Curiosity may have killed the cat but impatience has been the slow death of many a trader. The market has a way of rewarding those rare individuals who respect the market’s fickle temperament. The market does what it wants to do when and how it wants to do it regardless of our need to be right, right now, about our trade. We can either accept this fact and trade accordingly or we can challenge the market’s authority and risk not only our pride but our money to boot. Pride may be good for the ego but will get us nowhere when our brokerage account is depleted. Patience eliminates acts of desperation when we do things we would not ordinarily do, such as jump into trades when there are none, add to losers, and double up to make up for a recent loser. |
Archives of “patience” tag
rssThe agony of waiting
Alex Stone in the New York Times recently had an interesting article up on the psychology of waiting in line. He notes how Americans spend 37 billion hours a year waiting in line and how it exacts a psychological toll on all of us. Traders are in a very real sense waiting in line for trades that meet their criteria for valid setups. It should not be surprising then that traders have a tendency to jump the gun looking for things to do to relieve the stress of waiting for viable trades. Stone writes why it is we as consumers are vulnerable to distractions from our waits:
The drudgery of unoccupied time also accounts in large measure for the popularity of impulse-buy items, which earn supermarkets about $5.5 billion annually. The tabloids and packs of gum offer relief from the agony of waiting.
Our expectations further affect how we feel about lines. Uncertainty magnifies the stress of waiting, while feedback in the form of expected wait times and explanations for delays improves the tenor of the experience.
Unfortunately traders don’t know what the “expected wait times” will be for their next trade. The ongoing challenge for traders is to avoid impulsive actions that don’t fit with established trading checklists. Brett Steenbarger in a vintage post from TraderFeed walks through an example of how he was jumping ahead of certain trades and paying the price for them. He was able to turn things around but he notes how even experienced traders are still a work in progress.
It is a bit of cliche to say that traders need have patience and discipline. A better understanding of the psychology of waiting can help keep traders a bit more grounded while they wait for better opportunities down the road. As for your wait at the DMV that is a whole other issue entirely.
Five Rules of Wealthy Traders
1. Wealthy traders PLAN EVERY SINGLE TRADE. “In simple terms [wealthy traders] know exactly what they want to pay, how much money they anticipate making (or losing) and a very clear idea on the probability of the trade working out.”
2. Wealthy traders STOPPED TRYING TO PICK TOPS AND BOTTOMS years ago. “Simply put, 95% of the traders out there that make money are buying higher highs and selling lower lows. [Wealthy traders] do the exact opposite of nearly everyone out there because they found out long ago that picking tops and bottoms is a sucker’s bet.”
3. Wealthy traders are PATIENT WITH WINNERS and RIDICULOUSLY IMPATIENT WITH LOSERS. “Most traders have a great deal of patience with their losers but get nervous about locking in gains and sell them to quickly – the exact opposite of what wealthy traders do.”
4. Wealthy traders TRADE ONE MARKET. “Focus on trading one market exceptionally well rather than try to trade whatever’s hot – that’s how wealthy traders do it.”
5. Wealthy traders gauge success on ANYTHING BUT MONEY. “The growing trading account simply becomes a nice result – a side benefit if you will – of making good decisions and reading the market well.”
8 Skill Every Traders must have
- Passion. The best investors I’ve seen truly love what they do. It’s the only way they are able to put in the time needed to become great.
- Experience. The pros have seen it all. They’ve been through all sorts of market cycles. Long periods of sideways choppiness, uptrends, and downtrends. And not just the short term 15-20% corrections but the big 50% corrections too.
- Adaptability. Markets change. And the strategies that were working in one market may eventually deteriorate. Good traders will change their methodology to match the new market conditions.
- No ego. None. If you go into trading with an ego the market will eat you alive. The elite investors are able to admit when they’re wrong. They even embrace it. Being wrong quickly means they can move on to being right faster.
- Emotionless. This goes hand in hand with ego. Along with pride, investors face a daily trio of emotions of hope, fear, and greed. The worst investors allow their emotions to control their trading; the best avoid any emotional attachment at all. (more…)
7 Points for Traders
- You don’t choose the stock market; it chooses you. A little bit of early trading success can have a profound effect on a person’s soul. If it does choose you, you’ll have to accept that your life and investing will become forever connected.
- Your methodology must provide an unshakeable foundation that you believe in totally, and you must have the conviction to trade based upon it. If your belief is tentative or if you don’t have complete faith in your methodology, then a few bad trades will destabilize and erode your confidence.
- A calm mindset that can focus on the execution and not on the outcome is what produces profits. It takes total emotional control. You must maintain your balance, rhythm and patience. You need all three to stay in the game.
- The markets are always conniving with ingenious techniques to get you to lose your patience, to get you frustrated or mad, to bait you to do the wrong thing when you know you shouldn’t. A champion doesn’t allow the markets to get under his skin and take him out of his game.
- Like a great painting, all good trades start with a blank canvas. Winning traders first paint the trade in their mind’s eye so that their emotional selves can reproduce it accurately with clarity and consistency, void of emotions as they play it out in the markets. (more…)
Warrior Trading : Clifford Bennett
These eight steps are intended as a guide to the new trader and a reminder to the experienced.
1. Find Your Strength. It is important that the trader determine what type of market, trending or consolidating, best suits their own personality and strength. The best traders stay focused on one or the other and master it.
2. Know Your Market. You should know your market when trading. In other words, know the levels of support/resistance; know how the instrument you trade moves with the general market; know who is likely to be on the other side and what they are thinking; and “the terrain of any market includes the “long-term charts” (140).
3. Prepare Your Order. Know when to get into a trade and why and know when to get out of a trade and why. Just like a secret agent who will “never enter a room without knowing how to get out of it in a hurry” (142).
4. Placing Your Order. Once you have adequately prepared for a trade, it is then necessary to be ready to place the trade when the time is right. Here “patience is the key…you must be able to wait for the market to tell you when the moment is right. Wait for the market to generate the action; don’t force it” (143).
5. Sticking With Your Plan. This is probably the hardest part about trading. Once you enter the battlefield (enter a trade), the emotions of fear, ecstasy, greed, and sheer excitement can then take over and cause you to forget your well prepared plans for entry and exit. You must enter a “Zen-like mental state” where you remain in control of your emotions. Not doing so could spell disaster. (more…)
Resolutions For 2012
Resolutions On Trading & Investing:
- Define my trading plan and stay with it.
- 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.
- The less trading I do, the better my results so for 2012 I’m adoping weekly/monthly time frames
- 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.
- I am NOT going to overtrade. I will only make “A” trades.
- Don’t ever force a trade, stay in cash when unsure.
- I resolve not to violate my stops.
- Wait for opportunities instead of looking for trades.
- Do not make a move until your indicators say so.
- Follow this important Gartman rule: “Do more of what is working and less of what is not.”
- To clarify my trading approach in my mind and in writing.
- Be dispassionate and thoroughly objective when evaluating positions.
- Do not be afraid to cut a loss, even if the trade is later re-entered at a higher price / better set-up
- Never trade on impulse.
- To memorize and practice the cardinal rules of trading.
- Only trade when you can pay very close attention or exclusive attention to the market.
- Dedicate more time during non-market hours to prepare for trading.
- Take emotion out of my trading. Follow price action.
- I need to overcome my unreasonable fear of the market.
- Try to avoid personal bias in making decisions.
- Wait for pattern to work out – do not jump the gun.
- Don’t be in such a damn hurry. Wait out the times when the setup is just not there.
- Avoid buy and hold in times of high market volatility.
- Actually ignore the news and trade the charts! It’s harder than it sounds.
- Don’t force the trade. The market will open again tomorrow and there will be new opportunities.
- Don’t turn a trade into an investment. Continue to focus on price action.
- Approach each trading day well-rested, of clear mind, and with a positive, opportunistic attitude just like Kirk
Resolutions On Learning:
- Learn to do 1-2 things very well and focus.
- Write the plan for the year ahead. Specify initial position, goals, entrance and exit strategies for action, identify risks to take and manage.
- Study more on the weekends to prepare for the upcoming week.
- I will be more diligent in keeping a journal of EVERY trade made in the year.
- Quit searching for the holy grail of trading – there is none.
- Turn off CNBC and all other distractions in the way of my success
- I will keep good records and document all of my research, trades, and outcomes.
- Use the right side of my brain and be careful of the left.
- Do not blindly follow anyone else.
- Accept failure and move on.
- Methodically analyze what went right and wrong on each trade.
- Spend more time nightly looking at charts.
- Learn 10 new chart patterns this year and trade only setups identified by those patterns.
- Apply a consistent decision tree toward every single trade.
- Tune out the noise. No calls during the day. No more “experts”, no more TV and definitely, absolutely and without a smidge of doubt no more twitter.
- Transition from paper trading to live trading.
- Need to read more charts and read less newspapers.
- Assess my strengths and what is working well for me and determine how I can improve. Also, assess what does not add value and eliminate it.
- Stay with low risk, probability based methods.
- Every trade I take requires a one page description of why, how, and at what levels I intend to take action.
- Paper trade new ideas before putting real money at risk.
- Study and read more, establish a trading plan, follow the plan, experiment, re-evaluate and keep learning.
- I resolve to improve myself by: managing my emotions better, become more patient and understanding, define my goals more completely, and constantly review my efforts to these accords.
- My resolution would be to trade/invest during all market conditions. Emotion still has some control over my investments.
- Work on consistency!! (more…)
5 Major Trading Pitfalls you must avoid at all costs!
Pitfall #1. Betting the farm. Let’s be realistic. Not every trade is going to be a winner. Here is a simple rule for you to remember. Never commit more than 10% to any one position. When I was trading in the pits in Chicago I heard for the first time about the “RIOTRADE”. Simply put, you take a huge position in the market. If it works out, you are a hero. If you lose, you leave home and head for Brazil. Again, NEVER BET THE FARM ON ANY POSITION.
Pitfall #2. Planting too few seeds. This one goes hand in hand with the first pitfall. The key here is diversification and following several markets. Ken watches 30 markets and looks for profit opportunities in each one as they occur. PLANT MORE SEEDS AND YOU CAN ENJOY MORE WINNERS.
Pitfall #3. Jumping the gun. Patience, patience, patience. This is perhaps one of the toughest things for traders to remember, particularly after they have taken some good money out of the market. JUMPING INTO A MARKET BEFORE ALL INDICATORS ARE POSITIVE CAN CAUSE UNNECESSARY LOSSES. (more…)
STRATEGIES FOR SUCCESS
After a year or so of trading, I found that I had standardized on about 15 rules/guidelines that have changed only slightly since then.
As requested, here are ten overriding principles that have survived the past five
years, through bull and bear markets:
Always live to fight another day
Entries must have a statistical edge
Patience and discipline
Be a jellyfish (swim with the current)
Trade only liquid securities
Focus on trying to capture the middle 80% of a move
Know your exit points when you open a position (and stick to them!)
When in doubt, reduce position size by 50%
Limit losses to 2% of total equity for any single trade
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.
10 Attributes Exceptional Traders possess
- A persistent unquenchable motivation to compete and achieve personal stock market mastery
- A personally developed hands-on strategy in writing that fits your personality.
- The ability to be brutally honest and objective about your beliefs and weaknesses.
- An inner resiliency to weather all market storms with little emotional scar tissue.
- Well-defined risk management rules and an ability to accept responsibility for losses.
- Unassailable confidence in your system and yourself.
- Discipline to follow your methodology and act decisively.
- A strong ethic for working hard but also working smart.
- Patience and an ability to wait for high probability trades to materialize.
- A willingness to embrace change, to modify your thinking, to rewrite your methodology and transform yourself.
