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Trade with Discipline

  
  Education
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“Without discipline, you will be unable to master your ego, create empowering beliefs, have faith, and develop confidence in your abilities. The lack of discipline will prevent your skill as a trader from progressing.”

Making an occasional winning trade, that ignores your trading plan, may provide short-term pleasure, but entering trades unsystematically can adversely influence your ability to maintain discipline over the long term. Why? When you stop following your plan, you are being rewarded for a lack of discipline. You may start believing that abandoning your plan is therefore not a big deal. Then, whether consciously or unconsciously, you’ll begin to think: “I was rewarded once; maybe I will be rewarded again. I’ll take a chance.” Positive outcomes from undisciplined trading are most often short-lived, and the lack of discipline will ultimately produce trading losses.

Who cares if the win is from my plan or not? It’s still a win, right! A win that results from following a trading plan reinforces discipline. A win that occurs by chance (deviating from your plan) will increase your bottom line temporarily, but may cause harm to your psyche and be responsible for future unexplained losses. It reinforces undisciplined trading. (more…)

Words of Wisdom

  
  Education
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These generally brief phrases often include such pearls of wisdom as:

“Buy low, sell high.”

This maxim describes profitable trading in a nutshell and represents what every successful trader aspires to do. Of course, this is much easier said than done.

“Let your profits run, but cut your losses short. “

Allowing a winning position to continue making profits while taking losses quickly can make up a solid trading strategy in itself, and it is a key element of just about any good money management plan.

Many successful traders apply this as a trading rule in their trading plans in one form or another, perhaps by having a minimum risk reward ratio where the anticipated reward on a trade is always greater than the risk taken.

“Sit on your hands when you don’t have a clue.”

Knowing when you do not know where the market is going and discerning when to stay out of the market because of difficult trading conditions or because of your individual portfolio situation can save a trader considerable money and frustration.

Remember, good trading opportunities eventually arise for those who wait for them patiently.

“No one ever went broke taking a profit.”

This seems a wise and yet somewhat limiting expression perhaps. Famous trader Jesse Livermore used to say this and then finish with “but no one ever got rich taking three or four points out of bull market”. Taking profits will always add to your account, but by “letting profits run”, a substantially higher profit can often be had.

“It’s never too low to sell or too high to buy.”

Typically, markets will continue moving in the direction of the general trend. When a high or low is made, often a sufficient amount of momentum will propel the price to an ever higher high or lower low.

“Price discounts all.”

The mantra of technical analysts, the saying refers to the belief that news about any event related to the trading instrument – whether it is related to current events or supply and demand – will already be included in the price of a currency.

“All news is old news.”

A variation on “Price discounts all”, this saying refers to the idea that the market has already moved to factor information into the currency pair’s exchange rate regardless of what the news that came out was.

“Buy the rumor, sell the fact.”

Buying the rumor means going long before a bullish news item ever makes it to the news wires for fundamental analysts to mull over. Trading activity then ensues based on this rumor indicating that an item of importance will soon be released. The trader wise to the rumor can take advantage of the release of this news by selling out their position once it becomes public.

“Plan your trade and trade your plan.”

Trading does not favor the scatterbrained over the long term, so having a comprehensive and objective trading plan which can be easily followed and implemented makes up a key component of any successful trader’s methods.

“The trend is your friend.”

Keeping abreast of the major trend in the market and following it by positioning according to its overall direction will tend to give a trader an edge.

“Markets go up the stairs and down the elevator.”

This saying refers to the slow and plodding nature with which markets often go up, whereas when prices decline, they tend to do it in a much faster and abrupt way. While less of a factor in the forex market, this is especially true of stock markets.

Basically, all of the above sayings contain valuable advice and trading wisdom that can be useful for just about anyone involved or thinking about getting involved in trading forex or any other market.

Five key for profitable trading

  
  Education
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There are five key things that make all the difference in profitable trading:

Focus on a system with bigger wins than losses, big wins makes robustness a much easier thing to find. A 1:3 risk/return ratio makes it much easier to be profitable even with more losses than wins.

Trade in the direction of the trend, in my experience buying dips in a bull market and selling into strength in a bear market is a much easier process than calling tops and catching falling knives.

Trade small versus your buying power, most systems fail because traders simple trade too big causing losses and being wrong to set them back far too much. Small losses are easy to come back from a string of big losses is fatal.

Trade price action not opinions. Be quick to cut losses and patient to ride winners. Getting stuck on what you think should happen could be fatal when the market disagrees with you.

Your goal as a trader is to find an edge over the 90% of traders that lose money, once you have that edge the more you trade the right signals the better chance you have of being profitable. Before you have an edge the volume of trades work against you as your luck runs out. 

Being Consistent

  
  Education
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Successful traders know that success means consistency, more than it means immediate profits. Of course traders want to make money, but to do that consistently, you may have to learn by dealing with setbacks and unimpressive gains. The trick is not only to make money off of trades but to learn WHY you made that money. And if you simply get lucky now and then, you haven’t learned anything you can turn into a consistent strategy of success over a career, or even a lifetime, of day trading.

That’s why successful traders bank on consistent profits. They know that ignoring the small-profit trades and angling for a “grand slam” is a sure way to lose money. No one can repeatedly predict huge gains on any one trade. But many people can and do predict a host of small-profit trades that create the same, if not more, profit than people who get extremely lucky once or twice. (more…)

Ten Ingredients to become A Great Trader

  
  Education
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It is all a game of risk management, mind, and a robust system. Everything else is just noise. 

  1. Passion for trading, only passion can fuel the work ethic needed to do the hard work that leads to success.
  2. Goal oriented traders succeed, if you know why you are trading and where it leads you may just get there.
  3. Perseverance: It is hard to lose if you never quit.
  4. Resiliency: The ability to come back from losses may be the secret to trading success.
  5. Back testing systems and methods before trading them speeds up the learning curve and side steps a lot of learning through real losses. (more…)

Guidelines from Donchian

  
  Education
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  1. Beware of acting immediately on a widespread public opinion. Even if correct, it will usually delay the move.
  2. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases.
  3. Limit losses and ride profits, irrespective of all other rules.
  4. Light commitments are advisable when market position is not certain. Clearly defined moves are signaled frequently enough to make life interesting and concentration on these moves will prevent unprofitable whip-sawing.
  5. Seldom take a position in the direction of an immediately preceding three-day move. Wait for a one-day reversal.
  6. Judicious use of stop orders is a valuable aid to profitable trading. Stops may be used to protect profits, to limit losses, and from certain formations such as triangular foci to take positions. Stop orders are apt to be more valuable and less treacherous if used in proper relation to the chart formation.
  7. In a market in which upswings are likely to equal or exceed downswings, heavier position should be taken for the upswings for percentage reasons a decline from 50 to 25 will net only 50 percent profit, whereas an advance from 25 to 50 will net 100 percent profit.
  8. In taking a position, price orders are allowable. In closing a position, use market orders.
  9. Buy strong-acting, strong-background commodities and sell weak ones, subject to all other rules.
  10. Moves in which rails lead or participate strongly are usually more worth following than moves in which rails lag.
  11. A study of the capitalization of a company, the degree of activity of an issue, and whether an issue is a lethargic truck horse or a spirited race horse is fully as important as a study of statistical reports.

Traders need 3 Keys

  
  Education
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#1 Trading is not about winning percentage, being right all the time, or predicting the future. What it is about is having bigger winners than losers. If you are profitable after each long string of trades then you are a winning trader in that time frame. You can make money through winning percentage as long as you keep losers small and you can make money through huge wins even with lots of losses. The key is not how many times you are right but the size of your winners versus your losers. That is the magic elixir of profitability.

#2 Trading is first and foremost about surviving, the vast majority of traders not only don’t make money but they lose most of their trading capital. The only way to have a long profitable trading career is to manage risk and survive a string of losses. If your trading losses are more than 1% to 2% of total trading capital per  losing trade you are in danger of blowing up your account with a string of losing trades or one big loss. To make the journey from new trader to successful trader you have to survive losing streaks and completely unexpected market action. Trading and betting big will eventually take you out of the game, it is only a question of when.

#3 Trading is one of the roughest things a person can do mentally and emotionally. Even if you win in the markets you have to keep up a large amount of personal human capital in perseverance, passion, dedication, focus, and faith in self and system. If you are missing one of these six psychological elements the odds will be against you. You have to cultivate your goals and drive into a vision of success that you are willing to pursue until you get it and pay the price as you go to have the prize you seek.

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