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10 Typical Trading Errors

  
  Education
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1)Refusing to define a loss

2)Not Liquidating a losing trade ,even after you had acknowledged the trades’s potential is greatly diminished.

3)Getting locked into a specific opinion or belief about market direction.From a  psychological perspective this is equivalent to trying to control the market with your expectation of what it will do :”I’m right ,the market is wrong.”

4)Focussing on price and the monetary value of a trade,instead of the potential for the market to move based on its behaviour and structure.

5)Revenge-trading as if you were trying get back at the market for what it took away from you.

6) No reversing your position even when you clearly sense a change in market direction.

7)Not following the ruled of the trading system.

8)Planning for a move or feeling one building ,but then finding yourself immobilized to hit the bid or offer ,and there after denying yourself the opportunity to profit.

9)Not acting on your instincts or intuition.

10)Establishing a consistent pattern of trading success over a period of time ,and then giving your winnings back to the market in one or two trades and starting the cycle over again.

Mark Minervini on discipline

  
  Education
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Other than selling stocks short, I don’t know of any long-side method that works that great in a bear market. Very few stocks, even value stocks, can survive the wrath of a true bear decline.

The best leading stocks generally see their big performance a year or two into a bull market. I focus on those stocks in order to make a huge return in a relative short period of time. There is no need to be in the market all the time; in fact, I think there is grave danger in doing so. It’s like going out on a boat trip: you want to go out when the sky is blue and the seas are calm. Sure, you could stay out there and brave a hurricane and there would be a chance you’d make it through, but why would you want to do that, and how many times would you survive those conditions?

Trade Like Michael Jordan

  
  Education
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How does basketball exactly relate to golf and perhaps trading successfully? Well, you’re going to soon find out!

In this article, Michael provides 10 rules for maximizing competitiveness and if you’ve been trading for any period of time, you’ll instantly recognize their value to trading successfully. In fact, here’s my personal take on how Jordan’s rules directly relate to making us all better traders:

  • Focus on the little things.  It is true, if you focus on the little things (finding and exploiting attractive entry points, proper position sizing, sticking to stop loss levels, unbiased chart analysis, etc.) they’ll all add up to contribute to your big picture success and bottom line. When the pressure is on and tension and stress is high, traders must rely on the basic skills they’ve developed through constant practice to make the tough trades. That practice and constant dedication to improve oneself will make a world of difference when opportunities are the most plentiful.

  • Have total confidence in what you can do.  As Michael says “If you have 100 percent confidence that you can pull off a shot, most of the time you will.” I couldn’t agree more. While we all make trades based on imperfect information and conflicting data, at all times we must be 100% confident in the trades we make. There’s a good reason why so many traders say you must always “trade to win” instead of “trading not to lose.” There’s a huge difference. In addition, the only way to have confidence you really need in the trades you make is to actually do the work the leads up to making those trades in the first place.

  • Don’t think about the prize; think about the work.  Novice traders focus on how much money they stand to gain or lose from trading while great traders focus simply on the process of trading well and to their best of their ability. That’s a key difference. Sometimes a good trader will be very unhappy even if they make money in a particular trade because they didn’t trade it well or the trade violated their strategy and they got away with it whereas a novice trader will simply focus on the profits or losses no matter how and why they earned them. Money, and the rewards the flow from successful trading, are a low priority to the successful trader – instead trading well and trading even better the next time are the two top priorities. (more…)

It's not the trade, it's the battle

  
  Education
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Too many traders believe that their last trade is a reflection of just how good of a trader they are (but they are the only ones who feel that way about themselves). This boils down to one word – expectation. If you expect to win all the time, or even the vast majority of the time, you’re setting yourself up for a lot of heartache. That frustration, though, is the very same force that will truly make your negative perception of yourself a reality. And even a good trade can be damaging if you let it warp your disciplined approach. The fact of the matter is that this is a game of odds, and should be played over a long period of time. Focus on the war – not the battle.

15 Mistakes by Traders

  
  Education
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1) Always wants to be in the game .. more time means less money
2) Wants money quickly .. you can’t control the market 
3) Finds it very inexact – which system – how much to risk – there are no hard and fast rules .. 
using a positive expectancy system with a clear edge will work out over a period of time if risk is proportionate
4) Finds it boring to trade small
Since no trade is a sure thing and even with positive expectation, it is possible to have a string of 10 consecutive lossees. It is important to risk less to give probabilities a chance to work in your favour
5) Wants immediate gratification – can’t wait
You don’t control the market
6) Keeps looking for new indicators/systems – the sure system
There is no definiteness..
7) Keeps trying new indicators
Nothing works all the time
8) Keeps switching between different techniques – he wants the techniques to work 100% of the time
Nothing works all the time.. Instead stick with a few proven systems and trade them all the time
9) Very Adventurous
You are here to make money and not for thrills
10) Wants to make big money overnight.. Multiple positions – excess leverage
Since you can never be sure if the next trade is a winner or if the next 10 trades are losers, why would you want to risk too much (more…)

10 Secrets of Trading

  
  Education
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A ROBUST METHOD: Much like a casino you must have an edge in your trading. Your system must be a robust one with the odds on your side either through many more wins than losses with equal capital at risk or small losses and big wins over a long period of time.

CONFIDENCE: You must have the confidence in your method that it is a winner in the long term through proper research or back testing. You also must have confidence in yourself to execute the plan.

DISCIPLINE: A trader must have the discipline to take their predetermined entries and exits. The trader is the weakest link in trading no method works with out the discipline to execute it in a live market.

TRADING PLAN: A trader has to have a plan on what they will trade, how much they will trade, the time frame they are trading on and rules that they will follow for entries and exits.

EMOTIONAL CONTROL: The winning trader must have the ability to not make decisions based on emotions. Winning traders still feel emotions but have the ability to stay on their trading plan instead of making decisions based on fear or greed in the heat of market action.

RISK/REWARD: The best trades to take have the potential to win $3 for each $1  risked. With this ratio a trader can lose on two trades our of three and still make money. This is a defined edge and keeps the trader looking for only the best instruments to trade and taking the best entry points as part of their system.

EGO CONTROL: The destruction of many traders is when they believe they do not need risk management or rules and that they are smarter than the market and begin taking trades based purely on their opinions instead of principles, price action, and chart action. Good traders are humble traders.

RISK OF RUIN: The best traders understand the best way to ensure their survival in trading is with only putting 1% of their total trading capital at risk in any one trade either through great entries with tight stop losses or trading smaller position sizes. Nothing will determine a trader’s success more than their ability to survive a string of 10-15 losses in a row.

MASTER YOUR OWN METHOD: Trader know thyself, know who you are, the trading method that fits your personality and risk tolerance and become a master of that method. Do not wander around when it gets tough, be faithful to your edge. Be the best that you can be at what you are whether you are a day trader, trend follower, option trader, momentum trader, chart reader, technical analyst, or fundamentalist. I know of traders that got reach with any of these methods but do not know any that got rich trading multiple methods.  Pick one, master one.

PERSEVERANCE: Even with all the elements in place there will be rough months and even rough years for almost all traders. Sometimes right at the beginning of a new traders first plunge into the market the price action can act completely contrary to profits for that traders method. All the traders that ended up rich have one thing in common, they did not quit trading until they became rich.


Trading Rules

  
  Education
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  • The purpose – a good set of trading rules promote growth they do not create limitations.  Not trading during x period of time is not a rule, it is a limitation.  Do not get me wrong there are times when you need to limit yourself but that is not all times.  If you have a plan, you will be able to understand when you are most at risk of trading poorly.  Eventually, you can work through it.  Sometimes all it takes is being aware of it.
  • Simple- They need to be simple.  They need to hang over and direct all of your actions.  The only way you are going to remember and use them to your fullest ability is if you can understand them.  Rules are more simple than limitations.
  • Must apply– Rules or a trading plan are only as good as your ability to apply them.  Once again, you have to believe in them, you have to make them your own.
  • Cohesive- All rules needs to eventually act as one.  Each rule dependent on another.  This will make it easier to follow and understand which one you are breaking.  This also makes the application easier.

How to become contrarian?

  
  Education
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contrarian11. Come to the market with a trading plan. Most traders don’t have a plan built around high odds trade set ups. Thus, they trade random patterns.

2. Put in the necessary work. You can’t be like most traders and just show up to the markets expecting to make big money in a short period of time. Don’t be like most traders; become contrarian. It takes hard work and study. Prepare yourself to trade well.

3. Enter on reactions, not on breakouts. Most traders see the market begin to move and then jump in. These dog-piling events are made-to-order for professional traders to act. They unload when the herd is buying, and stock up when it is selling. Adopt a professional’s attitude and look to sell into strength and buy into weakness.

4. Work on the mental side of trading, not just the technical side. Understanding how to read the chart is vital, of course. But it is not enough. Once the technical side is learned, trading becomes 100% psychological. Most traders think psychology is unimportant until it is too late. Be contrarian and put time in to learning the mental skills needed to trade well.

5. Keep learning. Not just about the markets but about your own performance, too. Most traders take a losing trade and sweep it under the rug. They try to forget about it. Likewise, they don’t bother to study their winning trades. They have little idea of why one trade worked and another didn’t. Be contrarian: review your trading and keep a journal.

Becoming contrari (more…)

The strategy of one of the best-performing hedge fund

  
Analysis, Education
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Norway is not what you would call a hotbed for hedge funds. Due to restrictive regulatory requirements and an almost uniformly long-only focused investor-community, there are only a handful of hedge funds managed out of Norway.

Despite this, Norwegian Warren Short Term Trading (WST) is one of the best performing hedge funds in the world. Since the fund’s inception in November 2011, its return has been 46.7% with a net 2012-return of 29.1% after fees (pdf).

WST hedge fund manager Peter Chester Warren explains how this works:

Our hypothesis is that most of what happens in the markets during a single day is noise created by orders, rumors and other temporary influences and that there is no informational value in this. Unlike our other funds, we do not try to separate the signal from the noise in WST but accept it for being just noise. … Time is instead spent on creating mathematical and statistical models meant to uncover short-term human behavior.

This is a significantly different strategy than that of most other hedge funds, which typically own assets over a period of time. WST rarely owns assets longer than a few minutes or sometimes even a few seconds.

And every day when the asset manager goes to sleep, he holds zero assets. Then, when he gets back in to the office the next day, he starts from scratch again, looking for tiny opportunities in the markets using a combination of correlations, math and experience. (more…)

How to Trade in Stocks by Jesse Livermore

  
  Education
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howtotrade
I will just write what  the market is going to do tomorow, for that just have some patience  for time being till then  few quotes from Jesse Livermore’s book How to Trade in Stocks (one of my favorites, originally written in 1940). Pay particular attention to the first quote!

  • “Successful traders always follow the line of least resistance – follow the trend – the trend is your friend”
  • “Wall Street never changes, the pockets change, the stocks change, but Wall Street never changes, because human nature never changes”
  • “Just because a stock is selling at a high price does not mean it won’t go higher” (more…)
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