Archives of “profits” tag

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No Risk-No Gain

  
  Education
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Trading is ALL about managing risk and probability.  The risk part is easy, you can quantify your risk by setting a stop on all your trades.  Yes, a stock can gap through your stop overnight, so we can’t know are risk 100% for certain, but setting aside major overnight announcements and earnings, we can get a pretty good idea.  The probability part is a little more difficult.  I don’t have empirical evidence to support the patterns I trade on both the long and shorts side, other’s have done a decent amount of research, and I have read some, but at the end of the day I have always believed that so called voodoo of technical analysis is a different religion for everyone.  Technical analysis, being little more than the study of the psychology of the market, is interpreted by everyone differently, and therefore should not be seen quantitatively to a large extent, but as more of an art.  It’s just like a psychologist, you can go to 4 different guys and get 4 different answer to your issues, they will approach you in different ways, ask you different questions, it’s a feel thing.

Anyway, I want to make the point in this post that you’ve got to understand and accept the risk you are putting on when you make a trade.  I will review a trade of mine where I made a terrible mistake and foresake this principal, and it has cost me quite a good deal of profits over the last few weeks, especially give that my thesis was correct.  It’s not enough to have good ideas, you must execute them properly.

Wisdom from Market Wizards

  
  Education
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Tony Saliba

“How do you lose money? It is either bad day trading or a losing position. If it’s a bad position that is the problem, then you should just get out of it.”

“Clear thinking, ability to stay focused, and extreme discipline. Discipline is number one: Take a theory and stick with it. But you also have to be open-minded enough to switch tracks if you feel that your theory has been proven wrong. You have to be able to say, “My method worked for this type of market, but we are not in that type of market anymore.”

“Until recently, I set goals on a monetary level. First, I wanted to become a millionaire before I was thirty. I did it before I was twenty-five. Then I decided I wanted to make so much a year, and I did that. Originally, the goals were all numbers, but the numbers are’t so important anymore. Now, I want to do some things that are not only profitable, but will also be fun.”

Dr Van K. Tharp

“The composite profile of a losing trader would be someone who is highly stressed and has little protection from stress, has a negative outlook on life and expects the worst, has a lot of conflict in his/her personality, and blames others when things go wrong. Such a person would not have a set of rules to guide their behaviour and would be more likely to be a crowd follower. In addition, losing traders tend to be disorganized and impatient. Thet want action now. Most losing traders are not as bad as the composite profile suggest. They just have part of the losing profile.” (more…)

Mental Toughness

  
  Education
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The mental part of the game. Its an aspect of trading that can easily be ignored, we all choose how we approach this game. Some see failures as opportunities to learn and progress, while others see them as outright failures and road blocks which should be avoided at all costs. Its all about attitude. 
 
I feel that trading should be ‘easy’ It should be effortless and without conflict. If we are going to be in this game for 20+ years. I feel its important to make the experience as easy as we can. We shouldn’t be ‘fighting’ with the market, in the boxing ring, hoping, fearing and stressing. 
 
There is RISK management, but SELF management is equally as important. When we are actively trading the market, we are free to make buy and sell decisions whenever we want. The tough part is consistently making the correct buy/sell decisions. These decisions come with conflict!
 
 
Taking Profits

So this is the hardest part of trading. It can be made simple if we accept a few hard facts. 
 
1. You will never sell at the top. 
2. Your going to be wrong when you sell. 
 
This is fact. As soon as you sell, the stock will probably keep going up. You may look at it 5 months later and its up 100% since you sold it. Point is, when you sell, your probably going to be wrong. This creates a conflict. 
 
As humans, we do not want to be wrong. We seek perfection, we want to nail the top! It can help explain why people run up stocks 20% to watch them come all the way back down to break even. The reason why they did not sell is because they are afraid to be wrong. By selling you are forced to draw a line under your mistake. But being wrong in the stock market is inevitable.  (more…)

Day Trading Mistakes

  
  Education
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There are some major day trading mistakes that just about every new trader will make early on in their career.  The ones who survive are those who can recognize these mistakes and take corrective action.

The first mistake many day traders make is to skip the planning phase of the day or a trade.  Every day you sit down in front of your monitors you should have a general plan for the day.  You should understand the major trends and support/resistance of the major indices, and the stocks you plan on trading.  In addition to that, once you see your stock setting up for a trade you should have a plan that includes an entry, a target and a stop-loss before you even pull the trigger on the trade.

Another mistake that we often see in day trading is the inability to exit on a losing trade.  If you have issues with getting out of the market when your pre-planned loss has been hit on your own, try using stop-loss orders.  Never. Never ever ever move a stop loss order once it’s been placed.  This requires some discipline but it will save you tons of money in the long run.  You should never be hoping that your stock will turn around, and go where you expected.  You should be executing your plan to the letter.

On a similar note, you also never want to move your targets.  If you keep moving your target away from the stock’s current price, you’re never going to take your profits.  A typical day trading exit strategy is to take profits at predetermined levels as you proceed into green territory.  This means that before you’ve entered the trade you’ve chosen two or more targets.  You exit a portion of your trade at each target.  Now, if you think your stock is going to trend for the day, you can plan for that too.  This is called a trade-to-hold.  It doesn’t mean you move your target, but rather you try to stay in the trend by setting a trailing stop.  A trailing stop can either be automatically set at a certain percentage or point value behind the stock price, or you can mechanically keep moving your stop loss up to obvious points of resistance or support behind your trending stock. (more…)

7 Crucial Points for Traders

  
  Education
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  1. You don’t choose the stock market; it chooses you.  A little bit of early trading success can have a profound effect on a person’s soul.  If it does choose you, you’ll have to accept that your life and investing will become forever connected.
  2. Your methodology must provide an unshakeable foundation that you believe in totally, and you must have the conviction to trade based upon it.   If your belief is tentative or if you don’t have complete faith in your methodology, then a few bad trades will destabilize and erode your confidence. 
  3. A calm mindset that can focus on the execution and not on the outcome is what produces profits.  It takes total emotional control.  You must maintain your balance, rhythm and patience.  You need all three to stay in the game.
  4. The markets are always conniving with ingenious techniques to get you to lose your patience, to get you frustrated or mad, to bait you to do the wrong thing when you know you shouldn’t.  A champion doesn’t allow the markets to get under his skin and take him out of his game.
  5. Like a great painting, all good trades start with a blank canvas.  Winning traders first paint the trade in their mind’s eye so that their emotional selves can reproduce it accurately with clarity and consistency, void of emotions as they play it out in the markets. (more…)

George Soros – "It's not whether you're right or wrong…"

  
  Education
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The full quote – “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”

Soros’s style of trading is very unforgiving and he is always ready to admit when he is wrong and cut his losses. Admitting one’s mistake is one of the key things to successful trading – he or she will be psychologically prepared to take action to reduce their losses without much delay.

How many of us always hold on to unrealized losses, and hope or even believe that the stock will regain its price? I guess many of us are guilty of that. Some stocks drop in price for a reason and there are even more reasons for them to drop further until you realize how bad your unrealized losses are!

As Soros take huge positions and high leverage in his trades, he has to be decisive to cut loss so as to lose as little as possible when he is wrong. On the other hand, when he is right, he make sure his profits can more than overcome his losses several folds. He understands he cannot be right all the time – the principle is to minimize your loss when you are wrong and maximize your profit when you are right.

Mirage

  
  Education
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mirage-Profits resulting from the violation of one’s own system or methodology constitute the most treacherous mirage of success. We’ve all been tempted at one time or another to suspend our collection of pre-defined rules (so painstakingly accumulated, yet so easily put aside) for the possibility that for this one particular moment, distinguished from all others, things might be different. And perhaps we were right — this time — and the register rung. Yet for those of us who have chosen the way of the System, the momentary suspension of discipline is a transgression beyond profit or loss. For no matter the what the outcome of the trade executed, the damage has already been done (more…)

4 Valuable Trading Lessons

  
  Education
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A). No matter how good you think you’re in the knowledge of the financial markets, your perception would change when your hard-earned money is at stake. No matter how much you’ve read about trading, you’ll realize that theory is different from practice when the market shows you its true color.

B). If you lose in the markets, don’t despair. It means you’re only paying tuition fees to the markets. Eventually, you’ll stop losing more than you gain and become a great trader and harvest profits from the markets on annual basis. It may take some time and perseverance to achieve this. Just make sure you learn from your mistakes and never repeat them.

C). The best strategies are trend-following strategies. One of the best trading methods is to buy pullbacks in an uptrend or sell rallies in a downtrend. Some indicators can be used to attain this aim (like moving averages). It pays to go with the overall trend. When a trend changes, it must be confirmed before one starts going with it.

D). It is very dangerous to trade without stop loss or to refuse to go out of the market that’s going against you. There are no other ways protect your account as a private trader. This is a way to deal with the permanent uncertainty in the markets. You mayn’t make profits sometimes, but you can make your losses to be as small as possible. By taking risk management serious, you’ll never lose a huge percentage of your portfolio. When you specialize on not losing, you’ll eventually make money and go ahead in the markets.

5 Trading Wisdom

  
  Education
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“Never let the fear of striking out get in your way” – Babe Ruth

“If you can’t take a small loss, sooner or later you will have to take the mother of all losses” – Ed Seykota

“Don’t think about what the market is going to do. You have absosutely no control over that. Think about what you are going to do if it gets there.” – William Eckhardt

“I turned from a loser to a winner when I was able to separate my ego needs from making money. When I was able to accept being wrong. Before that, admitting I was wrong was more upsetting than losing money” – Marty Schwartz

“The worst mistake a trader can make is to miss a major profit opportunity. 95% of the profits come from only 5% of the trades” – Richard Dennis

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