Trading is being young, imperfect, and human – not old, exacting, and scientific. It is not a set of techniques, but a commitment. You are to be an information processor. Not a swami. Not a guru. An information processor.
Participating in the markets can only develop your trading skills. You need to become a part of the markets, to know the state of the markets at any given time, and most importantly, to know yourself. You need to be patient, confident, and mentally tough.
Good traders offer no excuses, make no complaints. They live willingly with the vagaries of life and the markets.
In the early stages of your trading career, pay attention not only to whether you should buy or sell but also to how you have executed your trading ideas. You will learn more from your trades this way.
Never assume that the unreasonable or the unexpected cannot happen. It can. It does. It will.
Remember, you can learn a lot about trading from your mistakes. When you make a mistake – and you will – do not dwell on the negatives. Learn from the mistake and keep going.
Never forget that markets are made up of people. Think constantly about what others are doing, what they might do in the current circumstances, or what they might do when those circumstances change. Remember that, whenever you buy and hope to sell higher, the person you sell to will have to see the same opportunity at that higher price to be induced to buy.
Traders who lose follow one of several typical patterns. Some repeatedly suffer individual large losses that wipe out earlier gains or greatly increase a small loss. Others experience brief periods during which their trading wheels fall off: they lose discipline and control and make a series of bad trades as a result.
Wise traders make many small trades, remain involved, and constantly maintain and sharpen their feel for he market. For all of their work, they hope to receive some profit, even if it is small in terms of dollars. In addition, continual participation allows them to sense and recognize the few real opportunities when they arise. These generate large rewards that make the effort of trading truly worthwhile.
At the end of the chapter he lists specific observations that have a high enough probability of reoccurring he considers them rules:
- If you find yourself holding a winning position, adding up your profits, and confidently projecting larger gains on the horizon, you are probably better off exiting the trade. The odds are that the trade has run its course.
- When entering a trade with a market order and your fill is clearly better than expected, odds are it will end up being a losing trade. Good fill, bad trade. Get out!
- If all your ‘trading buddies’ agree with your expectations regarding the next big move, it probably will not work out. If everyone’s conviction level is as strong as the consensus, do the opposite.
How about after you have a few winning trades, days, or weeks in a row? Do you trade better or worse? Breaking down your performance as a function of recent performance will tell you a great deal about how effective you are in coping with risk and reward.
The other excellent indicator of whether your coping is working for you is your emotional experience during trading. If you find that anxiety, overconfidence, frustration, and stress are pushing you into poor decisions, you know that you’re not coping well with the uncertainties of markets.
Finally, it is helpful to identify the sequences of coping behaviors that you utilize when you’re making good decisions and the sequences when you’re trading poorly. Knowing how your individual coping responses come together to form coping strategies can help you cultivate your coping strengths.
Tracking how you deal with challenges when you are at your most effective enables you to create a mental model of that coping that you can call upon during periods of high stress. We cannot avoid the stresses of trading, but those do not have to generate distress and biased decisions.Take a look at how well you trade after a position has gone against you. Do you trade better after a drawdown or worse?
Iam tracking Indian Stock Market and Global Market since 1992.Yes after 17 years ..I had seen these are two real facts of Trading.
#1: Small-range market periods lead to large-range market periods. Low volatility breeds high volatility, which in turn leads to low volatility.
Just about the time everyone is resigned that market conditions will never change is exactly when conditions will change.
#2: Trading is a business where you can never be right. Never. No matter what we do, our mistakes will always outnumber our correct decisions. That’s why grading ourselves on every minute` decision will come up with more of a batting average score than college test score.
Mistakes can always outnumber correct actions… so long as correct actions outweigh mistakes. It ain’t the size of our right or wrong actions that counts: it’s how much they weigh in $$ values. Size does matter.
The great news is, as traders we never have to be perfect. We don’t even have to be 50% perfect. We only need to maximize our wins and minimize our losses. And we only need to win once per day, more days than not to be good. Just barely profitable = the top ten percentile of our profession. Anything beyond that is outperforming 90% of the field.
The way you respond to winning and losing periods will depend largely upon your explanatory sytle.How do you ex-plain misfortune ?How do you explain good fortune ?In short ,are you basically optimistic or pessimistic in regards to trading ?
When a good thing happens to an optimist ,he says it’s permanent ,pervasive and personal.When a good thing happens to pessimist ,he says it’s temorary ,specific ,and not personal.Conversely ,when a bad thing happens to an optimist ,then he says it’s temporary ,specific ,and not personal.When a bad thing happens to a pessimist ,he says it’s permanent ,pervasive ,and personal.
Losses are a simple cost of doing business. Don’t try to justify a bad trade by convincing yourself that it will sooner or later turn into a good trade. Accept losses easily! Successful traders are able to ride through downturn periods. The confidence in their methods reassures them about their future success.
The markets offer endless and plentiful possibilities. Missed opportunities exist only in your mind. Prices keep changing and generate other opportunities. The goal of trading is make a net profit after a sequence of trades. It is, therefore, necessary to accept some losses and to look forward without punishing oneself.