The most important thing is to have a method for staying with your winners and getting rid of your losers. By having thought out your objective and having a strategy for getting out in case the market trend changes, you greatly increase the potential for staying in your winning positions. The traits of a successful trader: The most important is discipline – I am sure everyone says that. Second, you have to have patience; if you have a good trade on, you have to be able to stay with it. Third, you need courage to go into the market, and courage comes from adequate capitalization. Fourth, you must have a willingness to lose; that is also related to adequate capitalization. Fifth, you need a strong desire to win. You have to have the attitude that if a trade loses, you can handle it without any problem and come back to do the next trade. You can’t let a losing trade get to you emotionally. If a trade doesn’t look right, I get out and take a small loss.
Archives of “objective” tag
rssThoughts on Human Nature and Speculation – Humphrey B. Neil
The chapter entitled, “More Thoughts on Human Nature and Speculation”, includes some classic thinking on aspects of human psychology which prevent us from operating profitably in the markets. A passage from Neil on the dangers of greed follows this line of thought:
“…I have watched traders in brokers’ offices with deep interest, and have tried to learn the traits that crippled their profits. The desire to “make a killing”—greed—has impressed me particularly.
Perhaps this desire to squeeze the last point out of a trade is the most difficult to fight against. It is also the most dangerous. How often has it happened in your own case that you have entered a commitment with a conservatively set goal, which your judgment has told you was reasonable, only to throw over your resolutions when your stock has reached that point, because you thought “there were four more points in the move?”
The irony of it is that seemingly nine times out of ten (I know, for it has happened with me) the stock does not reach your hoped-for objective; then—to add humiliation to lost profits—it goes against you for another number of points; and, like as not, you end up with no profit at all, or a loss.
Maybe it would help you if I told you what I have done to keep me in my traces: I have opened a simple set of books, just as if I were operating with money belonging to someone else. I have set down what would be considered a fair return on speculative capital, and have opened an account for losses as well as for gains, knowing that the real secret of speculative success lies in taking losses quickly when I think my judgment has been wrong.
When a commitment is earning fair profits, and is acting as I had judged it should act, I let my profits run. But, so soon as I think that my opinion has been erroneous, I endeavor to get out quickly and not to allow my greed to force me to hold for those ephemeral, hoped-for points. Nor do I allow my pride to prevent an admission of error. I had rather, by far, accept the fact that I have been wrong than accept large losses…”
This looks like worthwhile study material, so read on and don’t mind the fact that most of the references date back to 1930. Time honored wisdom is the best, and sound practices are applicable in any age.
Are You A Subjective or Objective Trader?
Subjective: Based on or influenced by personal feelings, tastes, or opinions.Proceeding from or taking place in a person’s mind rather than the external world.
Subjective traders they are intertwined with their trades.Their signals are generally entering out of greed and exiting based on their own internal fear. The believe in their opinions more than the actually price action. They base trades off of whether they are feeling good or bad about a particular trade. A subjective trade comes out of the imagination of the trader, from their own beliefs, opinions, and what “should” happen in their view. Many times reality is not even cross checked as a reference, and if it is the subjective traders sees what they want to see instead of what is really going on. Their compass is their emotions and they have internal goals other than making money.
Objective: (Of a person or their judgment) not influenced by personal feelings or opinions in considering and representing facts. Having actual existence or reality. (more…)
22 Trading Rules
1. Never, under any circumstance add to a losing position…. ever! Nothing more need be said; to do otherwise will eventually and absolutely lead to ruin!
2. Trade like a mercenary guerrilla. We must fight on the winning side and be willing to change sides readily when one side has gained the upper hand.
3. Capital comes in two varieties: Mental and that which is in your pocket or account. Of the two types of capital, the mental is the more important and expensive of the two. Holding to losing positions costs measurable sums of actual capital, but it costs immeasurable sums of mental capital.
4. The objective is not to buy low and sell high, but to buy high and to sell higher. We can never know what price is “low.” Nor can we know what price is “high.” Always remember that sugar once fell from $1.25/lb to 2 cent/lb and seemed “cheap” many times along the way.
5. In bull markets we can only be long or neutral, and in bear markets we can only be short or neutral. That may seem self-evident; it is not, and it is a lesson learned too late by far too many.
6. “Markets can remain illogical longer than you or I can remain solvent,” according to our good friend, Dr. A. Gary Shilling. Illogic often reigns and markets are enormously inefficient despite what the academics believe.
7. Sell markets that show the greatest weakness, and buy those that show the greatest strength. Metaphorically, when bearish, throw your rocks into the wettest paper sack, for they break most readily. In bull markets, we need to ride upon the strongest winds… they shall carry us higher than shall lesser ones.
8. Try to trade the first day of a gap, for gaps usually indicate violent new action. We have come to respect “gaps” in our nearly thirty years of watching markets; when they happen (especially in stocks) they are usually very important.
9. Trading runs in cycles: some good; most bad. Trade large and aggressively when trading well; trade small and modestly when trading poorly. In “good times,” even errors are profitable; in “bad times” even the most well researched trades go awry. This is the nature of trading; accept it.
10. To trade successfully, think like a fundamentalist; trade like a technician. It is imperative that we understand the fundamentals driving a trade, but also that we understand the market’s technicals. When we do, then, and only then, can we or should we, trade. (more…)
Want to Become a Winning Trader?
Denial is an insidious and serious human condition that can be extremely dangerous to traders. I think out of all the human conditions, denial is one of the most harmful.
Denial keeps us stuck in doing a negative event over and over again regardless of the outcome. Have you ever heard the saying that madness is doing exactly the same thing over and over again and expecting a different result? Denial is usually why people do this!
Are you a losing trader who is trading the same way over and over again expecting different results? If so, you could be in denial. Look at the list below and see which of these apply to you:
- Poor or no record keeping
- Consistently losing month after month
- Not profitable
- Feeling helpless
- Frustrated and stuck
- Lying about your trading results to others
- Creating diversions to distract you from reality
- Needing to appear successful to feel successful
- Spending out of control
- Drinking or wild behavior
- Anxious when alone, can’t sit still
If you can identify with two on the above list then you may have a denial issue. If you identify with three or more you have a denial issue. There are different degrees of denial and the idea is that to be a successful trader you must objectively look at yourself and your trading. If you are in denial, or flirting with denial, you are not being objective and are stacking the odds against you that you will be a successful trader.
Denial is insidious, meaning that it begins without you really being aware that has begun. Be on guard for denial. To catch denial before it get out of control, look for the occasional twisting of the truth about your trading results or being lazy about keeping good trading records all indicate that you may not want to face the truth about your trading.
Denial is a disease in that it rarely gets better on its own. Denial rarely just goes away without being proactive and taking conscious action to intervene. Always seek the truth in yourself, your trading and in life and you will be less likely to have a denial problem. Seeking the truth usually takes energy and at times is the harder path to follow and accept, but this is the path you must always follow to avoid denial. As a trader you will not be successful living in denial. Do whatever it takes so that you do not live in denial. If you cannot fix it on your own, get help. You must learn to deal with reality and get a better result!
Use discipline to eliminate impulse trading
Have a disciplined, detailed trading plan for each trade; i.e., entry, objective, exit, with no changes unless hard data changes. Disciplined money management means intelligent trading allocation and risk management. The overall objective is end-of-year bottom line, not each individual trade.13 Rules for Making Good Trading Decisions
Rule #1
Never, ever, under any circumstance, should one add to a losing position…not ever!
Averaging down into a losing trade is the only thing that will assuredly take you out of the investment business. This is what took LTCM out. This is what took Barings Brothers out, this is what took Sumitomo Copper out, and this is what takes most losing investors out.
Rule #2
Never, ever, under any circumstance, should one add to a losing position…not ever!
We trust our point is made. If “location, location, location” are the first three rules of investing in real estate, then the first two rules of trading equities, debt, commodities, currencies, and so on are these: never add to a losing position.
Rule #3
Learn to trade like a mercenary guerrilla.
The great Jesse Livermore once said that it is not our duty to trade upon the bullish side, nor the bearish side, but upon the winning side. This is brilliance of the first order. We must indeed learn to fight/invest on the winning side, and we must be willing to change sides immediately when one side has gained the upper hand.
Rule #4
Don’t hold on to losing positions
Capital is in two varieties, mental and real, and of the two, the mental capital is the most important.
Holding on to losing positions costs real capital as one’s account balance is depleted, but it can exhaust one’s mental capital even more seriously as one holds to the losing trade, becoming more and more fearful with each passing minute, day and week, avoiding potentially profitable trades while one nurtures the losing position.
Rule #5
Go where the strength is
The objective of what we are after is not to buy low and to sell high, but to buy high and to sell higher, or to sell short low and to buy lower.
We can never know what price is really “low,” nor what price is really “high.” We can, however, have a modest chance at knowing what the trend is and acting on that trend. We can buy higher and we can sell higher still if the trend is up. Conversely, we can sell short at low prices and we can cover at lower prices if the trend is still down. However, we’ve no idea how high high is, nor how low low is.
Rule #6
Sell markets that show the greatest weakness; buy markets that show the greatest strength.
Metaphorically, when bearish, we need to throw our rocks into the wettest paper sack, for it will break the most readily, while in bull markets, we need to ride the strongest wind, for it shall carry us farther than others. (more…)
Three stages of trading objectives.
To make money every trade. At first, I did not have the ability to make money every trade. After I had the ability to make money on most trades I realized it was a horrible objective. If you want to make money on every trade you are always waiting. You can never take that much risk and hence the rewards are very small. I was trading 1′s and 2′s to start, which was the right thing to do. I would watch my mentor take every trade, no matter how dog shit it was. As a 1 and 2 lot trader you do not have the same luxury to take dog shit trades because you can only trade one way. Because of the flexibility he had he could do more and the truth is no matter how good or bad a trade looks we don’t know until we are in it. Getting the most out of a trade is the mark of good trader. Risk is always related to reward. There is very little money in making money on every trade. This type of trading is like making 100k and keeping 80K
To make huge chunks of money. After I realized that objective did not work for me I shifted to the extreme. I started to swing for the fences whenever I had the ability. It is nice when I was right but I struck out a lot too. At this point, I did not respect trading. I did it because money made me a bad ass. Well as you know you hard to pay your bills with bad ass. This type of trading is like making 200k and keeping 80k.
Here are the major risks of having both of those objectives. The first is making small amounts of money no matter the situation. Eventually you will get in a hole because statistically you are behind. Trading every situation the same is bad. The second objective is trying to make huge amounts of money on every trade. If the first trades were the best and I stopped it was great. If the first trades were bad, I was forced to stop. It made it hard to learn.
Gambler’s fallacy
For a fair coin, the answer sho uld be that both outcomes are equally lik ely.
If you Believed that the next flip is more likely to be tails because “tails is due to come up” this is whats is known as gambler’s fallacy, a great example of availability bias. i.e ” availability bias occurs when our estimates of probabilities are influenced by what is most “available” .
The purpose of the quiz is simple .
As traders assess new information, all observations must be appropriately weighted in prices or estimates of probabilities. If traders are unduly influenced by availability bias, the resulting estimates may not be accurate. You must at all time in your approach be equally fair, balanced objective and dispassionate while gathering your analysis toward trading .
Trading should be boring
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.