Archives of “paralysis” tag

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Writing your trading plan?

  
  Education
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  1. Why am I trading? This is not a trivial question to ask; and you must answer it honestly. Are you trading to make money? Or are you trading for the thrill? In other words, are you trading like an investor or like a gambler?
  2. What are my trading goals? Again, not a trivial question. Are you trying to gain a few dollars for extra spending money? Trying to fund your retirement? Trade for a living? Or are you trying to amass a fortune and retire early to a life of luxury? How you answer this question will identify the level of risk that you will have to endure.
  3. What is the size of my trading account? An obvious question.
  4. What is my skill level? Be honest.
  5. What is my tolerance for risk? And does that tolerance bear any relation to my skill level? It’s no good having a high tolerance for risk if your skills are inadequate.
  6. What must I do to improve my skill level?
  7. If my skill level is low, what trading size can I use to ensure that a single bad decision will not wipe me out? Preserving capital and staying in the game long enough to LTP good trading practices is crucial.
  8. What is my preferred trading instrument and have I familiarized myself with the behavior, range and velocity of that instrument? Some trades, like bonds and the ETF’s can move at a glacial pace.
  9. What indicators will I use to identify my entries and exits? Here, “the more, the merrier” may not be the wisest choice. Remember, there can be paralysis by (over)analysis.
  10. Where will I place my initial stop; and how will I manage them? You may have a trailing stop strategy, or you may plan to just exit when your indicators say, “Get out!”
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Conquering Your Negative Trading Emotions

  
  Education
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The trader has two emotions that must be controlled in order to become successful. I call them ‘the two sides of a coin’ and they are commonly known as FEAR & GREED.

The beginning or new trader will first encounter FEAR. There are two types of FEAR. The fear of losing money and the fear of being wrong.
The fear of losing money usually derives from a trader risking money that should be used for the rent, food, children’s education etc. ‘Scared money’ will render one incapable of pulling the trigger when a trade setup comes along. The only way to overcome this paralysis is to be well capitalized with funds that you can risk.
The fear of being wrong is simply that part of all of us that feels that to make a wrong decision is reflective on our personal competency. The cure for this is to simply realize and accept that losses are part of this game. Think about this? A baseball player needs to hit the ball once for every three times at the plate and this will get him into the Hall Of Fame. Whenever you feel the fear of being wrong, just remind yourself that… “My approach for trading has both historically and real-time produced over (number)% winning trades.” This will give you the confidence to step up to the plate and keep swinging. Also tell yourself that the only way to earn the big money is to get into the game. Have confidence in your trading system that when properly executed, it will make much more money than it loses.
So, why is GREED the flip side of fear?
Greed is caused by the fear of not making enough money. Traders who are greedy are often the exact opposite of the ones who are fearful. They have no fear and usually are very aggressive traders, which can get them into big trouble fast. Greed will usually lead to overtrading, failure to follow the trading rules, and not applying the system consistently. One of the biggest problems when greed sets in is the inability to know when to take profits. These traders are so bent on making a killing that they are never satisfied. If they have significant profits they don’t even think about cashing out, as they want more. This often leads to the inability to see the trade turning against them and they will allow winning trades to turn into big losing ones. (more…)

The Stock Trader's circle of Sucess and Failure

  
  Education
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The following graphic describes two types of traders.  The first (the circle on the left) describes what I believe to be the characteristics of all beginning traders, most of which end up quitting.  There is a progression here from bad to worst.  However, if the beginning trader can break through this cycle somewhere around undisciplined fear (#3) and paralysis of analysis (#4), the chances of his success improves exponentially.

TWOTYPETRADERS

THE LOSER’S CYCLE OF DESPERATION

Simply put, a trader enters the stock market with little if any knowledge about what to expect.  How can he?  No experience = no knowledge.  Not only that, but his expectation of untold riches distorts his perception of reality.  Once in the market he seeks the holy grail that will make him rich.  When he doesn’t find it he continues his search as fear begins to shackle his feet.  The fear leads to paralysis of analysis or the thinking that the more indicators and patterns and candlesticks etc. that he uses the more likely he will win.  Wrong!  (more…)

My Trading Resolutions for next 3 months

  
  Education
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  • Think for myself
  • Stay focused on the reasons why I bought a stock and sell when those reasons are no longer compelling
  • Don’t let successful trades turn into losses
  • Be ruled less by emotion and fear and more by logic and knowledge
  • Read some good books on trading
  • To avoid being whipsawed, I will give myself more room for the trade to work
  • Follow my own rules
  • Be easier on myself when I screw up and don’t let my ego inflate when I’m right
  • Don’t force trades – there will always be another opportunity
  • Honor thy stops!
  • Stop chasing hot and popular stocks
  • Do my own research
  • Keep learning
  • Learn to be less nervous and take more risks
  • Remember that lost opportunity is better than lost capital
  • Trade less – don’t overtrade
  • To try and limit the number of opinions I allow to affect my trading. Paralysis by analysis has hurt me
  • Avoid any trade where I use the word “hope” in my reasoning process
  • To follow my logical, well-conceived, long-term game plan, without making irrational changes due to short-term market conditions
  • Tune out the daily noise and useless banter
  • Reduce the number of positions currently held
  • Have more faith in my own abilities
  • In trading, learn to be fearless
  • Don’t be too greedy
  • Slow down!
  • Incorporate the use of smart trailing stops
  • Use ETFs to properly diversify
  • Remove my ego from my trading decisions
  • Avoid getting easily frustrated or impatient
  • Control and limit my losses
  • Focus on making the next trade, instead of the last one
  • I will not average down into losing positions
  • Create more careful and detailed records with a commitment to review them regularly
  • Learn to incorporate a systematic screening method like you
  • Use emotions (both personal and market) to my own advantage
  • Know my exits before making any trade
  • Don’t be swayed by the latest and greatest strategy I hear about
  • Keep it simple. Complex strategies are no better
  • Avoid crowded trades
  • Take time to look for reasons NOT to buy
  • Let profits run longer. take losses quicker
  • Trade what I see, not what I want to see
  • Be more proactive and react faster to situations I find
  • Make bigger, but less frequent trades
  • Stay patient
  • Focus on value of companies and not on the temporary market emotions
  • Be more nimble
  • Keep better notes
  • Adopt an opportunistic versus a rigid bull or bear bias toward the market
  • Enjoy the game more
  • To quit counting the value of my account on a daily basis
  • Stop looking for the holy grail
  • Figure out what trade related information to consume on a daily basis and keep what is useful and leave out that which is not
  • Avoid information overload by limiting what I read
  • Don’t read stock blogs
  • Turn off the TV and dedicate more of my time to become a better trader
  • Set up a lazy portfolio
  • Focus on proper asset allocation
  • Never forget that “when you are through learning you are through”
  • Recognize mistakes early, exit, and move on
  • Take partial profits routinely, but keep money on high-performing stocks
  • Follow my system
  • To screen & scan my watchlist in a consistent manner each and every time
  • Take routine breaks away from the market to refresh and gain more perspective
  • Add more fundamental research to my technical research
  • Concentrate on finding just one really good idea per year like Warren Buffett
  • Stop searching for shortcuts or quick fixes – take baby steps
  • Read at least 3 more trading books in next 3 months
  • Focus, focus, focus – ignore all outside distractions
  • When a strategy works, have the courage to follow it through, when it does not work, to have the wisdom to stop trading
  • Find and exploit long-range sector themes
  • Open my ears and keep my mouth shut
  • Never panic
  • Be humble
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