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12 Difference between Losers & Winners Traders

  
  Education
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1.       Losers trade against the trend, but winners trade the impulsive wave of the current trend.

2.       Losers have no money management because they aim quick profit; but winners target steady profits by risking 2 or 3% of their investment.

3.       Losers don’t set stop loss order expecting to be faster then the market in case of reversal; winners know that any time news can make the price reacts suddenly. Therefore use protective stop loss in case of news release.

4.       Losers have no trading plan, they emotionally jump in and out of the market when the price moves; winners build solid entry and exit plans.

5.       Losers cut early their winning trades and let losses run and wipe out their account; but winner s cut quickly their losses. When the trade is positive, they set the stop loss to the break even to protecting their profit. Otherwise, they open to 2 lots to closing the first lot when the stop loss value is reached and let the second winning trade run with a trailing stop from the breakeven until it is touched.

6.       Losers do trade many strategies at the same time, but have mastered none of them; winners master one successful strategy and move to the other.

7.       Losers think the market or the broker is against them, winners don’t fight against the market they try to understand it; they know how to choose between brokers with objective criterions.

8.       Losers think Forex is gambling; but winners develop skills, discipline, self control, and patience, they work hard for being successful traders. Winners learn from their mistakes and constantly improve their main trading strategy.

9.       Losers perform emotional trading after the release of alarming news, winners respect their trading plans.

10.   Losers do overtrading, they even trade at the daily pivot point; winners trade the best opportunities at support or resistance according to the price reaction.

11.   Losers can trade a bad risk reward opportunity; winners aim good risk reward with ratio such as 1/3 or 1/4. A won trade protects their portfolio from several small losses.

12.   Losers use any strategy or expert advisor without back testing it; but winners know that long term profitability is one of the key of Forex trading success. Winners don’t focus on the percentage of winning trades.

LESSONS FROM TRADING IN THE ZONE BY MARK DOUGLAS

  
  Education
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1.) When it comes to trading, it turns out that the skills we learn to earn high marks in school, advance our careers and create relationships with other people, turn out to be inappropriate for trading.  Traders must learn to think in terms of probabilities and surrender all of the skills acquired to achieve in virtually every other aspect of life.

2.) Within 9 months of moving to Chicago, I had lost nearly everything I owned.  My losses were the result of both my trading activities and my exorbitant lifestyle, which demanded that I make a lot of money as a trader.

3.) You don’t need to know what’s going to happen next to make money.  Anything can happen.  Every moment is unique, meaning every edge and outcome is truly a unique experience.  The trade either works or it doesn’t.

4.) More or better market analysis is not the solution to his trading difficulties or lack of consistent results.  It is attitude and “state of mind” that determine his results.  A winner’s mindset means learning how to think in probabilities.

5.) The edge means there’s a higher probability of one outcome than another.  The greater your confidence, the easier it will be to execute your trades.

6.) Do you ever feel compelled to make a trade because you are afraid that you might miss out?

7.) 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.

8.) Price movement could be so volatile that it would be very difficult, if not impossible, to stay in a trade in order to realize the fundamental analysts’ objective. (more…)

Trend following..

  
  Education
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Trendfollowing-The objective of the trend follower is to employ discipline to offset biases in order to extract signals from prices to the exclusion of other information. In fact, this has greater similarity to a statistical or engineering problem than to a finance problem. Because prices are surrounded by or filled with noise, trend following is a form of price smoothing. You eliminate the noise to obtain a clearer signal. It also can be thought of as a filtering problem. You throw out the excess information that may be associated with trades that are not driving the trend signal.

Respect the Trend

  
  Education
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One of my favorite trading tales involves a very wise, veteran trader who, when asked his thoughts on the market, would simply respond by saying “It’s a bull market,” or “It’s a bear market.” Younger traders simply seeking out a hot tip from the seasoned pro would often leave discouraged – or even annoyed, believing they were being fed a line. JL himself didn’t understand until years later the wisdom that was actually being dispensed with those words: The veteran was simply relaying the path of least resistance, or the trend for the general market, and therefore giving the trader an incredible edge in determining one of the many variables that makes up stock trading.

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Traders should equate the general market to that of a big river with individuals stocks as floating logs. If ones objective was to ride in the general direction of the current, they would not stand on the bank looking for a log that was bucking that trend? Furthermore, even if they found one that temporarily headed in the wrong direction, more than likely it would only be a matter of time before the log reversed course and also headed in the way of all the other logs.

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Traders would be wise to understand there are 3 directions a market can travel; up, down or sideways. As long as we trade stocks, this will be true – and just as valuable as Livermore’s seasoned trading friend’s advice was then it would be today.

Markets, like rivers, don’t change courses overnight – or even in a few days. It often takes many months if not years to properly establish a trend. Simply pull back any weekly chart over the past couple years and assess where the trend is going. If you aren’t quite sure, then more than likely cash remains the place for you.

Understand this basic, yet key, principle of trading, and you will already be well ahead of most.

Have a Goal

  
  Education
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There is no reward without risk, and there should be no risk without reward.  Knowing this, there’s absolutely no reason why each trade shouldn’t have some favorable objective associated with it, so set a goal for each trade.  A realistic one that could quite feasibly be reached during the course of the trade.

Perhaps you’ll set a hard target and book profits once that level is reached regardless of how strong the momentum seems at the time.  Or perhaps you’ll plan to book partial profits at intervals along the way.

At the very least, having some idea of a level where your stock could move to is still going to help you formulate a game plan, even if you don’t choose to leave a resting order in that zone to book profits.

If you know your stop and you have some kind of upside expectation, then you’ll have a far better grasp of just what your risk is on a given trade and whether or not it should be taken.

Intuition Discipline Confidence Risk

  
  Education
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Going back to the roots of what ‘risk’ is all about. As I suggested rereading Justin Mamis’ passage of ‘When to Sell’ yesterday, I did reread passages of ‘The Nature of Risk’ probably my all time favourite book which was also written by Justin Mamis. Here is a small excerpt. Enjoy!

Justin Mamis: ‘The Nature of Risk’ page 80:

“Intuition although seemingly spontaneous, apparently emotional, stems from a form of “information” that has become built-in from past experience. Discipline means choosing what to do unencumbered by the fear of making a mistake. Confidence means trusting our intuition that what we “see” is what we “know.” There’s no escaping to the external, to the objective, and no standing on the shaky ground of emotions. So the question becomes, How do we create within ourselves the heroic condition of confidence wherein risk is not danger but life?

Respect the Trend

  
  Education
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Traders should equate the general market to that of a big river with individuals stocks as floating logs. If ones objective was to ride in the general direction of the current, they would not stand on the bank looking for a log that was bucking that trend? Furthermore, even if they found one that temporarily headed in the wrong direction, more than likely it would only be a matter of time before the log reversed course and also headed in the way of all the other logs.

 

Traders would be wise to understand there are 3 directions a market can travel; up, down or sideways. As long as we trade stocks, this will be true – and just as valuable as Livermore’s seasoned trading friend’s advice was then it would be today.

Markets, like rivers, don’t change courses overnight – or even in a few days. It often takes many months if not years to properly establish a trend. Simply pull back any weekly chart over the past couple years and assess where the trend is going. If you aren’t quite sure, then more than likely cash remains the place for you.

Understand this basic, yet key, principle of trading, and you will already be well ahead of most.

Trading Wisdom

  
  Education
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Often I think we overcomplicate trading.  All this talk of risk management, money management, entries, exits etc ad nauseum can leave us not being able to see the wood for the trees.

It’s obvious that you need to cut your losses.  If you let them run or get out of control your aren’t going to be in the business for long. 

But there is another very good and often forgotten reason why you should not let your losses run that William O’Neill highlights:

O’Neill “letting your losses run is the most serious mistake made by almost all investors” simply because “if you don’t sell to cut your losses when you get into trouble, you can easily lose the confidence you’ll need to make buy and sell decisions in the future.”

But if you learn to do this then you stand some chance of doing this:

“Take your losses quickly and your profits slowly” because “your objective is not just to be right but to make big money when you are right.”

The first quote is another great one to heed.  If we do and combine it with the second well…… we might just be able to make the big money once in a while.

Good Times -Bad Times

  
  Education
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Sometimes in trading you have to pick yourself up and dust yourself off. It is the simple truth and anyone who has been involved in the game for longer than a cup of coffee will tell you the same. There will be times when you are caught with a blow up, caught in a squeeze or simply caught leaning in the wrong direction but over the years what I have learned is it is always about getting back into the ring for another round.

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It’s important to have a routine for handling those times when not only your financial capital gets bitten but your emotional capital sinks as well.

1) Reposition:  Whether you are caught in a downturn or short squeeze, removing the position is often the best way to remain objective. So often when people start to see a position run against them they freeze up and start to rely on hope rather than remaining in control of the trade. When I see stocks breaking down or acting poorly, they are sold immediately and I am able to start fresh.

2) Check the Charts and your Bias:  I have written many times before that price action is never wrong. If you are caught on the wrong side of price action it is a must to re-evaluate the charts you are viewing and check any bias you may have. It is imperative to embrace the prevailing direction and avoid seeing what is not there. Having raised cash and avoiding any further significant draw, take a fresh look at the action and once again analyze your position accordingly. (more…)

Freudian Trading Techniques

  
  Education
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Attachment

When I was in college, I had a class in investment analysis. On one particular occasion, we had a group project which consisted of selecting a stock and then giving a recommendation on it. We chose a technology company whose earnings were shot and whose outlook was dismal. As we were deciding on what recommendation to offer, I suggested that  the stock was headed down and that we should recommend a sell. One of the gentlemen in the group immediately replied that he thought we might sound stupid for picking a stock and then recommending to sell it.

That’s when it dawned on me that the ego affects stock selection, evaluation, and recommendation significantly. I told this fellow that the data suggested that the stock was a sell. I also reminded him that the OBJECTIVE of the project was to a evaluate a stock, not to pick a winner. After some thought, I recalled that many analysts viewed the industries which they evaluated as THEIR industry. In doing so, those same analysts were often bullish much too often, including times when it was totally unprofitable to be bullish.

Mine is Better Than Yours

Another example is when I went for an educational seminar. There was no selling whatsoever and it was strictly educational. There were teachers from fixed income, equities, and real estate. Each speaker spoke about how the investment they were discussing was the best performing asset class in history. It was ridiculous but very illuminating. Individuals become emotionally attached when they use the word “my”. “My shoes, my car, my profession, and even my stocks are superior!” Then, I began wandering how detrimental this sort of thinking was. It eats away at profits and increases losses! (more…)

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