Being a professional trader requires a great deal of energy. Like all professionals, there will be times when you are expected to perform at a high level when you feel less than at the peak of your powers. Psychological and physiological effects of family crises and personal health problems, for example, can trigger fatigue and cloud your judgment. However, the most common cause of fatigue or burnout is overtrading. (more…)
Archives of “professional trader” tag
rssTRADING MANTRA'S
Even the best traders in the market have trading sessions that are less than optimal. Human nature dictates that we make mistakes, and trading the stock market is no exception. Subsequently, there is always room for improvement, whether you are a novice trader or a seasoned veteran.
- Stick to Your Guns – Don’t try to run from the market. The only way to boost trading profits is to stay in the game and keep trading. Running from the trades and the action will keep you out of the market, whether it is hot or cold. Sticking to your trading plan and enacting trading discipline are the keys to producing profits.
- Set Stop Losses and Take Profits – “Set and forget” trading is generally profitable. When you place each trade, remember to place your exit and stop loss, and then let the market be your guide. Have a preset limit of how much you’re willing to win and how much you can lose. Technical analysis will tell you the best price for selling (near resistance) and the best place for buying (near support). Support and resistance points are the best places to put limit orders. (more…)
Patience is a virtue
As a professional trader I still get all the urges to system chase and break the rules as much as anyone, but the key is learning how to control those urges.
This week has seen some fantastic set ups in the market, and I have known which way the price would likely move thanks to the powerful tools I have at my disposal, but the problem has been that the price just hasn’t been retracing to the levels that I have been waiting at.
This can cause some people to want to just jump in because they have been right about the overall direction the last 10 times, or even worse some people may even be tempted to enter the market without using a stop loss thinking that the price will come their way in the end.
These urges and acting upon them show a lack of patience and discipline and this is what the market punishes the most. (more…)
Jack Schwager’s “Hedge Fund Market Wizards” in Two Paragraphs
Nearly every professional Trader will agree that Jack Schwager’s “Market Wizards” series is required reading. And his latest in the series, Hedge Fund Market Wizards, continues the same tradition of excellence. I’ve nearly finished my first read-through. If you are time constrained (and who isn’t) and/or you haven’t yet picked up the book, I may be able to save you some time by offering this brief mock introduction to each Trader that nearly describes every interview in the book:
Over the past 10-15 years, Trader X has achieved an [insert mid-teens to mid-twenties]average annual return. While this return may not sound that impressive, consider that Trader X has never had a drawdown larger than [insert impressive sounding single-digit number]percent! However, Trader X’s Sharpe Ratio is extremely high. How could this be? Well, a shortcoming of the Sharpe Ratio is that it makes no distinction between upside and downside volatility and therefore understates the Trader’s true performance because volatility has been heavily skewed to the upside (which, presumably, most investors wouldn’t have a problem with).
How has Trader X achieved such an impressive Return/Risk track record? He lazer beams extreme focus to risk controls and never risks more than [insert some minuscule number]percent of his total portfolio on any individual trade. Combining these risk controls with his attention to seeking out asymmetric trading opportunities that have the potential to yield trading gains far in excess of the maximum risked to enter the trade is what separates Trader X from his pedestrian competitors.
There ya go, you’ve basically read all 15 chapters of Hedge Fund Wizards.
Now what do you think you need to focus on?
Five Stages of Trader Evolution
Gambler. This is the oldest trader’s ancestor. He was fairly naive, highly emotional and addicted gambler. The gambler perceived the market as his casino-like entertaining arena. He bet large and he bet often. His goal was to get rich quick. Most, if not all, of his capital was quickly distributed to more evolved traders.
Which stage are you at?
The mark of a professional Trader
- It is my fault. I traded this position too large for my account size.
- It is my fault. I didn’t stick to my own risk parameters.
- It is my fault. I allowed my emotions to dictate my day trading.
- It is my fault. I was not disciplined in my trades.
- It is my fault. I knew there was a risk in holding this trade into earnings, and I didn’t fully comprehend them when I took this trade.
Vigilance
Vigilance is the non-stop guarding and protecting of important things. In trading there is nothing more important than money. The Professional Trader takes his money very seriously and has given it a more serious term: “Capital”. Capital is everything to the winning trader. It is not just the end goal, it is the means and the source before, during and after the trades. The Professional Trader guards his capital very closely because it will allow him to trade today, tomorrow, next week, next month and next year and beyond. If capital is not protected at all times, then the entire effort for the year can be gone and future opportunities are severely limited. Vigilance in trading means holding the protection of your money, your capital as your constant highest priority. Properly protecting your capital includes starting with enough to trade wisely and be able to stay in the game when the inevitable downturns and losing streaks occur. (more…)