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Three Essential Components Of Trading

  
  Education
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These essentials are 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 trade 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.
Every winner needs three essential components of trading: a sound individual psychology, a logical trading system and a good money management.

10 Points For Every Trader

  
  Education
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  1. You have no trading plan – you need to treat your trading like a business and plan how you’re going to trade. If you don’t have a trading plan, then google for it, there are loads of free resources out there to get you started.
  2. You have no money management rules – You can start with the 1% rule and work from there. Calculate your risk for each trade and ensure it’s 1% or less of your trading capital.
  3. You’re prone to emotional swings – If you feel tremendous excitement when you win a trade, then something’s wrong. Sure at first it’s exciting, but after a while your trading just becomes a process and the emotional aspects should start to fade.
  4. You’re nervous when in a trade – This is usually a result of trading too big for your account size. See point 2.
  5. You try to predict rather than react – Leave the predictions for the economists. For every trade have a thesis for how you’re going to respond for different scenarios. Think in terms of “if x then y” type statements instead.
  6. You revenge trade – The market doesn’t give a shit if you win or lose. Who are you having revenge on? This is more likely a result of you’re own unconscious desire to blow up your account and to go back to doing whatever it was before you played around in the markets.
  7. You don’t cut your losses fast enough – Don’t just wait for your trade to “bounce back”, man up and take the loss. You can always re-enter if you see a good setup. (more…)

The 10 Components of a Successful Trading

  
  Education
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1. The general market conditions for that specific trading day. For example is there a lot of volatility in the market, is the market trading lower or higher, ranging or trending?
2. Why you entered the trade, the time you entered the trade, and the price you entered the trade.
3. Why you exited the trade, the time you exited the trade, and the price you excited the trade.
4. Whether the trade was a long or short trade.
5. What happened with the market from the time you opened the trade to the time that you closed the trade.
6. The money management parameters you used in the trade and which we covered in our previous lessons on the subject.
7. Many traders will also attach a chart with their analysis on it to help them remember the trade when they review their trading journal.
8. Where you were weak that particular day and what you are going to do to address those weaknesses.
9. Where you were strong that day and what you are going to do to address those strengths.
10. Any other thoughts that you had that day which should be noted.

Psychological problems

  
  Education
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There are two parts to fixing any psychological problems:
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1. Recognizing that it exists
2. Accepting it so you can move on
In trading, this is where it’s so crucial to take responsibility for your own actions because it induces change and you can start making improvements. If you don’t recognize and accept a problem, then you won’t get anywhere!
What are some of these issues  ? Here are a few along with their causes and/or effects:
1. Anger over a losing trade – Traders usually feel as if they are victims of the market. This is usually because they either 1) care too much about the trade and/or 2) have unrealistic expectations. They seek approval from the markets, something the markets cannot provide.
2. Trading too much – Traders that do this have some personal need to “conquer” the market. The sole motivation here is greed and about “getting even” with the market. It is impossible to get “even” with the market.
3. Trading the wrong size – Traders ignore or don’t recognize the risk of each trade or do not understand money management. There is no personal responsibility here.
4. PMSing after the day is over – Traders are on a wild emotional roller coaster that is fueled by a plethora of emotions ranging throughout the spectrum. Focus is taken off of the process and is placed too heavily on the money. These people are very irritable akin to the symptoms of premenstrual syndrome. (more…)

Eleven Rules for Traders

  
  Education
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Trading in the markets is a process, and there is always room for self improvement. So as we start the new year, here are my 11 rules that help me navigate the markets. By no means is this list exhaustive or exclusive.

Rule #1
Be data centric in your approach. Take the time and make the effort to understand what works and what doesn’t. Trading decisions should be objective and based upon the data.

Rule #2
Be disciplined. The data should guide you in your decisions. This is the only way to navigate a potentially hostile and fearful environment.

Rule #3
Be flexible. At first glance this would seem to contradict Rule #2; however, I recognize that markets change and that trading strategies cannot account for every conceivable factor. Giving yourself some wiggle room or discretion is ok, but I would not stray too far from the data or your strategies.

Rule #4
Always question the prevailing dogma. The markets love dogma. “Prices are above the 50 day moving average”, “prices are breaking out”, and “don’t fight the Fed” are some of the most often heard sayings. But what do they really mean for prices? Make your own observations and define your own rules. See Rule #1.

Rule #5
Understand your market edge. My edge is my ability to use my computer to define the price action. I level the playing field by trading markets and not companies. (more…)

11 Trading Rules

  
  Education
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Rule #1
Be data centric in your approach. Take the time and make the effort to understand what works and what doesn’t. Trading decisions should be objective and based upon the data.

Rule #2
Be disciplined. The data should guide you in your decisions. This is the only way to navigate a potentially hostile and fearful environment.

Rule #3
Be flexible. At first glance this would seem to contradict Rule #2; however, I recognize that markets change and that trading strategies cannot account for every conceivable factor. Giving yourself some wiggle room or discretion is ok, but I would not stray too far from the data or your strategies.

Rule #4
Always question the prevailing dogma. The markets love dogma. “Prices are above the 50 day moving average”, “prices are breaking out”, and “don’t fight the Fed” are some of the most often heard sayings. But what do they really mean for prices? Make your own observations and define your own rules. See Rule #1.

Rule #5
Understand your market edge. My edge is my ability to use my computer to define the price action. I level the playing field by trading markets and not companies.

Rule #6
Money management. Money management. Money management. It is so important that it is worth saying three times. There are so few factors you can control in the markets, but this is one of them. Learn to exploit it.

Rule #7
Time frame. Know the time frame you are operating on. Don’t let a trade turn into an investment and don’t trade yourself out of an investment.

Rule #8
Confidence and conviction. Believe in your strategies and bet wisely but with conviction. There is nothing more frustrating than having a good strategy work as you expect, yet at the end of the day, you have very little winnings to show for your efforts.

Rule #9
Persistence. It takes persistence to operate in the markets. Success doesn’t come easy, and if it does, then I would be careful. Even the best strategies come with losses, and they always seem to come when you get the nerve to make the big bet. Stay with your plan. If you have done your home work, the winning trades will follow.

Rule #10
Passion. In the end, trading has to be about your bottom line, but you have to love what you do and no amount of money is worth it if you aren’t passionate about the process. No matter how much success you enjoy, in the markets you can never stop learning.

Rule #11
Take care of yourself. No amount of money is worth it if your health is failing or you have managed to alienate yourself from family and friends in the process.

Don’t blame the market for your losses- A Thought

  
  Education
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1.) It is highly possible that you will never really make it.  Honestly, trading is a difficult game.  Anyone who said so, was not truthful.  It IS VERY HARD. Trading is not a themepark.  I always stress this out.  Check (How I Started).  I have only come to this realization after losing so much money.  Sigh.  I hope I can spare some of you of the losses.  Make sure that when you trade, you have a mentor, a peer, or a community who have the intention of educating you properly, who’ll look at what you’re doing.  Chances are, the losses come from two most common trading mistakes – Fear and Greed.

Fear of losing money – (You cannot cut the losses)

Fear of losing out – Overtrading.  Chasing unplanned trades.

Greed- Your money management is wrong.  You want to revenge trade. No risk management.

Money Management & Positive Expectancy

  
  Education
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india_moneyA good trading system gives you an edge in the market.
To use a technical term, it provides a positive expectancy over a long series of trials.
A good system ensures that winning is more likely than losing over a long series of trades.
If your system can do that, you need money management.
But if you have no positive expectancy, no amount of money management will save you from losing.

Why 90% Traders fail ?

  
  Education
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90percent“Trading consists of three parts: personal psychology, money management and system development. We also agreed that trading psychology contributes about 60% to success and position sizing contributes another 30%, which leaves about 10% for system development. Furthermore, most traders ignore the first two areas and don’t really have a trading system. That’s why 90% of them fail.”

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