action.
3. A plan of action usually consists of two or more scenarios. For example if X happens, I will go with trading idea A; if Y happens, I will go with trading idea B. We create different scenarious, because we can’t control the market. We forecast what might happen and plan how we will react if certain event or a process happens.
Having a clear method helps you to be consistent and disciplined in finding new trading ideas. Creating a plan helps you to profit from your trading ideas. It assist you to focus on your goals.
Why System Trading Is Ultimately Discretionary
Successful system trading, in spite of the financial rewards, can be frustrating. A quantified mechanical model will take many decisions off the table. Yet, various issues, particularly the psychological approach to the issues, will always be in play.
Ed Seykota in the book, “Market Wizards,” writes, “Systems trading is ultimately discretionary. The manager still has to decide how much risk to accept, which markets to play, and how aggressively to increase the trading base as a function of equity change. These decisions are quite important, often more important than trade timing.”
It seems most sophisticated traders are aware of the fact that a system needs to be properly quantified and tested before trading. The sample size of the trades needs to be large. These traders are familiar with the terms of curve fitting and optimization. I wonder, however, how many traders continue to study the model as they trade their equity. How many understand the logic behind the entries, stops, exits, and money management techniques. How many are adjusting position size to meet expanding and contracting volatility and changes in market correlation. (more…)
Practical Aspects of Trading…
Successful traders examine the current market conditions to determine if they are bullish, bearish, or a trading range environment. After determining the current market environment traders can select the tools from the their trading tool box that perform best in the current conditions. When the market conditions change then traders need to adapt to the new market environment by selecting new tools that are most appropriate for the new market conditions.
In addition to adapting to the current market conditions by using the appropriate tools from the trading tool box there are several practical aspects of trading that traders need to master.
Never enter a position without having a plan for exiting the position. If you Do not know where to get out of a position you should not enter it in the first place. In swing trading time frames stocks often run to the next resistance or Support level and then stall. We have seen that stocks rarely remain outside the Bollinger bands for long, so when a position reaches the Bands it is often a good Place to look at profit taking, especially in trading range environments.
There is usually no need to rush in when the markets trend changes. Any trend worthTrading does not require you to be in on the first day, by definition. It is usually better to make sure the trend change is real and then react rather than assuming that the first Day of a potential change is something that is going to continue.
There are a lot of jobs where people get paid every Friday. Trading is not one of them. There will be profitable weeks and losing weeks as the normal statistics work out. Remember that if you make enough trades there is a reasonable probability of seeing…
ten losing trades at some point, even with good trading systems. This is part of trading and traders need to allow for it when they work out position sizing and money management techniques.
You do not have to trade every day or take trades just because they came upon the evening scan. Carefully consider the recent price and volume action in the market before taking positions. Look for the best trades, consider long trades that have not shown a lot of recent distribution and have ‘room to run’ before hitting the next resistance area or the upper Bollinger Band.
Make sure that your position sizing is such that if all your current positions were stopped out that the total loss is something that is still comfortable. This happens from time to time and wishing it did not will not change it. Be prepared by using sensible position sizes.
Review each of your positions every evening and determine if it is something you still want to be holding based on the recent market action and the price volume patterns of the position. Longs going up on declining volume are showing weakness and I generally close out those positions and put the money to work in something stronger. You are hiring a stock to do a job for you, if it is not doing the job fire it and hire another. (more…)
Step by step…
1. Create a clear, concise method that will serve you to find trading ideas. A method consist of simple to implement consecutive steps based on market anomalies. A method should be derived from your trading goals and it always incorporates in itself money management techniques for capital preservation.
2. Use those trading ideas to create a plan of action.
3. A plan of action usually consists of two or more scenarios. For example if X happens, I will go with trading idea A; if Y happens, I will go with trading idea B. We create different scenarious, because we can’t control the market. We forecast what might happen and plan how we will react if certain event or a process happens.
Having a clear method helps you to be consistent and disciplined in finding new trading ideas. Creating a plan helps you to profit from your trading ideas. It assist you to focus on your goals.
Technical Process for Traders
The goal of any serious investor is to continually develop a set of signals that they trust and then use prudent money-management techniques to limit losses and profit from gains.
Robert Krausz’s basic tasks necessary to become a winning trader
- Develop a competent analytical methodology.
- Extract a reasonable trading plan from this methodology.
- Formulate rules for this plan that incorporate money management techniques.
- Back-test the plan over a sufficiently long period.
- Exercise self-management so that you adhere to the plan. The best plan in the world cannot work if you don’t act on it.
Trading Discipline
Emotions are probably the biggest obstacle any trader has to overcome. Many traders become losers because they can’t follow a plan. They see a couple of losses, get excited, abandoned the plan and start to take wild shots at the market.
Traders who develop a sound set of trading rules that match their financial situation with their objectives, and then stick with those rules, increase their chances of becoming big winners. Trading discipline can be more important than your trading system.
Discipline means you must become mechanical in making trades when certain price actions occur. You must shut off your emotions, and not accept one trading signal over another. Disciplined traders let profits run and keep losses short by following rigid guidelines. (more…)
Forecasting the Market
Amateurs attempt to make a forecast while professionals manage information to make decisions based on probabilities. Dr. Alexander Elder compares this to a Doctor that received a patient with a knife stabbed in his chest. The family will ask, “will he survive?” and “when can he go home?” But the Doctor is not forecasting, he must prevent the patient from dying, remove the knife, saturate the organs and carefully watch for an infection. He monitors the health trend of the patient and takes measures to prevent any complications. He is managing, not forecasting. To profit in trading you do not need to forecast the future, you need to derive from the market whether the bulls or bears are in control. You need to practice money management techniques for long term survival. You trade against the sharpest mind in the ocean-like markets. Mental discipline is an undivided part of trading. Please remember the following points: Understand you are in the market for the long term, that you want to be a trader in even 20 years from now Develop your trading strategy, either technical or fundamental analysis. If “x” happens then “y “is therefore likely to take place. You may need different tools for trading a bull or a bear market Develop a money management plan, with the first goal being long term survival. Secondary goal is steady money growth and third goal would be high profits. Successful traders do not concentrate on the profit itself but maintaining successful trades regardless of the earned amount. Winners feel, think and act different than losers. Look inside yourself, eliminate the illusions and change the way you have been thinking and acting. Changing is hard but could pave the way to becoming a successful trader. |