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Trading Wisdom

  
  Education
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THE 5 FUNDAMENTAL TRUTHS OF TRADING:

 1. Anything can happen.
2. You don’t need to know what is going to happen next to make money.
3. There is a random distribution between wins and losses for any given set of
variables that define an edge.
4. An edge is nothing more than an indication of a higher probability of one thing
happening over another.
5. Every moment in the market is unique.

THE 7 PRINCIPLES OF CONSISTENCY:

 
1. I objectively identify my edges.
2. I predefine the risk of every trade.
3. I completely accept the risk or I am willing to let go of the trade.
4. I act on my edges without reservation or hesitation.
5. I pay myself as the market makes money available to me.
6. I continually monitor my susceptibility for making errors.
7. I understand the absolute necessity of these principles of consistent success
and, therefore, I never violate them.

Characteristics of Successful Trader

  
  Education
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SUCESS1From time to time I have been asked to offer my perspectives on things I have found common in successful traders. I have always struggled with my reply to that question because there are only a few traders of which I have gained enough understanding of what they do every day to achieve their results.

However, in Van Tharp’s latest book “Super Trader,” he provides 10 common characteristics frequently found among the best of the best among the hundreds of traders he’s worked with throughout his career. Like me, I think you may find it of interest!

  1. They all have a tested, positive expectancy system that’s proved to make money for the market type for which it was designed.

  2. They all have systems that fit them and their beliefs. They understand that they make money with their systems because their systems fit them.

  3. They totally understand the concepts they are trading and how those concepts generate low-risk ideas. (more…)

Dont take too much Risk

  
  Education
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dontakeriskOne of the most devastating mistakes any trader can make is risking too much of their capital on a single trade. One thing is certain in trading and that is if you lose all your capital you are out of the game. Why risk so much you could be prevented from continuing? There is a saying in
poker than going all-in (risking all your chips) works every time but once. This is true of trading.
If you risk all your account on every trade it only takes one loser to wipe you out (and no trading method is 100% accurate), so you will be out of the game at some point it is only a question of time. (more…)

Get Comfortable With Being Uncomfortable

  
  Education
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“In the trading world, you will either make money or lose money on any given trade. All that matters in the end is making more money when you’re right than you lose when you’re wrong.  Knowing this, traders have learned to accept failure as part of the game, but they also use the information they acquire from their mistakes as a learning tool.  Frequently, what they learn from losing money is more valuable than what they learn when they make money”

Always ask yourself: what did I learn from that loss?

  
  Education
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Learn & Lead“The people who survive avoid snowball scenarios in which bad trades cause them to become emotionally destabilized and make more bad trades. They are also able to feel the pain of losing. If you don’t feel the pain of a loss, then you’re in the same position as those unfortunate people who have no pain sensors. If they leave their hand on a hot stove, it will burn off. There is no way to survive in the world without pain. Similarly, in the markets, if the losses don’t hurt, your financial survival is tenuous.”

Losses happen and they are part of our trading education. If you don’t learn anything out of them, it is money wasted. Always ask yourself: what did I learn from that loss? What could I do, not to repeat it again.

Trading should be boring

  
  Education
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Perfect description of what trading should be all about. As you might have heard from lots of great and successful traders, trading should be boring. Don’t get me wrong. You need to be passionate about trading in order to succeed. That applies to all things in life. For me, the research I do, all the stuff I read in order to improve my trading, increase my knowledge and my technical skills is what I am passionate about. The process of putting on trades and doing what the charts tell me to do is what is boring.

My trading philosophy is really simple. If I had to put it in one sentence it would be the following: ‘There is no way I am going to argue with price.’ The gist of it really is that opinions do not matter. I do have very strong opinions but when the charts tell me otherwise I change my mind. No hard feelings. A great quote dealing with the subject is the following:

When the facts change, I change my mind. What do you do Sir? – Lord Maynard Keynes

So why the ’same old, same old’ title? Because today was one of those days where I did what I have to do. My job as a trader is to be objective in my analysis of what is going on. The most important part is looking at my portfolio positions and sort them in descending order. The first one on the list is the one with the highest profit. The last one is the worst performer. I change the order in the streaming watch list of my broker whenever the ranking changes. Doing this manually is a ‘conscious and active’ process, as it literally forces me to ignore my opinions and therefore forces me to acknowledge the strength or weakness of  a stock. Remember:

There are no good or bad stocks. There are only stocks that make you money and stocks that don’t.

Trading Wisdom-Different Walks of Life

  
  Education
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We come to the market from different walks of life and bring with us the mental baggage of our upbringing and prior experiences. Most of us find that when we act in the market the way we do in our everyday life, we lose money.

You success or failure in the market depends on your thoughts and feelings. It depends on your attitudes towards gain and risk, fear and greed, and on how you handle the excitement of trading and risk.

Most of all, your success or failure depends on your ability to use your intellect rather than act out your emotions. A trader who feels overjoyed when he wins and depressed when he loses cannot accumulate equity because he is controlled by his emotions. If you let the market make you feel high or low, you will lose money. (more…)

What As A Trader You can Control and What You Can not ?

  
  Education
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We can control:
How much we risk per trade.
How big a position size we take.
What time frame we trade.
What market we trade.
Our style of trading.
Whether we stick with our trading plan or go off of it.
If we honor our stop losses and trailing stops.
How we react to a winning or losing trade.

 We can not control:

Whip saws when the trend reverses on us.
Gaps in opening prices both up and down.
Headline risk.
Natural disasters.
Whether a trend continues or reverses the moment we open a position.
Whether any individual trade wins or loses.
How many winning or losing trades we have in a row.
 The battle for your long term trading success is won or loss in your head. The decision to whether keep going after losing money or to quit is made at the point of maximum frustration with the markets. To keep going you have to keep positive, and keep trading. Knowing the difference between you making a mistake or the market simple not matching your style will go a long way in keeping down your stress and negative self talk.

5 Trading Pitfalls and how to Solve Them

  
  Education
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 I have observed that Losing money doing the right thing does not destroy a traders’ mental focus. It is when they lose money doing the wrong thing…That is what truly eats at their soul and messes with their head.

With that said, the following are 5 common pitfalls I have seen traders experience and I have listed 5 practical solutions you can quickly implement to overcome these assassins to your performance.

Pitfalls
1. Focusing on the P & L

2. Losing objectivity while in a trade

3. Becoming emotional about a trade

4. Lacking confidence: exiting early, failing to put a trade on, not sizing up

5. Difficulty adapting to a changing market

Solutions
1. Quantify success base on the caliber of the trade (i.e. high quality entries/exits).

2. Continuously ask yourself, “is my original reason WHY I entered this trade still there?”

3. While you are in a trade, ask yourself, if I had no position on right now, what would I do? Buy? Sell Short? Do nothing? Then re-evaluate your trade size and direction.

4. Confidence should always come from within. Step#1: Write bullet list of data points proving WHY you are a skilled trader. Step #2: Prime yourself each morning by reading it over to yourself. Could be the most valuable 30 seconds you spend each day.

5. Flip your perspective by keeping track of what is not working (by default this tells you what IS working).

Goodfellas and trading

  
  Education
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Karen Hill: “God forbid, what would happen if you had to go to prison? Mickey said that Jeannie’s husband…”

Henry Hill: “Do you know why Jeannie’s husband went to the can? Because he wanted to get away from her.

Let me tell you something. Nobody goes to jail unless they want to. Unless they make themselves get caught. They don’t have things organized.”

This conversation from the Goodfellas film reminds me of Ed Seykota’s famous saying, that ‘Win or lose, everybody gets what they want out of the stock market. Some people seem to like to lose, so they win by losing money’. I don’t believe in the literal interpretation of Seykota’s comment but I find the quote serves as a reminder to question the motives behind my trades.

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