Unfortunately, it is the sad reality that the majority of people reading this are not profitable traders. If I could single out the most common culprit for sabotaging your trading it would have to be not being able to take a loss. This is especially prevalent amongst new traders, but I’ve seen this single trading mistake cripple even more experienced traders. In fact, I’ve run across countless traders that are generally successful if not for a few outsized losses. The problem is that these outsized losses are what cripple your account and push you into the negative column. You will never be a successful trader, EVER, until you learn how to take a loss.
Archives of “new traders” tag
rssTrading: The Difference Between Playing Offense & Defense
The sooner traders learn to carefully manage risk the better off they will be. So many new traders come in with only the thoughts of profits dancing in their heads. This is equivalent to a football team only focusing on scoring points and not planning their defense.In trading you must play both sides of the ball. You have to be able to score points against the market and not allow the market to score back those points on you.
Your entries are your offense and your exits are your defense.
Letting a winner run is your offense, cutting your loser short is your defense.
Your automatic buy stop is your offense and your automatic stop loss is your defense.
Buying a monster stock is an offensive move, planning on how you will exit with your profits is your defensive move.
Identifying a trend is your offensive play creating a trading plan on how to trade it is your defensive play.
Your choice on what to trade is playing offense, choosing your position size is playing defense.
Your watch list is playing offense choosing how much capital to risk on any one trade is playing defense.
In trading your wins are not permanent and your profits can be taken back, when you score you have to next ensure that you are not scored on. The goal of keeping your profits has to be far above the desire for making quick money with big risk.
Book Review : Cloud Charts: Trading Success with the Ichimoku Technique by
David Linton’s Cloud Charts provides a good introduction for new traders seeking to learn more about Ichimoku (or Cloud Charts).
It is divided into 3 sections with a total of 16 chapters.
The first section (comprising of 7 chapters) deals with general Technical Analysis
The second section (comprising of 5 chapters) introduces the reader to Ichimoku
The last section (comprising of 3 chapters) discuss more about Advanced Cloud Chart Techniques.
For the experienced traders, it is possible to skip the first 7 chapters and head straight to the second section where it introduces the Ichimoku indicators, the constructions of the chart and the various signals for trading.
In my opinion, the author (David Linton) is able to depicts pretty clearly on the construction of the charts; how various Ichimoku indicators are constructed and how it is represented on Ichimoku.
As a trader, there are times where we choose to neglect the construction of the indicators. On hindsight, I am glad that the chapters reinforce my understanding of the charts and its possible implications when I am looking for support/resistance and the possible change in trend.
One important aspect of Ichimoku charts is the use of colours to differentiate different ‘moving averages’ and the change in cloud direction (or kumo twist). The book did not fall short in this area with all the charts in colour. (more…)
Four Trading Fears
“Ninety-five percent of the trading errors you are likely to make—causing the money to just evaporate before your eyes—will stem from your attitudes about being wrong, losing money, missing out, and leaving money on the table. What I call the four primary trading fears.” -Mark Douglas (Trading int he Zone)
As Mark Douglas points out in his great book about trading psychology is that the majority of traders lose because of wrong thinking, misplaced emotions, and wanting to be right. We know fear and greed drive the market prices far more than fundamentals do. However fear makes traders do the wrong things at the wrong time. Here are four great examples of fear over ruling sound trading strategies.
Here are more thoughts about these four fears:
The fear of being wrong: Traders fear being wrong so much they will hold a small loss until it becomes a huge loss. Even adding to the loss in the hopes of it coming back and getting to even. Don’t do this, holding on to a loser after it hits your predetermined stop loss is like being a reverse trend trader. Do not be afraid of being wrong small be afraid of being wrong BIG.
The fear of losing money: New traders hate to lose money, they do not quite understand yet that they will lose 40%-60% of the time in the long term. We should come to expect the small losses and wait for the big wins patiently. Many times traders fear this so much that they have a hard time taking an entry out of fear of losing. If you can’t handle the losses as part of the business, you can’t trade.
The fear of missing out: The opposite of the fear of losing money is the fear of losing potential profits. This causes traders to watch a stock go up and up, miss the primary trend, then not being able to take it any more and get in late just in time for the trend to reverse and lose money. Trade at your systems proper entry point do not chase a stock because you are afraid to miss out on some profits.
The fear of leaving money on the table: When your trailing stop is hit get out of the trade. If your rules tell you to get out after a parabolic run up and stall then exit. You must be disciplined on taking money off the table while it is there. Being greedy for that last few dollars when your system says to sell could lead to major losses of paper profits. Let your winners run but when the runner gets to tired to continue: bank your profits.
PSYCHOLOGY & RISK for New Traders
The issues faced by the New Trader are greed, stress, impatience, fear, and lack of desire to learn. “When a new trader enters the stock market with money but no experience, the odds are he will quickly gain experience by losing money.” RISK The New Trader must make managing money a priority, run trading like a business, control trading size, admit when he is wrong, and lock in strategy driven profits. “When you go to your computer to trade, you should approach it as if you are entering an auction, not a casino.” |
Learning to Trade from a Legend-Victor Niederhoffer
Study horse racing books. The odds against winning at a parimutuel racetrack are overwhelming. Yet some touts have systems that produce a profit (against all odds). Can you apply any of these horse racing principles to your trading? • Write down trading prices (by hand). There were a ton of computers in Victor’s trading room. Yet Victor made me do price analysis by hand. He felt there was enormous virtue about getting close and comfortable with trading figures. • All markets are related. Learn what a move in bonds does to gold. And to S&P futures or the Japanese yen. Don’t trade markets in isolation • Only make a trade when the odds are at least 60% in your favor. • Don’t take losses to heart. I lost $20,000 on a Friday, the first day I traded real money for Victor. I wiped out my trading account. After stewing over my losses all weekend, I offered to resign and refund my losses. Victor refused my resignation and put $20,000 back in my trading account. • Don’t take wins to heart. I remember making a lot of money following (I thought) Victor’s instructions while he was away. When Victor returned, he was not impressed by the fact the firm made money. He told me that I had traded erroneously and was lucky to have survived my trades. • Be a mentor. Victor was generous with his time and advice. Despite the fact that several employees exploited his generosity, Victor continued to help new traders. • Get out when the trade is over. All trades have a beginning and end (based on time and price). Get out whether you’re winning or losing when the time or price has been met. • Write down your moves. Learn from your mistakes. • Learn concentration and game strategy from champions in other disciplines (such as ping-pong and checkers). |
10 Things A Trader Needs to START DOING …To Mint Money
There are many trading principles that are common among successful rich traders. It is important to learn the things that allow them to win so we can follow in their footsteps and make money. There are 10 things that new traders can start doing tomorrow to improve their results immediately. If you have been trading for awhile but have not been profitable these may be things that you need to start doing to stop losing money.
1. Start trading the price action by using charts. The market doesn’t care about your opinions but the chart expresses the collective actions of all market participants. Learn to understand what the chart is saying.
Start to understand that the market determines whether any single trade wins or loses not you and not an imaginary “they”.
2. We can only surf the price waves not control them.
Start to take 100% responsibility for your losses.
3. You enter the trade, you exit the trade, the wins and losses are yours alone. The blame game is a losing game in the markets.
Start to bounce back from losing trades quickly, move on don’t ruminate.
4. If your position size and risk management are correct no one losing trade should emotionally devastate you it should be only one of the next hundred trades with little significance by itself.
Start caring more about what the market is doing and less about what you think it should be doing.
5. ALL that really matters is current price action not your opinion of what might be price action later. (more…)
Improve your Trading Skill
Would you believe that a 14th century priest, and his concepts, can help make you a better trader? Well, English logician and Franciscan friar William of Ockham really can make you a better trader.
Ockham developed the concept commonly referred to as Occam’s Razor. Simply put, this principle favors the simple over the complex, when there is a choice to be made, or a path to be followed.
How can this apply to trading? A few different ways.
First, if you are a system trader, perhaps your approach has too many rules, too many parameters, or too much optimizing. While every parameter you add might make your system better historically, the more parameters you have, the less prone the system is to work going forward. Simpler concepts and simple rules tend to be based on fundamental market principles – ones that aren’t as likely to change.
Second, if you are a discretionary trader, you might trade off of news reports from CNBC, Bloomberg and multiple other sources. Multiple news sources might give you more data, but does it really give you more knowledge? You might find that with multiple, conflicting pieces of information, you actually can’t trade at all – rather, you are a victim of “analysis paralysis.”
Third, maybe your trading office looks like the control room for the Space Shuttle. If you try to trade off all of the information shown on all the screens, you might just find yourself overwhelmed. It is better to stick to a few monitors of information, and know that information very well. The best traders don’t need a dozen monitors to trade well – usually 1 or 2 monitors is plenty.
Many new traders tend to think that that more complicated they make trading, the easier it will be to “solve” the markets. Instead, they should be listening to William of Ockham, and making things simpler. Simple, done correctly, can lead to more profits, and stand the test of time better than complicated approaches.
Opinion no value at all
The market does not care about your opinion and what you think it ought to do. The market cannot be tamed, placed in a box, or coerced into your way of thinking. The market does not care about your technical analysis based on past history not does it care about your projections for the future. The market does not care about this edge or that one. The market does not care about what I think, about what the most popular flavor of the month guru thinks, or what the latest ANALyst on Blue Channel thinks. The market does not care about your dreams, goals, and aspirations no matter how well grounded and planned. The market does not care about the latest economic news. The market only cares about the present. Remember this the next time you get into a trade believing, hoping, and praying that it HAS TO WORK. The market does not care if it hurts you, so if you choose to believe, instead of see, what is right there in front of you, then that which you fear the most will come to be. I am not alone when I say this.
“Professional traders make good risk/reward trades and are not concerned with the outcome. Nor are they under the delusion that they really know where a stock or the market is headed. Those who will be pushing paper around at some dead end job in the near future are new traders who trade seeking to fulfill some narcissist need to be correct. Or smarter than the market. Or your trading neighbor. Or a friend. Get over yourself. You have no idea where the market or stocks are really going in six months. All there is are favorable risk/reward trades to make with the outcome uncertain and controlling your risk paramount.”
“This is one of the paradoxes of trading and investing: you need distinct views to put your money at risk, and you need to persist with these views in order to ride winners. At the same time, you can’t become married to these views; you need to quickly revise and even abandon your outlooks in order to limit losses. We can trade and invest for ego needs, and we can trade and invest to make money: over the long haul, we can’t do both. It takes a strong ego to formulate and act upon one’s ideas; an even stronger one to step back from those ideas in the face of non-confirmation.”
“Most people, let’s face it, must be right. They live to have other people know they’re right. They don’t even want success. They don’t even want to win. They don’t want money. They just want to be right. The winners, on the other hand, just want to win.”
“Life happens when you’re making other plans. This is true and no matter how much we visualize future success, set goals and create plans for achieving them, there will be things that happen over the course of the coming year beyond your control that will impede, slow, stop or even reverse your progress. This is to be expected and, if at all possible, planned for. Frequently the difference between success and failure is being able to accept those challenges head on as they occur and keep working toward your goals even when you experience complete failure and hardship. Anyone who has achieved anything worthwhile has failed in doing so, if not many times. But, that’s part of how we grow and get better.”
“The less I cared about whether or not I was wrong, the clearer things became, making it much easier to move in and out of positions, cutting my losses shot to make myself mentally available to take the next opportunity.”
If you enter a trade and the stock doesn’t go the way you predicted, go ahead and take that loss immediately. Don’t sit their like a twit and try to justify a bad trade as you lose more money, dump it. Move on. Forget the need to be right.”
“In reality, the market puts us in a contest with ourselves. Until we let go of the false ideas of what makes the market tick and simply respond as the market unfolds, we will continue to be punished.”
The degree by which you think you know, assume you know, or in any way need to know what is going to happen next, is equal to the degree to which you will fail as a trader.
Trading: The Difference Between Playing Offense & Defense
The sooner traders learn to carefully manage risk the better off they will be. So many new traders come in with only the thoughts of profits dancing in their heads. This is equivalent to a football team only focusing on scoring points and not planning their defense.In trading you must play both sides of the ball. You have to be able to score points against the market and not allow the market to score back those points on you.
Your entries are your offense and your exits are your defense.
Letting a winner run is your offense, cutting your loser short is your defense.
Your automatic buy stop is your offense and your automatic stop loss is your defense.
Buying a monster stock is an offensive move, planning on how you will exit with your profits is your defensive move.
Identifying a trend is your offensive play creating a trading plan on how to trade it is your defensive play. (more…)