Seeing an opportunity and acting upon it are two different things.
• Price has memory. Odds are what price did the last time it hit a certain level will be repeated . . .
• Pay attention to price action, regardless of what the charts are saying.
• Look for a reversal at the same place you’re expecting a breakout or breakdown.
• Price action sets up against the majority; the best profits are often in the opposite direction of the way you’re planning to go.
• Add to your winners and cut your losers. ’nuff said.
• Opportunities come along all of the time. Wait for the best ones.
• Don’t overly anticipate or see things that aren’t there. Wait for your signals.
• The day isn’t over until the closing bell ring. The way it ends may be vastly different from how it begins.
• Your first job isn’t to make money. It’s to protect capital.
• Don’t rush to buy the lowest price or sell the highest price; It could get much lower or much higher before turning around. (more…)
Archives of “profits” tag
rssPsychological
The goal of any trader is to turn profits on a regular basis, yet so few people ever really make consistent money as traders. What accounts for the small percentage of traders who are consistently successful is psychological—the consistent winners think differently from everyone else.
The defining characteristic that separates the consistent winners from everyone else is this: The winners have attained a mind-set—aunique set of attitudes—that allows them to remain disciplined, focused,and, above all, confident in spite of the adverse conditions.
Those traders who have confidence in their own trades, who trust themselves to do what needs to be done without hesitation, are the ones who become successful.They
no longer fear the erratic behavior of the market. They learn to focus on the information that helps them spot opportunities to make a profit, rather than focusing on the information that reinforces their fears.
You don’t need to know what’s going to happen next to make money; anything can happen, and every moment is unique, meaning every edge and outcome is truly a unique experience.
The trader that it’s his attitude and “state of mind” that determine his results.
4 Trading Mistakes
- Don’t over-leverage yourself or have all of your money tied into one position. Keeping cash on hand is okay as a trader. These days brokers are offering extremely competitive margin requirements for day trading futures, but low margins can be a wolf in sheep’s clothing.
. - Don’t trade to trade. Understand that there are 3 positions you can take as a trader: a long position, a short position and a position to NOT be in a position. There will be plenty of trading opportunities that will come along. Don’t give money to the markets simply because you are bored!
. - Avoid trading a strategy without having a good understanding of how the strategy works. What is the typical winning percentage? What is the largest drawdown? In general, high winning percentage strategies have smaller average profits per trade. Lower winning percentage strategies might not have as many winners, but when you are a winner, you typically win big. If you expect your strategy to bring big profits without losses, you can also expect a check made out to “REALITY” to come your way any day.
. - Don’t get cocky after a few wins. The market WILL humble you and make fools out of those with egos.
Richard Donchian's 20 trading guides
General Guides:
- Beware of acting immediately on a widespread public opinion. Even if correct, it will usually delay the move.
- From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases.
- Limit losses and ride profits, irrespective of all other rules.
- 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.
- Seldom take a position in the direction of an immediately preceding three-day move. Wait for a one-day reversal.
- 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 the the chart formation.
- 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% profit, whereas an advance from 25 to 50 will net 100%.
- In taking a position, price orders are allowable. In closing a position, use market orders.
- Buy strong-acting, strong-background commodities and sell weak ones, subject to all other rules.
- Moves in which rails lead or participate strongly are usually more worth following than moves in which rails lag.
- 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.
Technical Guides:
- A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move. Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected. (more…)
Trading: The Difference Between Playing Offense & Defense
The sooner traders learn to carefully manage risk the better off they will be. So many new traders come in with only the thoughts of profits dancing in their heads. This is equivalent to a football team only focusing on scoring points and not planning their defense.In trading you must play both sides of the ball. You have to be able to score points against the market and not allow the market to score back those points on you.
Your entries are your offense and your exits are your defense.
Letting a winner run is your offense, cutting your loser short is your defense.
Your automatic buy stop is your offense and your automatic stop loss is your defense.
Buying a monster stock is an offensive move, planning on how you will exit with your profits is your defensive move.
Identifying a trend is your offensive play creating a trading plan on how to trade it is your defensive play.
Your choice on what to trade is playing offense, choosing your position size is playing defense.
Your watch list is playing offense choosing how much capital to risk on any one trade is playing defense.
In trading your wins are not permanent and your profits can be taken back, when you score you have to next ensure that you are not scored on. The goal of keeping your profits has to be far above the desire for making quick money with big risk.
Trading Psychology
Are you trading because you want to trade? Consider trading a business not a game.
Are you not trading? This is the opposite of trading too often. You may be so scared
of taking a loss that you avoid trading altogether.
If you get stopped out of several stocks, walk away. Paper trade until the profits return.
Follow the system. Would you be making more money if you followed your trading
signals? Understand why you’re ignoring the signals you receive.
Don’t overtrade. Sometimes the best place for cash is in the bank. You don’t HAVE
to trade.
Learn from mistakes. Review your trades periodically. It’ll uncover bad habits.
Focus on the positive. The loss your suffered today pales to the killing you made last
week.
Ignore profits. If you find yourself getting nervous about a winning trade or making
too much money, then concentrate not on the bottom line but on improving your
trading skills. Get used to making too much money.
Obey your trading signals. Otherwise, what are you trading for? Plan your trade and
trade your plan.
Don’t trade when you’re upset. This also goes for being too excited.
Abandoning a winning system. Don’t become bored with your winning system and
search for new, more exciting ways to lose money.
10 Essential Trading Words
1. Simplicity – have a simple, well defined way to generate trading ideas. Have a simple approach towards the market. You can’t simply take everything into account when you try to make an educated decision. Filter the noise and focus on several key market components. For me, they are relative strength and earnings’ growth.
2. Common sense – create a trading system that is designed on the basis of proven trading anomaly. For example, trend following in different time frames.
3. Flexibility – be open to opportunities in both directions of the market. Be ready to get long and short.
4. Selectivity – chose only trades with the best risk/reward ratio; stocks with the best set ups; it doesn’t make sense to risk a dollar to make a dollar.
5. Don’t overtrade – two or three well planned trades in a week (month) might be more than enough to achieve your income goals. Patiently wait fot the right set up to form and offers good risk/reward ratio.
6. Exit strategy – Always, absolutelly always have an exit strategy before you initiate a trade. Know at which point the market is telling you that you are wrong and do not hesitate to cut your losses short immediatelly. Don’t be afraid or ashamed to take a trading loss. Everyone has them. Just make sure that you keep their size to a minimum.
7. Let’s profits run – one or two good trades might make your month. One or two good months might make your year. Letting profits run is as important as cutting losses short. Bigger winners will allow you the luxury to be right in less than half of the trades and still be profitable.
8. Consistency – Stick to your method of trading ideas’ generation.
9. Specialize – Specialize in one or two distinct setups. It could be a combination of technicals and fundamentals, certain timeframe or special event as a trading catalyst, certain sector or trading vehicle.
10. Have a plan – Which are stocks that you will be paying special attention to – this week, today. Why those stocks? In which direction you expect them to continue their move? What will give you a clue for the beginning of the move? Follow them exclusivelly and enter without a hesitation when they give you a signal. Don’t just wake up and sit in front of your monitor without having a clue what are you going to trade today.
7 Deadly Sins of Trading
Perfectionism: There is no perfection in trading as far as making money on every trade or having a perfect system. All you can hope to be perfect at, is following your system, rules, and trading plan. A winning trade should be measured as one in which you followed all your preset guidelines. Even the best traders only average about a 50%-60% win rate at best over long periods of time. The key is having bigger winners than losers, not being perfect. Like in baseball where a .300 hitter can get into the hall of fame. A .500 trader in the market can become wealthy if his wins outpace his losses.
Fear: Faith in your system is the only way to overcome your fear of trading. You must complete enoughback testing on your system until you know that you have a valid edge over the market in the long term. You must see opportunity in trading not possible losses. You must take your systems trade signals each time and if you can’t overcome your fear of loss and failure then perhaps trading is not the best profession for you.
Pride: We are not our trading account and staring at our profit and loss too much is a major detriment in one’s trading. Traders must cut losses at their predetermined stop, not pridefully hang on trying to prove they are right. We must separate ourselves from the trading. A person’s value is not tied to a trade or performance record. If we followed our system then we can’t view that as a personal loss. Our system failed us. (more…)
A Delicate Balancing Game
“Damage control can prevent failure, but it will never elevate you to excellence.”
“Now Discover Your Strengths”, by Buckingham and Clifton
When I ran across this quote, I was stunned. “Is that true?” I pondered. Then almost immediately I said, “Of course.”
As traders we need to do both. We need to pursue excellence even as we maintain damage control. We must protect against undue loss even as we seek opportunities for maximum gain.
It’s an emotional, artistic, and technological balancing act summed up by the trading cliché, “Cut your losses, and let your profits run.”
It’s easier said than done. How many times have you skipped a promising trade because you sought to avoid loss? How many times have you jumped out of a winning trade to secure your current profits only to despair as the trade soars into the stratosphere without you?
Computers have been programmed to play checkers not to lose, but the set up turned out not to be sufficient. In order to succeed, the computer had to be trained to play to win.
Many traders have failed because they abhorred loss and feared consequent failure. Other traders have failed because they ignored the possibility of loss in their reckless hunt for gain.
Risk management is necessary, but if it is your primary focus, you’ll have a hard time getting to the pot of gold at the end of the rainbow. On the other hand, if all you think about is the possibility of gain and overlook the potential for loss, you could find yourself falling off a financial cliff.
Trading is a delicate balancing game where optimism requires a seasoning of caution, but the primary goal still needs to be excellence and profit.
Three Pieces of Trading Wisdom
1) Before you put your capital at risk, have a well-formed trade idea;
2) When your idea pays you out quickly, take some profits;
3) Don’t get caught up in individual trades; focus on profitability over a series of trades and days.