“Making money is easy, it is keeping it that is hard.” Keeping the profits is what successful trading is all about. It’s not about making money. It is about risk management. Good risk management translates into good profits. Great risk management translates to great profits and a long-term career. So what about the herd mentality? You have all heard about it over the years. Psychologists talk about it all the time, but how does it play out in the applied trading world? The cliché is that following the herd is dangerous – bad for trading and leads to huge losses. But my perspective is different and one that states that following the herd is bad only if it was not YOUR game plan. You see, traders don’t mind losing money. That’s right. They don’t. What they mind is losing money doing stupid things. And one of the stupidest things a trader can do is to follow someone else’s game plan instead of their own. If you are going to lose money (and you are going to about half the time) then you might as well lose it doing the right thing, which is listening to YOUR ideas. Your instincts. Your research and YOUR game plan. Trading is not complicated. We make it complicated. Simplify the process. Break your trading down to its basics and follow your plans. And if your plans happen to be in line with the herd, then so be it. And if they don’t, that is fine too. The point is to be consistent in your approach and let the market come to you. |
Archives of “perspective” tag
rssEXCELLENCE TAKES HARD WORK
Paul Tudor Jones expressed the core of the trader’s work ethic in this year 2000 interview excerpt:
Q: What’s your competitive advantage as a trader?
A: The secret to being successful from a trading perspective is to have an indefatigable and an undying and unquenchable thirst for information and knowledge. Because I think there are certain situations where you can absolutely understand what motivates every buyer and seller and have a pretty good picture of what’s going to happen. And it just requires an enormous amount of grunt work and dedication to finding all possible bits of information.
7 Stages of Trading Wisdom
1) You feel no pressure to do anything 2) You have no feeling of fear 3) You feel no sense of rejection 4) There is no right or wrong 5) You recognize that this is what the market is telling me, this is what I do. 6) You can observe the market from the perspective as if you were not in a position, even when you are. 7) You are not focused on the money, but on the structure of the market |
Best Practices for Traders
1) Preparation to start the day and week: Having a clearly formulated strategy to guide trading decisions;
2) Keeping score: Using a trading journal to structure learning, document progress, and sustain positive motivation;
3) Managing risk and maximizing opportunity: Trading with more risk/size when trading well and clearly seeing opportunity and pulling back risk when drawing down, trading poorly, and perceiving little opportunity;
4) Taking breaks: Stepping back from markets periodically to gain fresh perspective, reformulate views, and tweak strategies;
5) Treating trading as a business: Limiting overhead, having a clearly defined plan to move toward profitability, focusing on distinctive areas of strengths and opportunity.
So much of what makes traders great is what they do between market sessions, how they do it, and how much of it they do.
Intuition
I have this interesting article I found. This is something we normally discuss in the 3-day live class. Read this real quick and as soon as your done, sit back and realize what just happened.
I cdnuolt blveiee that I cluod aulaclty uesdnatnrd what I was rdgnieg!
THE PHAOMNNEAL PWEOR OF THE HMUAN MNID
Aoccdrnig to a rseearch at Cmabrigde Uinervtisy, it deosn’t mttaer
in what oredr the ltteers in a word are, the olny iprmoatnt tihng is
Tahtthe frist and lsat ltteer be in the rghit pclae. The rset can be a
taotl mses and you can still raed it wouthit a porbelm. This is
Bcuseae the huamn mnid deos not raed ervey lteter by istlef, but
The word as a wlohe.
Amzanig huh?
Now I’m tinkihng aobut all the tmie I wtsead in sochol
lrenanig how to slpel……
What were you just reading? Nothing. Those were not words, they were letters mixed together that spelled absolutely nothing. Somehow each of us were able to create something out of nothing!? (more…)
Revolutionary Trading Psychology
Everyone thinks the market is a game of numbers. We use complex models, umpteen oscillators or retracement calculations and even a fundamental analysis of supply and demand – all based in numbers and about numbers.
But in reality, the numbers of the market are but an illusion.
Markets are only the vacillating prices that other human beings, using the same mathematically based tools, are willing to pay. For example, what can be expensive one day can be very cheap the next if a trend has ensued.
It is only a matter of perspective. And perspective is a matter of the judgments you make.
Judgments on the other hand will be influenced by both impulsive feelings and by intuitive feelings – or pattern recognition. The trick is to have all the data on the table so you can tell the difference.
In order to do this, us market participants need to do a couple of things – give up the notion of a iron-clad trading plan based purely on historical probabilities and replace it with a trading plan based on historical probabilities (yes you read that right) AND a systematic way to leverage your judgment under uncertainty. This way you can make a decision about factors that may now be in play for the future probabilities. I mean who thought the VIX could stay over 30 for 6 months? … I am just askin.
Now in order to do this successfully, you have got to learn to optimize your judgments – which means spending more time focused on deciphering and understanding them than you spend on deciphering and understanding the charts.
This is revolutionary trading psychology – and it works.
Mark Douglas makes some great statements
In the book Trading In The Zone, Mark Douglas makes some great statements that I truly believe are important. He states:
I AM A CONSISTENT WINNER BECAUSE:
- I objectively identify my edges
- I predefine the risk of every trade
- I completely ACCEPT the risk or I am willing to let go of the trade
- I act on my edges without reservation or hesitation
- I pay myself as the market makes money available to me
- I continually monitor my susceptibility for making errors
- I understand the absolute necessity of these principles of consistent success and, therefor, I always follow them with confidence and joy.
What you’ll notice about his statements is that it is he is assuming that you have already done the first set of bullets up top; that you have already created a plan and you already have a set of RULES. Now you might ask, how do I know if my set of rules now will work next month or next year? GREAT question. The market dates back all the way into the late 1700’s. There is literally a few HUNDRED years of data. That’s why I say that back testing is KEY. Now that doesn’t mean that you need to back-test 200 years of data. Not even close. You want to back-test a reasonable time depending on your time-frame of trading. For example, if I plan on trading based on a daily system, then I might back-test the last 5-6 years. If I’m going to trade based on an intra-day 3 minute chart, I would probably backtest about a year. There is no way to KNOW what is going to happen, but trading really boils down to probabilities. Time and time again the same things tend to repeat themselves. Why do you think the markets tend do to the same things over and over. Why does it seem that certain stocks that are in the same class look the same from a chart perspective? How come a company will report great quarterly results, but still go down? It’s because there is a greater number of traders that BELIEVE that this is where an equity is too much or too little. Why do you think there are people who are talking about a “recession” right now? Again, it’s because the same things seem to be occurring that did prior to a previous recession and people have that BELIEF.
So what does all this mean? What can you gather from all this? Well, a few things actually. One is to make sure you create, find and organize a PLAN for trading. Think about it as if you wanted to open up a company. Do the research and find out how some of these traders got started and what they did. Once you’ve done that, write down your plan and look at your questions from up top. Once you can answer ALL of them, then you are moving toward being a consistently profitable trader. Then take a look at what Mark Douglas wrote. You have to own these statements mentally. You have to truly believe that you are a consistent winner because of all of the statements above.
Remember, you are starting a business, and if you want your business to succeed, you need to have a PLAN!
“Plan your trade, and trade your plan” – Anonymous
Are You Being Educated Out of Creativity?
Ken Robinson outlines how school systems appear to universally idealize mathematics while shying away from the arts, leaving those who are more creative to flounder. An interesting perspective to consider:
Must Watch it ,Instead of Watching Movie ,Cricket Match or TV Serials
5 Trading Pitfalls And Solution
The following are 5 common pitfalls I have seen traders experience and I have listed 5 practical solutions you can quickly implement to overcome these assassins to your performance.
Pitfalls
- 1. Focusing on the P & L
- 2. Losing objectivity while in a trade
- 3. Becoming emotional about a trade
- 4. Lacking confidence: exiting early, failing to put a trade on, not sizing up
- Difficulty adapting to a changing market (more…)
5 Trading Pitfalls and how to Solve Them
I have observed that Losing money doing the right thing does not destroy a traders’ mental focus. It is when they lose money doing the wrong thing…That is what truly eats at their soul and messes with their head.
With that said, the following are 5 common pitfalls I have seen traders experience and I have listed 5 practical solutions you can quickly implement to overcome these assassins to your performance.
Pitfalls
1. Focusing on the P & L
2. Losing objectivity while in a trade
3. Becoming emotional about a trade
4. Lacking confidence: exiting early, failing to put a trade on, not sizing up
5. Difficulty adapting to a changing market
Solutions
1. Quantify success base on the caliber of the trade (i.e. high quality entries/exits).
2. Continuously ask yourself, “is my original reason WHY I entered this trade still there?”
3. While you are in a trade, ask yourself, if I had no position on right now, what would I do? Buy? Sell Short? Do nothing? Then re-evaluate your trade size and direction.
4. Confidence should always come from within. Step#1: Write bullet list of data points proving WHY you are a skilled trader. Step #2: Prime yourself each morning by reading it over to yourself. Could be the most valuable 30 seconds you spend each day.
5. Flip your perspective by keeping track of what is not working (by default this tells you what IS working).