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Ten overriding principles

  1. Always live to fight another day
  2. Entries must have a statistical edge
  3. Patience and discipline
  4. Be a jellyfish (swim with the current)
  5. Trade only liquid securities
  6. Focus on trying to capture the middle 80% of a move
  7. Know your exit points when you open a position (and stick to them!)
  8. When in doubt, reduce position size by 50%
  9. Limit losses to 2% of total equity for any single trade
  10. Start each day with a clean financial and emotional slate

The above list is relatively generic, but it helped provide me with a framework for organizing how I would approach trading as a business, what strategies I should adopt, how those strategies should be executed, and ultimately defining what success should look like.

Trading rules are vitally important – as is knowing when they should be broken. Even more important, I believe, is the process that one goes through in order to arrive at these rules and to make sure that as new market situations unfold and new blind spots are revealed, the rules and guidelines are enhanced to maximize the opportunity for the trader to continue to grow and develop.

There's nothing you can do

You might be at a stage of feeling very frustrated with yourself.

I know what this feels like – you begin to marvel at your own lack of discipline and ability to do what you know. It’s like “Arrgh! Why can’t I just WAIT for the damn setup?! Why am I such a screw up at this?!”

Speaking from experience, it’s frustrating because you just want to get on. You have plans and goals and now you see that your own idiocy is preventing you from making any progress towards them. All I can say is that there’s nothing you can do about this period except keep going and wait for it to pass… It’s deeply ingrained. You have to trade through it; six months, a year, two years… Grit your teeth and plow on.

In a way, you have to relax into your own ability to seemingly pick every wrong move in the market. Just accept it. Providing you are not losing big money, you CAN relax into it. The good news is you are in fact building up a tolerance to taking losses during this period – you ARE actually developing a skill. It’s called “risk tolerance.”

If you’re still in that “God dammit!” phase then do this: just keep losing and losing, but begin to try to take the losses without any emotional reaction what so ever and move immediately to the next trade.

Once you can do this, you then move on to learning to let go of your need to have success NOW. This combines with learning to do nothing in the market – learning to wait. Why not wait, you’re gonna lose anyway right? So you might as well wait…

Now you’re building up patience. This is a foundation that leads to a little magic further down the track, when you get to the point where you see that you could take any system and trade it properly to discover its true potential. All those millions of methods you tried for 3 days and abandoned in disgust now sit there like a pile of spare parts in the bike shed. You become interested in them again – there could actually be a few decent ideas amongst that lot.

So learn to lose.
Then learn to wait to lose.

You will be building risk tollerance and patience. There are more steps after that, but there is no way to skip this process, it has to be gone through by all.

8 Trading Psychology Quotes

Your biggest enemy, when trading, is within yourself. Success will only come when you learn to control your emotions. Edwin Lefevre’s Reminiscences of a Stock Operator (1923) offers advice that still applies today.

  1. CautionExcitement (and fear of missing an opportunity) often persuade us to enter the market before it is safe to do so. After a down-trend a number of rallies may fail before one eventually carries through. Likewise, the emotional high of a profitable trade may blind us to signs that the trend is reversing.
  2. PatienceWait for the right market conditions before trading. There are times when it is wise to stay out of the market and observe from the sidelines.
  3. ConvictionHave the courage of your convictions: Take steps to protect your profits when you see that a trend is weakening, but sit tight and don’t let fear of losing part of your profit cloud your judgment. There is a good chance that the trend will resume its upward climb. (more…)

Trading Hints and Tips

 tips-1

1. OPPORTUNITY. There are dozens of these every day, unfortunately you can’t buy them all, so only pick the top 10 and then narrow them down to 2 to 3.
 This is done by using your buying criteria which is part of your trading plan which you already have written down. (Hopefully you have one?)

 2. BUYING and SELLING. I have a pre planned strategy which I have developed by trial and error; this was achieved by learning by my trading mistakes  and the mistakes of others.
 3. PATIENCE.This is definitely a virtue worth developing. Sometimes the market is going up in the right direction, but is not going as fast upwards as you  would like.  Be patient and use a “stop loss” to lock in those profits. However small they may be.  Also don’t always be in a hurry to “buy that next share” just because you have that money burning a hole in your pocket.  Do your homework and then you have chosen the right share for the right reasons and not just because it looked good 

 4. STRESS.If it is hurting! Don’t do it, cut your losses or be content with a small profit and get out. (more…)

29 One Liner Trading Rules

  • Take no trades without establishing a complete and precise trading plan before the initial trigger.
  • Keep an open mind for new market scenarios based on what the price action and pattern setups provide.
  • Always trade with the trend.
  • Once I am in a trade, stick with the original plan for target and stop-loss – Don’t panic!
  • Make every trade meet the strategy requirements and what happens from there is up to the market.
  • I need to exercise greater patience in both buying and selling.
  • Be more willing to take a position, even if it is very small. It is tough though to gain the confidence to do so as the market has been tough. (more…)

10 Trading Rules

  1. Always wait for the setup: no setup – no trade. Agree. If your strategy doesn’t provide you a good risk/reward trade to make, then your job is to be patient until it does. Ironically, this often requires you to sit out some very good moves in the market and be inactive at the very same times you want to be aggressive.

  2. The best trades work almost right away. Agree, but with one important caveat – this rule greatly depends upon your strategy. Some strategies will require greater patience than others. If trading short-term, this rule is almost always correct, but if your time frames are longer, then you also have time on your side which requires more patience but that patience can pay off if your analysis is correct.
  3. Never take a big loss. If it doesn’t ‘feel’ right. Remove it! Disagree. Sometimes you have to take a big loss to prevent the risk of an even greater loss. Refusing to take a big loss when a mistake has been made can be very costly. I also disagree with the view that “If it doesn’t feel right, remove it.” Actually, some of the best trades you will ever make in your career are those trades that feel wrong and about as far from “right” as you can make it. Don’t believe me? Think over the last month or so about the trades you missed because they didn’t feel right but your strategy told you to hold or buy them anyway! It is also interesting to me that this rule says to trade by feel and at the same time advises in another rule not to trade by emotion. You can’t do one without the other!
  4. Always perfect your craft and sharpen your skills – good traders are constantly learning. Agree. No matter how skilled, intelligent, and successful you have been, there is always room for improvement. Moreover, because of the ever-growing changing nature of the market, what you do now to trade successfully won’t always work in every situation and the next market environment. Only experience and constant dedication to your job will provide you with the weapons for enduring market success.
  5. Be patient with winning trades – impatient with trades that fight back. Agree. Another good ways of saying – let your winners run and cut your losers short. The truth is that most individual traders and investors do the exact opposite – they sell winners too quickly and they hold losers far too long letting trades that went awry become long-term “trapped” investments. (more…)

The Ten Things Profitable Traders Do Differently

The following 10 reasons may be why the 10% of long term profitable traders take the money from the 90% that are unprofitable. I see these differences in real life all the time. There is a big difference between profitable and unprofitable traders that usually comes down to homework, mental discipline, and risk management.10NUMBER

  1. Winning traders let winning trades get as big as possible before exiting. They have the really big winners to pay for all the losers.
  2. Winning traders have no patience for losing trades, they keep losses small. They know how not to give back their profits with big losing trades.
  3. They are focusing on trading actual price action not their own opinions or beliefs.
  4. They are experts on the trading vehicles that they trade.
  5. The trade with the trend in their time frame.
  6. Good traders know that their trailing stops are smarter than they are.
  7. Profitable traders know that it is their robust methodology that makes them profitable not any one trade.
  8. Winning traders are great risk managers. Their #1 concern is how much they can lose, their #2 concern is how much they can make.
  9. Profitable traders have put in the time, usually years and thousands of hours to learn what really makes money in the markets.
  10. Profitably traders have studied historical price data, chart patterns, trends, and price action.

     

Trading Truths

  1. It’s all about risk management … never risk what you can’t comfortably lose.
  2. Never fall in love with a stock.
  3. To be succesfull in trading; study, understand and practice. The rest is easier.
  4. Always start by assuming your analysis is WRONG and that people much smarter and with more recent information are already positioned opposite you.
  5. Never take on a position larger than your comfort zone. (Don’t overtrade)
  6. Patience. never chase a stock.
  7. Before entering the trade very think carefully what will make you wrong, write it down clearly and put it infront of you where you trade, and when your wrong get out happy you’ve followed your trading discipline.
  8. Buy strength, sell weakness. Most traders are essentially counter-trend; most traders lose.
  9. No one ever went broke taking a profit!
  10. Once you find a good one, hang on unless of course they do you wrong.
  11. Never add to a losing position! (Unless scaling in was part of the plan).
  12. Whenever you think you’ve found the key to the lock, they’ll change the lock.
  13. Do not overtrade.
  14. Trade price not perception.
  15. Know the difference between stocks that you want to stay married to and those that are just a fling.
  16. The only sure way to make a small fortune is to start with a large one.
  17. and to paraphrase Will Rogers: Buy only stocks that will go up. Don’t buy the ones that don’t go up. “THIS is GAMBLING.”

  18. Cut your losses quickly and you may have a chance.
  19. An indicator works until it doesn’t.
  20. “MR. MARKET” IS ACTUALLY “MRS. MARKET” ONLY WOMEN CAN THINK, AND ACT THE WAY THE MARKET DOES. THAT IS WHY -ON AVERAGE -WOMEN ARE BETTER TRADERS THAN MEN, THEY UNDERSTAND WHAT THEY DEALING WITH! (more…)

Control Your Emotions

1. Caution.

Excitement (and fear of missing an opportunity) often persuade us to enter the market before it is safe to do so. After a down-trend a number of rallies may fail before one eventually carries through. Likewise, the emotional high of a profitable trade may blind us to signs that the trend is reversing.

2. Patience.

Wait for the right market conditions before trading. There are times when it is wise to stay out of the market and observe from the sidelines.

3. Conviction.

Have the courage of your convictions: Take steps to protect your profits when you see that a trend is weakening, but sit tight and don’t let fear of losing part of your profit cloud your judgment. There is a good chance that the trend will resume its upward climb.

4. Detachment.

Concentrate on the technical aspects rather than on the money. If your trades are technically correct, the profits will follow.

Stay emotionally detached from the market. Avoid getting caught up in the short-term excitement. Screen-watching is a tell-tale sign: if you continually check prices or stare at charts for hours it is a sign that you are unsure of your strategy and are likely to suffer losses.

5. Focus

Focus on the longer time frames and do not try to catch every short-term fluctuation. The most profitable trades are in catching the large trends. (more…)

Patience

PATIENCE FOR U1) If you insist on trading during unstable or volatile markets, keep your positions small.

2) If you go into cash, don’t get upset on days when we rally, it’s simply part of the game.

3) Don’t buy or sell stocks because someone else is doing it. Have your OWN plan, find a philosophy that works for YOU, and don’t blindly follow anyone!

4) Wait for the wind to be at your back. Right now, it’s swirling. No sense in forcing trades to make a few pennies when there are dollars to be made in better environments.

5) Let the market correct, let the dust settle, don’t be in such a rush to trade. I see too many people trying to bottom-fish this market and I feel like screaming: “You don’t have to trade!”

I am not saying all this to be an ass. I simply want traders to learn from my mistakes. I have lost too much money in the past by forcing trades in unfavorable environments. You are better off protecting your capital and more importantly, protecting your confidence. Wait for proper bases to form, wait for some institutional accumulation, and wait for sentiment to be “less bullish.” In other words, wait for a healthier environment…it might not be that far away. The key right now is discipline and patience.

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