1)In panics there is almost nowhere to make money without taking excessive risk
2)Timing entries and exits to oversold & overbought conditions helps achieve low-risk/high-reward entries
3)There is no such thing as a safe investment
4)Markets are dysfunctional, corrupt, and have no oversight
5)To let a stock prove itself to me, prior to jumping in based on my analysis alone (more…)
Have a disciplined, detailed trading plan for each trade; i.e., entry, objective, exit, with no changes unless hard data changes. Disciplined money management means intelligent trading allocation and risk management. The overall objective is end-of-year bottom line, not each individual trade.
The trader has two emotions that must be controlled in order to become successful. I call them ‘the two sides of a coin’ and they are commonly known as FEAR & GREED.
The beginning or new trader will first encounter FEAR. There are two types of FEAR. The fear of losing money and the fear of being wrong.
The fear of losing money usually derives from a trader risking money that should be used for the rent, food, children’s education etc. ‘Scared money’ will render one incapable of pulling the trigger when a trade setup comes along. The only way to overcome this paralysis is to be well capitalized with funds that you can risk.
The fear of being wrong is simply that part of all of us that feels that to make a wrong decision is reflective on our personal competency. The cure for this is to simply realize and accept that losses are part of this game. Think about this? A baseball player needs to hit the ball once for every three times at the plate and this will get him into the Hall Of Fame. Whenever you feel the fear of being wrong, just remind yourself that… “My approach for trading has both historically and real-time produced over (number)% winning trades.” This will give you the confidence to step up to the plate and keep swinging. Also tell yourself that the only way to earn the big money is to get into the game. Have confidence in your trading system that when properly executed, it will make much more money than it loses.
So, why is GREED the flip side of fear?
Greed is caused by the fear of not making enough money. Traders who are greedy are often the exact opposite of the ones who are fearful. They have no fear and usually are very aggressive traders, which can get them into big trouble fast. Greed will usually lead to overtrading, failure to follow the trading rules, and not applying the system consistently. One of the biggest problems when greed sets in is the inability to know when to take profits. These traders are so bent on making a killing that they are never satisfied. If they have significant profits they don’t even think about cashing out, as they want more. This often leads to the inability to see the trade turning against them and they will allow winning trades to turn into big losing ones. (more…)
The rules are not hard to understand. Recognizing a profit from a loss is simple. If the rules are easy to grasp and a profit is distinguishable from a loss, where does the problem lie? What makes it so hard to apply the rules? There is something within each of us that has a power over our minds that prevents our acting according to what we have agreed is the proper course of action. That something is present in all of us and is very powerful, more powerful than anything I know. Let’s call it ego. Until we learn to get rid of our ego, we will never make money in the market consistently. Those who haven’t identified the ego’s ways will eventually be destroyed in the market because of their ego’s tendencies. It is just that powerful. The market rewards those who have subdued their egos. Those who rid themselves of their egos are rewarded greatly. They are the superstars of their fields. In the market, rewards come in the form of profits. In the world of art, masterpieces are the results. In sports, the players are all-stars and command enormous salaries. Every pursuit has its own manifestation of victory over the ego.
The MASTER TRADER…
…is rational. He does not trade for egotistical reasons.
…is skilled in self-mastery thus able to deal with market reality.
…is able to see through the noise in the markets and find low-risk, high reward trade opportunities.
…is hard working and has the discipline to follow through with well thought out plans.
…is committed to his methodology and able to cut losses when called upon to do so.
…is humbled by his need to rely on the support of others.
…is adaptable to market changes.
…is up to the challenge of the trading game. Enjoys profits and endures losses.
…is able to handle both success and failure without self-destructing.
Rosalene Glickman, Ph.D. offers views on “Optimal Thinking”:
“The quality of the questions you ask determines the quality of your life. When you ask the best questions of yourself and others, you invite the best answers. You can discover what “the best” means in whichever context you choose. You simply create the best path to your most desired outcomes.”
Most Profitable Questions:
* What’s my most profitable activity?
* How can I maximize the profitability of this activity?
* What’s the most profitable use of my time right now? (more…)
These precepts are trading and investing guidelines that give a compass heading to trading integrity.
I offer them to you in their raw form. Some may make sense, others not. Please feel free to question, challenge, refine and edit with your responses.
1. High probability setups with short profit targets
If you are not winning more than 75% of the time you’ll never make it as a professional trader. Whilst there are other components to success, he does make a very good point. The most common trading strategy employed by successful trader is to identify a high probability set up and couple that with an aggressive profit exit strategy that captures short term gains. For example, you might have a entry criteria that easily captures 15 points on average but you set your profit target at 6 points.
2. Adding to winning positions
Many people think all trades should lead to profit but you’ll find the most successful medium term traders on win 40-55% of the time. The difference between an amateur and a professional, when trading short to medium term trading systems, is their ability to maximum their cash on a trade when it’s winning. The Turtles, under the watchful eye o f Richard Dennis and Bill Eckardt, had a way to add to their huge winners up to 4 times. Very powerful. In order to maximize this strategy you will need to identify your R multiples which will be saved for another article.
3. Mechanical trailing profit stops
Knowing when to take profits can be the most mentally draining part of any trading system. Its not unusual to start trying to let profits run that the markets starts retracing and wiping out all your open profits. The way to overcome this emotional rollercoaster is to build mechanical trailing stops that maximize your profits on winning trades whilst minimizing giving back to much in open profits. (more…)
Desire and fear alternate in the minds of traders as they go through the day. But let me ask you whether desire or fear dominates your thoughts and feelings as you trade?
For many traders the primary emotion is fear. They fear loss: losing profits, losing money, losing equity and even their margin. Some fear losing their touch, their feel for the market, their focus, their luck, the respect of their boss, colleagues, or mate, or worse, their own self esteem.
Other traders are flooded with the emotion of desire. They look forward to what the day will produce. They like the thrill of the chase. They have a sense of unlimited potential and abundant opportunities for profit. They anticipate improving their skills, intuition, and understanding as they go through the trading day and week.
Keep in mind that desire is not greed. Greed is an inordinate wanting. It is excessive desire and comes from a sense of scarcity, a feeling that there is not and will not be enough. Desire is healthy: greed is unhealthy.
What you feel depends upon your mental focus. Do you place your conscious and unconscious attention on the possibility of loss or the probability (hopefully) of gain?
What you hold in your conscious attention colors your reality and becomes the quality and fabric of your life and trading. In your life, do you look for what’s missing, or do you pay attention to what you have and can create? Do you think about terrible things that have happened and could happen again, or do you think about wonderful experiences you’ve had and expect even better things ahead? Trading is a microcosm of life. What you do in life, you’ll do in trading.
You can through conscious volition change your focus from loss to gain. You can imagine failure or success. You can anticipate improving your skills and understanding, or you can worry about getting even worse. (more…)
