Archives of “money management” tag

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TRADING RULES

  
  Education
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rules-mind

The hardest lesson I have had to learn is to “Act in my own best interest”. And to overcome and correct things like:
1) trading without a stop
2) refusing to admit I am wrong and to get out of a losing position
3) trading for the sake of trading
4) chasing entries (going long on the top tick, shorting on the bottom tick)
5) revenge trading (after a series of losses)
6) trading while sick or tired
7) trading without a plan (entry, exit, money management rules)
8) …
Anytime that I am in a position and either don’t know why I am, or what my profit target is, or what my stop loss is, etc. – I am not acting in my own best interest and have always struggled to close out the position immediately.
The times I have without any further hesitation, it turned out to be a wise choice and saved my butt from significant losses (more so than I already incurred).
The bottom line is that you will do much better in this profession if you can answer YES to the question – “Am I acting in my own best interest”?

Confidence in trading

  
  Education
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The Oxford English Dictionary gives the definition of confidence as “The feeling or belief that one can have faith in or rely on someone or something”.

In relation to trading, confidence therefore is having:

  • the belief in your ability to succeed as a trader;
  • the belief that whatever method you use for selecting entries and exits will help generate a positive expectancy;
  • the patience to wait for the right opportunities to present themselves;
  • the discipline to follow your rules;
  • the ability to keep taking suitable signals, when your criteria is met, even when suffering a run of losses.

(more…)

Three Essential Components

  
  Education
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Every winner needs to master three essential components of trading; a sound individual psychology, a logical trading system and good money management. These essentials are like three legs of a stool – remove one and the stool will fall, together with the person who sits on it. Losers try to build a stool with only one leg, or two at the most. They usually focus exclusively on trading systems. Your trades must be based on clearly defined rules. You have to analyze your feelings as you trade, to make sure that your decisions are intellectually sound. You have to structure your money management so that no string of losses can kick you out of the game.”

Money-Mind-Method

  
  Education
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Mind: The key to winning is inside the Mind. As Master of your mind, you have to manage and understand your emotions very well. It is extremely important to understand not just the individual’s psychology, but also the crowd psychology of the markets. To become a successful trader, you must have sheer perseverance and discipline.

Method: There is no Holy Grail in the search for the perfect method to trade. Follow the wisdom of ‘Plan your Trade and Trade your Plan’. A good trading plan should cover your entry, exit and position sizing requirements. My method consists of discretionary trading techniques that combine both fundamental and technical analysis, in addition to my own proprietary automated trading system. Coming up with a good trading plan requires lots of market experience, as you modify, conquer and solidify your trading techniques. Don’t be duped by charming salesmen selling get-rich-quick-without-effort secret recipes. 

Money: Overall profit/loss depends on money management. The first goal of money management is capital preservation. If you lose 10% of your capital, you have to make 11% just to break even. If you lose 40%, you need to make 67%, and if you lose 50%, guess what? You have to make 100% just to recover! So before you think about making big money, first you got to think about not risking your capital unnecessarily. Money management is too important to be overlooked.

Traders Make Decisions based on Probabilities

  
  Education
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Most traders take price swings personally. They feel very proud when they make money and love to talk about their profits. When a trade goes against them they feel like punished children and try to keep their losses secret. You can read traders’ emotions on their faces.

Many traders believe that the aim of a market analyst is to forecast future prices. The amateurs in most fields ask for forecasts, while professionals simply manage information and make decisions based on probabilities. Take medicine, for example. A patient is brought to an emergency room with a knife sticking out of his chest – and the anxious family members have only two questions: “Will he survive?” and “when can he go home?” They ask the doctor for a forecast.

But the doctor is not forecasting – he is taking care of problems as they emerge. His first job is to prevent the patient from dying from shock, and so he gives him pain-killers and starts an intravenous drip to replace lost blood. Then he removes the knife and sutures damaged organs. After that, he has to watch against infection. He monitors the trend of a patient’s health and takes measures to prevent complications. He is managing – not forecasting. When a family begs for a forecast, he may give it to them, but its practical value is low. (more…)

28 questions that every trader should answer honestly…

  
  Education
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Do you know your Art of Trading28-QUESTIONS
Do you  have a trading plan
Do you think in terms of probabilities
Do you know which time frame fits your psychology
Do you cut your losses
Do you define your Risk
Do you add to your losing Position (more…)

10+10+10 Trading Rules

  
  Education
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1.    Be flexible and go with the flow of the markets price action, stubbornness, egos, and emotions are the worst indicators for entries and exits.
2.    Understand that the trader only chooses their entries, exits, position size, and risk and the market chooses whether they are profitable or not.
3.    You must have a trading plan before you start to trade, that has to be your anchor in decision making.
4.    You have to let go of wanting to always be right about your trade and exchange it for wanting to make money. The first step of making money is to cut a loser short the   moment it is confirmed that you are wrong.
5.    Never trade position sizes so big that your emotions take over from your trading plan.
6.    “If it feels good, don’t do it.” – Richard Weissman
7.    Trade your biggest position sizes during winning streaks and your smallest position sizes during losing streaks. Not too big and trade your smallest when in a losing streak.
8.    Do not worry about losing money that can be made back worry about losing your trading discipline.
9.    A losing trade costs you money but letting a big losing trade get too far out of hand can cause you to lose your nerve. Cut losses for the sake o your nerves as much as for the sake of capital preservation.
10.    A trader can only go on to success after they have faith in themselves as a trader, their trading system  as a winner, and know that they will stay disciplined in their trading journey.

Bring your risk of ruin down to almost zero. (more…)

Trading Wisdom – Jesse Livermore

  
  Education
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JesseLivermore

Many books have been written by and about Mr. Livermore. He was a fascinating individual who reportedly made $100 million in a single day in the 1929 crash.
Legend has it that during the crash J.P. Morgan personally walked over to the N.Y. Stock exchange to ask Jesse Livermore to stop selling and start buying in order to save the markets.
He was an expert at following the right trend, with the exception of marriage. His wife was married about four times prior to marrying him, and all four husbands killed themselves, as did Jesse eventually. Not quite marriage counselor material, he is nonetheless one of the greatest wells of trading wisdom from which I have quenched my thirst in the past.
I am a much better trader because of Jesse Livermore. Every time I get stuck in a trading rut, I review my notes on his trading philosophies, which I would like to share with you below. (more…)

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