The market can do anything at any moment because every person who trades is a market variable. That means you will never learn enough to anticipate every possible way that the market can make you wrong or cause you to lose money. Learn to accept the risk. When you accept the risk, you won’t perceive anything that the market can do as threatening. People , expressing their beliefs and expectations about the future, make prices move- not models. The fact that a model makes a logical and reasonable projection based on all the relevant variables is not of much value if the traders who are responsible for most of the trading volume aren’t aware of the model or don’t believe in it. In other words, people who trade don’t always act in a rational manner. If you have to win, if you have to be right, if you can’t lose or can’t be wrong, you will cause yourself to define and perceive categories of market information as painful. In other words, you will view as painful any information the market generates that is in opposition to what will make you happy. Intelligence and good market analysis can certainly contribute to success, but they aren’t the defining factors that separate the consistent winners from everyone else. |
Archives of “money” tag
rssBruce Kovner's :Wisdom Thought
Michael Marcus taught me one other thing that is absolutely critical: You have to be willing to make mistakes regularly; there is nothing wrong with it. Michael taught me about making your best judgment, being wrong, making your next best judgment, being wrong, making your third best judgment, and then doubling your money.
Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I’m getting out before I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis. I never think about other people who may be using the same stop, because the market shouldn’t go there if I am right.
Place your stops at a point that, if reached, will reasonably indicate that the trade is wrong, not at a point determined primarily by the maximum dollar amount you are willing to lose.
If you personalize losses, you can’t trade.
Trading Wisdom :-2500 year old
Sun Tzu, known for his treatise The Art of War, would have made an excellent trader. The principles he taught for proper military strategy are just as applicable today on the stock trading battlefield as they were 2500 years ago when originally penned. I have taken the liberty to translate a few of his principles for the modern day stock trading warrior.
1. Now the successful trader prepares before he enters battle. The unsuccessful trader makes but a few, if any, preparations before he enters battle. Proper preparation leads to victory; a little preparation leads to defeat; and no preparation leads to ultimate destruction! The one who is properly prepared is the one who is most likely to win.
2. In trading, let your great object be a quick and decisive victory, not the slow death of a lengthy loss.
3. If you know who the enemy is and you know yourself, you will never fear the next trade. If you know yourself but not the enemy, you will win one lose one. If you do not know the enemy or yourself, you will lose on each trade.
4. The quality of entry is like a well-timed swoop of a falcon which enables it to strike and destroy its victim.
5. Proper preparation may be likened to the bending of a crossbow; decision, to the releasing of the trigger.
6. Just as water retains no constant shape, so in trading know the market is constantly changing.
7. Ponder and deliberate before you enter a trade.
8. To refrain from entering a market that is prepared to defend its current course is the art of practicing patience by studying current market conditions.
9. He who does not think through his trade while making light of the situation is sure to fall victim to a loss.
10. Do not trade unless you see there is an advantage in doing so; use not your money unless there is something to be gained.
11. The successful trader is heedful and full of caution. This is the way to have peace of mind and to live to trade another day.
12. What enables the wise and successful traders to trade and conquer, and achieve things beyond the reach of ordinary traders, is proper preparation.
Think and Act !!
Technically Yours
Anirudh Sethi/Baroda
6 Trading Rules for Traders
- Devise a trading plan and follow it. I believe the best trading strategy is the one you’ve been able to review, back test and fits your trading style and risk tolerance. It is important that you know all vitals of the trade (the entries, possible exit targets, and where your stops may be prior to placing your trade orders.) By having a concrete plan, you assist in removing the emotion out of the equation.
- Stick with the trend!There’s a reason why the cliché “The trend is your friend” exists. It’s because it’s true! Successful traders will always tend to follow the trend when trading. Remember, if you trade with the trend, you have the majority of the market on your side.
- Control your emotions.This by far is the hardest thing for any trader to do. After all, it has been said that emotional control is 90‐95% of trading and the rest is your strategy. Therefore, I can’t say it enough times… Figure out a way to trade without emotions. To help with this matter, I believe it’s vital that you trade only with capital you can afford to lose. If you are using money that you need to pay your bills, you will almost certainly get emotional about every trade you make. In addition, I found that the more confident you are about your trading strategy, the better the chances are that you can trade with little emotional stress.
- Record your trades in a trade journal.When I first started trading, I was a bit lax about this concept. But once I started doing recording my actions, I found that I was able to identify my strengths and weaknesses. I take about 30‐45 minutes each day after I’m finished trading for the day to review my trades and to analyze any disconnect from my original plan. This helps me strengthen my conviction of my plan.
- Never trade unless the signal is clear.There are times when the market can confuse you. For me, confusion is a clear cut signal to keep out of the market. I always want my trades to be high probability signals. My signal has generated a winning percentage of more than 70%. So if I’m uncertain about a signal why would I want to take it, knowing that the chance of it winning is more like a coin toss or less? To me, that is gambling… and I do not consider myself a gambler.
- Never make trades because you are bored. Sitting on the sidelines waiting for your next trade signal to line up can be very unsettling. Many traders have learned that trading out of boredom can blow out your account in a hurry. For me, trading out of boredom while failing to follow your trading signal is gambling.
Two Kinds Of Traders
News events in particular cause traders to make incorrect decisions, because they play on emotions. The urge to follow the crowd is normal. It is comforting. And in a strong bull market, it may just be correct.
But in most circumstances, letting emotions push you into making trading decisions costs traders money.
There are two kinds of traders.
1. Those who make emotional decisions based on any of the above.
2. Those who make money off of those who make emotional decisions.
7 dirty words you can’t say while trading
Should– Phrases include: “The market should have” and “I should have”. Those phrases are often used to socialize losses. They are a strong signal something is off. They should be used to aid you in correcting your vision not make you feel better.
Must– Phrases include: “The market must…”, “I must make money”, or “I must trade”. The market does not have to do anything and neither do you. When you use the word “must” it is hardly ever from a position of strength. The market knows when you are desperate and will take full advantage of you. Keeping your expenses as low as possible will make it easier to not make those statements.
Will– Phrases include: “The market will..” and “I will make money”. Once again the market does not like to be told what to do. It is the bratty kid screaming at the tops of his lungs. The word “will” relaxes your mind, similar to “should”, people use it to be lazy instead of a dark background in an otherwise light picture. You can do everything right and still lose money. That is why trading is so effective at diminishing confidence. In most every activity, if you do everything right you are going to get the desired result. Doing the “right” things is bare minimum. Of course, over time you will get paid for doing the right things but it is never when you think it should be and hardly how much you anticipated.
Won’t– Phrases include: “The market won’t…” or “I won’t make money”. Notice a theme here? You are part of the market, you are not the market. Not getting what you expect, even if it is positive, confuses the brain. If you expect to lose and don’t it is still a bad outcome. Your brain is going through enough as it is. The market is a one way walkie talkie, you listen, it talks. (more…)
Characteristics of Perfect Trader
-Sense of calmness
-Ability to focus on the present reality
-Not caring which way the market breaks or moves
-Always aligning trades in the direction of the market, flowing with the market
-Not caring about the money
-Always looking to improve your skills
-Profits now accumulating and flowing in as your skills improve
-Keeping an open mind, keeping opinions to a minimum
-Accepting the risk in trading
-No Anger
-Learning from every trade
-Winning and losing trades accepted equally from an emotional standpoint
-Enjoying the process
-Trading your chosen approach or system and not being influenced by the market or
others
-Not feeling a need to conquer or control the “market”
-Feeling confident and feeling in control of “yourself”
-A sense of not forcing the markets or yourself
-Trading with money you can afford to risk
-No feeling of ever being victimized by the markets
-Taking full responsibility for your trading
When you can read the list above and genuinely say that’s me, you have arrived!
The emotions of trading
When trading there are two emotions that are more common, and more dangerous, than all the rest; fear and greed.
Fear and greed can ruin even the best trading strategies
One moment of fear or greed can lead to a moment of madness and months of hard won profits going down the drain
Uncontrolled emotions should not be an excuse for losses and losses should not be an excuse for uncontrolled emotions
Remember!! Trading affects psychology as much as psychology affects trading
Greed
“You can’t feed on greed”
- Many people think that greed is thinking that the sole aim of trading is to make money.
- This is NOT what greed is
Greed is trying to make money too quickly
There are lots of ways to be greedy in trading;
- Trading in sizes that are too large
- Trading too frequently
- Having unrealistic expectations
- Dreaming of the big hit trade, rather than steadily building your equity
Fear
Fear in trading has two faces;
- Fear of loss
- Fear of missing out
The fear of loss compels traders to close profitable trades prematurely, meaning they miss out on potential profit
The fear of missing out compels traders to abandon their trading strategy so they do not miss a major price move
Fear is NOT good as it leads to overtrading and miss-timed entry and exit points
So
DON’T BE SCARED!!
Six Rules of Michael Steinhardt
Michael Steinhardt was one of the most successful hedge fund managers of all time. A dollar invested with Steinhardt Partners LP in 1967 was worth $481 when Steinhardt retired in 1995. The following six rules were pulled out from a speech he gave:
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Funniest Stock Broker Quotes
“Even though your friend likes the stock thinking people will always need underwear, we have a Sell on the stock, it’s still very, very discretionary spending.”
Broker on the phone to a client.
“Should I ask my girlfriend to live with me?”
“Not if you want to make her happy.”
Floor conversation.
“I decided to bring my lunch in, instead of buy it. Times are tough.”
“What have you got?”
“Lobster.”
Floor conversation.
“This market is worse than divorce. I’ve lost half my wealth, but I still have my wife.”
Broker on the phone to a client.
“The guy says…I need you to…and then he stops because he has to think and talk at the same time.”
Floor conversation.
Floor conversation.
“I’ll do it mate, you can pay me money to do it, but you’re not going to make any money out of it” (more…)