- You must have faith in yourself. You must believe that you can trade as well as anyone else.. This belief arises from doing your homework and staying disciplined in your system. Understanding that it is not you, that it is your system that wins and loses based on market action will keep the negative self talk at bay.
- You must have faith in your method. You must study the historical performance of your trading method so you can see how it works on charts. Also it is possible to quantify and back test mechanical trading systems for specific historical performance in different kinds of markets.
- You must have faith in your risk management. You must manage your risk per trade so it brings you to a 0% mathematical probability of ruin. A 1% to 2% of total capital at risk per trade will give almost any system a 0% risk of ruin.
- You must have faith that you will win in the long term if you stay on course. Reading the stories of successful traders and how they did it will give you a sense that if they can do it you can to. If trading is something you are passionate about all that separates you from success is time.
- You need faith in your stock. It helps in your trading if you trade stocks, commodities, or currencies that you 100% believe in. Traders tend to have no trouble trading a bullish system with $AAPL if they believe it is the greatest company to ever exist and will go to $500 within six months. It is much easier to follow an always in trend reversal system with Gold if you believe it tends to trend strongly one way or the other. Of course you have to follow a defined system and take the signals even if it goes against your opinions but believing in your trading vehicle helps tremendously.
Archives of “risk management” tag
rssTrading On Fear & Panic
First, no matter what, as a trader it is your #1 job never to put yourself in a “panic” position. No trade, no matter what you think of its future potential, outweighs that rule. If you trade for a living, your goal is always to “live to trade another day” which means tight risk management and taking every step to avoid this situation.
On every trade I make, I know where I have to exit no matter what before I make the trade. If I can’t figure that out, then I don’t make the trade. I learned, like you are right now, that trying to figure out an exit after you’re down significantly in a position never is to your advantage. Right now, you’re emotionally connected to that trade, if not trapped by it. (more…)
The Top Ten Trades of All Time
What were the greatest trades of all time? Who made them? Here is a list of the who, what, when, where, and how of the greatest trades that were ever made.
While the risk management while executing many of these trades is not what many traders would want, we can see many of these as trend trades and the dangers of fighting the trends. These trades were not all entered into at one time, most of them were built slowly and grew by adding as profits accrued. Most were also watched closely with and eye on the exit button when a true reversal began. Livermore made many probing shorts that he had to stop out as the bull market reversed off support and continued upwards after appearing to roll over. Some of these traders had the sell button ready to push at a seconds notice in case a reversal knocked them out. Some could have been ruined with a little blind sided government intervention that modern day traders are faced with now. But you can not argue with the profits and many of these traders have very long proven records, these were not random trades and they did not just get lucky, most of these were the great play that they landed after decades of research, study, and a life time of great trading.
1. John Paulson’s bet against sub-prime mortgages made his hedge fund a cool $15 billion in 2007, that is billion with a ‘B’. he is only one of a very exclusive club that was able to make this call and win with it. That was a call of a lifetime that everyone was blind to even deep into the crises.
2. Jesse Livermore’s call on the Crash of 1929, Jesse Livermore did not need any computer models, technical indicators, or derivatives to make $100 million dollars ($1.2 billion in today’s dollars) for his own personal account during a time when everyone was bullish and then almost everyone lost their shirts. It was an amazing day when Jesse came home and his wife thought they were ruined and instead he had the second best trading day of anyone in history.
3. John Templeton invested heavily into Japan during the 1960s, when Japan was beginning its three-decade long economic miracle, Templeton was one of the country’s first outside investors. At one point, he boldly put more than 60 percent of his fund in Japanese assets.
From its founding in 1954, his Templeton Growth Fund grew at an astonishing rate of nearly 16 per cent a year until Templeton’s retirement in 1992, making it the top performing growth fund in the second half of the 20th century. (more…)
The Best 10 things George Soros Ever Said About Trading
On September 16, 1992 – later dubbed “Black Wednesday” — the day the British government abandoned the European Exchange Rate Mechanism (ERM), and the pound was devalued by 20% George Soros made over $1.2 billion on his short sterling trade and was dubbed “The Man Who Broke the Bank of England.” His Quantum Hedge Fund has returned about 20 percent a year, on average, since 1969. These are amazing results, and some of the best ever achieved. Many of the years he was personally running it he had 30% returns and two years returned an amazing 100%.
Risk Management
“I’m only rich because I know when I’m wrong…I basically have survived by recognizing my mistakes.”
“My approach works not by making valid predictions but by allowing me to correct false ones.”
Trader Psychology
“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.”
“The markets are always on the side of exuberance or fear. It’s fear and greed. Right now greed has the better of it, which is rather nice (for investors) as long as it doesn’t get out of hand,” (more…)
The Universal Principles of Successful Trading
A book review for Brent Penfold’s book ‘ The Universal Principles of Successful Trading: Essential Knowledge for All Traders in All Markets”
This book is excellent for traders that are ready for it. You need a foundation in trading to understand its importance and take the principles seriously. Once you are through the rainbow and butterfly phase of trading and realize that you will not be a millionaire in a year, this book will help you get focused and get serious about your trading and what really works.
Here are the six universal principles of successful traders:
1). Preparation
Author Brent Penfold is in the minority believing risk management is the #1 priority in trading. Brent believes that once you get your trading system and position size in place you must use the amount you will risk on each trade to determine your risk of ruin. The book shows exactly how to figure this out using Excel. His point is that if your risk of ruin is not zero then you will eventually blow out your account. Risking 1% to 2% of your capital in any one trade usually gives you a zero percent risk of ruin but it also depends on your systems win/loss ratio. But the point is to test any system with 30 trades first then determine your risk of ruin.
2). Enlightenment
Your most important goal is to lower your risk ruin to zero. In trading, the trader with the best ability to cut losses short wins. Simple trading strategies work the best based on traditional support and resistance while trading with the trend on either retracements of break outs. The 10% of winners in the market win by treading where others fear, buying on break outs when they first occur and going short when a new low is made, or buying into the abyss when a security finds support or resistance and reverses at the end of a monster trend. (more…)
Risk is the Possibility of Loss
“Risk is the possibility of loss. That is, if we own some stock, and there is a possibility of a price decline, we are at risk. The stock is not the risk, nor is the loss the risk. The possibility of loss is the risk. As long as we own the stock, we are at risk. The only way to control the risk is to buy or sell stock. In the matter of owning stocks, and aiming for profit, risk is fundamentally unavoidable and the best we can do is to manage the risk. To manage is to direct and control. Risk management is to direct and control the possibility of loss. The activities of a risk manager are to measure risk and to increase and decrease risk by buying and selling stock.”
“Risk is the possibility of loss. That is, if we own some stock, and there is a possibility of a price decline, we are at risk. The stock is not the risk, nor is the loss the risk. The possibility of loss is the risk. As long as we own the stock, we are at risk. The only way to control the risk is to buy or sell stock. In the matter of owning stocks, and aiming for profit, risk is fundamentally unavoidable and the best we can do is to manage the risk. To manage is to direct and control. Risk management is to direct and control the possibility of loss. The activities of a risk manager are to measure risk and to increase and decrease risk by buying and selling stock.”Simple?
Trade Management & Quotes For Traders
Trade Management
- Let winners run. While momentum is in phase, the market can run much further than might be expected.
- Corollary to that rule: Do not exit winners without reason!
- Be quick to admit when wrong and get flat.
- Sometimes a time stop is the right solution. If a position is entered, but the anticipated scenario does not develop then get out.
- Remember: if one thing isn’t happening the other thing probably is. Historically, this has never been good for me…
- Be careful of correlations. Several positions can often equal one large position bearing unacceptable risk. Please think.
Trading Quotes :
- I am responsible for risk management, money management, trade management, doing the analytical work and putting on every trade that comes.
- I am not responsible for the outcome of any one trade. Markets are highly random. I do not have a crystal ball. I am not as smart as I think I am.
- Risk management is the first and last responsibility. I can make almost any mistake and be ok as long as I do not violate my risk management parameters.
- Opportunity comes every day. Do not neglect the work. Must do analysis every day.
- Opportunity comes every day. Get out of poor positions. Move on.
- I am a better countertrend trader than a trend trader. Sometimes the crowd is right, and they will run me over at those times if I’m not quick to admit I’m wrong.
- If you’re going to do something stupid, at least do it on smaller size.
10 Questions for Traders
Traders must have rules and trading plans because in the heat of trading when emotions flare up that is when greed, fear, and ego can easily hijack the trader. Traders all have many different conflicting parts that can interfere with trading execution. The need to be right, the need to make money, the fear of loss, and the greed of making a lot of money can take over any trader that does not have a disciplined approach that is created before the day begins. Mechanical systems, trading rules, along with positions sizing and risk management factors can keep a trader safe from making huge mistakes.
Here are the top 10 Questions Traders must ask to protect them from themselves.
1. Where does the price of my trading vehicle have to go to prove I was wrong about my entry?
2. How much is the maximum I will lose on the trade if I am wrong?
3. What are my rules for entries?
4. How will I exit my winner to bank profits?
5. What is the current trend of the time frame I trade in?Where is my best entry point to trade in this direction? (more…)
An Interview With Mark Andrew Ritchie- Market Wizard (Must Read )
Mark Andrew Ritchie grew up in the Deep South, in an Oregon coast logging town and in Afghanistan, where he traded in the bazaar for kites, glass string and homing pigeons. He eventually became a pit trader at the Chicago Board of Trade, a founding partner of CRT (once the largest options trading firm in the world), a participant in Jack Schwager’s bestselling book “The New Market Wizards” (1994) and creator of the Ritchie Rule trading app.
After raising five kids with his dream woman, she engaged him to follow her dream working with orphans in Asia where he became a barefoot banker. He is Chairman of RTM2, a trading group, and lives near Chicago. He has authored many widely acclaimed books, including “God in the Pits” (1989) and “Spirit of the Rainforest” (2000). His latest book on trading, “My Trading Bible“, scheduled for release in September, is now available on Amazon.
Erico Tavares: Mark, it is a great pleasure to be speaking with you today. Your life has been an inspiration to many, as a market trader, family man and someone very involved in spirituality and philanthropy. What has inspired you to have such a keen interest in these often conflicting fields?
Mark Andrew Ritchie: I spent part of my childhood, aged 9 to 13, in Afghanistan. It was a unique experience, trading in the bazaar for strings, kites and pigeons with some very poor people. After returning to the US and trying to have a normal youth, tragedy struck and I lost my younger brother in an accident.
It has occurred to me, only recently in fact, that these two factors have been the most important in shaping my personal development. Throughout all these years I have never discussed them with any of my peers and friends. This is understandable as losing someone so close is a very sensitive topic, and the experiences in Asia were just too distant for any of my peers to have any discussion with me about it. But that’s why I am who I am.
Trader's Emotions
Despair = Losing Money – Trading Better
Do not despair look at your losses as part of doing business and as paying tuition fees to the markets.
Disappointment = Expectations – Reality
Enter trading with realistic expectations. You can realistically expect 20%-35% annual returns on capital with great trading. More than that is possible but unlikely.
Regret = Disappointment in a loss+ Caused by lack of Discipline
If you followed your trading plan and lose money because the market did not move in your direction so be it, but if you went off your plan and traded based on your feelings and opinions then you should feel regret and stop being undisciplined.
Enjoying your Trading = Winning Trades – Fear of Ruin
Trading is much more enjoyable when you are risking 1% of your capital in the hopes of making 3% on your capital with a zero chance of ruin. It is not enjoyable when you are putting a huge percentage of your capital on the line in each trade and are only a few bad trades away from your account going to zero.
Wisdom = Square Root of Experience through years of successful trading
To get good at trading you have to trade real money. Wisdom comes from putting real money on the line for years and proving to yourself that you can come out a winner in the long term.
Faith in your system = Belief through back testing + Experience of winning with it for years
While you have to hold the opinion of whether each trade is a winner or loser it is different for your trading method. A lot of emotional trading can be overcome when you do not have doubts about your method. When you hold an almost religious fervor over believing in your method, system, risk management, and your own discipline you will overcome many of the emotional problems that arise with other traders in the heat of action.