Trader know thyself, know who you are, the trading method that fits your personality and risk tolerance and become a master of that method. Do not wander around when it gets tough, be faithful to your edge. Be the best that you can be at what you are whether you are a day trader, trend follower, option trader, momentum trader, chart reader, technical analyst, or fundamentalist. I know of traders that got reach with any of these methods but do not know any that got rich trading multiple methods. Pick one, master one.
Archives of “risk tolerance” tag
rssWeakest Part of Trading
The weakest part of any trading method is the trader themselves. There are many, many, robust trading systems and methods that do make money in the long term. The problem is the trader having the discipline and mental toughness to trade one of them consistently. The vast majority of time it is not a system failure but traders that fail in this game through one of seven common errors. If you can understand these error and overcome them you could make a lot of money in the right market conditions.
- The trader must have the discipline to take the system’s entries and exits.
- The trader must have the discipline to take the stop loss on a losing trade when it is hit and not keep holding and start hoping.
- No matter the method the trader has to manage risk through proper position sizing, getting greedy and trading too big will blow up even the best systems.
- It is the trader that must have the perseverance to stick to the method even during losing periods, and also stick with trading until success is reached.
- If a trader can not manage their mind then the stress will break them, I have seen this happen many times. If you can’t handle losing you can’t trade.
- The trader must find a robust method, must understand why it has an edge, and must believe in their methodology.
- The trader has to know themselves and trade the method that fits their risk tolerance levels and own psychology.
The good news is that if none of these error fit you when you lose money in a trade then the market was just not conducive to your methodology, and it is not your fault so don’t dwell on it.
100 TRADING TIPS
1)Nobody is bigger than the market.
2)The challenge is not to be the market, but to read the market. Riding the wave is much more rewarding than being hit by it.
3)Trade with the trends, rather than trying to pick tops and bottoms.
4)There are at least three types of markets: up trending, range bound, and down. Have different trading strategies for each.
5)In uptrends, buy the dips ;in downtrends, sell bounces.
6)In a Bull market, never sell a dull market, in Bear market, never buy a dull market.
7)Up market and down market patterns are ALWAYS present, merely one is more dominant. In an up market, for example, it is very easy to take sell signal after sell signal, only to be stopped out time and again. Select trades with the trend.
8)A buy signal that fails is a sell signal. A sell signal that fails is a buy signal.
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Confidence, Discipline and Consistency
While day-trading is a great way to make a living when you are consistently profitable, it can also be the worse career choice if you consistently lose. Continue forward with system development, or working towards effective risk management, money management, or mastery of your trading psychology. Trading psychology means the big 3: discipline, confidence and consistency.The trading psychology takes precedence because it is needed to make sure that the other two are followed.
It takes a skilled trader to understand execute all of the things that are needed to be successful and earn a significant amount of profit doing this alone. Money Management is essential to preserve your trading capital and is simply a set of rules that governs how much money you have at risk. Take control of your trading Psychology and adhere to strict discipline in trading your developed and refined Trading System.
Building confidence on the system is extremely important as that is the only reason why you stick to the system during bad times. Day trading requires focus and discipline on the part of the trader with a high degree of risk tolerance since losing trades are numerous. (more…)
Preparation
There’s only one way to trade at the end of the day, not for recreation or thrill seeking, but with the business intent of running a successful business.
- Passion to participate in highly competitive environment, with uneven playing field
- Adequacy of capital
- Information gathering (technical)
- Market analysis (markets, sectors, stocks)
- Development of strategies (the edge)
- Cost control (trading costs)
- Ability to employ strategies that match risk tolerance
- Day-to-day preparation
- Trade entry, monitoring, and exit with discipline
- Monitoring progress
- Ongoing professional education and learning
Defining Risk
“Take a chance! All life is a chance. The man who goes the furthest is generally the one who is willing to do and dare. The “sure thing” boat never gets far from shore.”
Dale Carnegie (1888 – 1955)
In 1998 Economics Professor and Nobel Prize winner Paul Samuelson (1915 – ) noted that:
“Many people now believe that if they simply hold stocks long enough they will not, lose money for statistics have shown that since 1926 the U.S. equity market has not suffered a loss in any given 15 year.” (more…)
10 Mistakes
Don’t miss to Read …..
1. Failing to follow your own rules. Here we go again with the rules! Always rules! The reason we have rules is because the market has none of its own. Rules keep us focused and keep our emotions in check. Thomsett describes the market as a “dangerous place” that is “full of temptations, promises of easy money, and artificial excitement.” Sounds like the perfect place to have a set of rules!
2. Forgetting your risk tolerance limits. Risk tolerance refers to the amount of risk we can afford to take and are willing to take. As traders, we should expose themselves only to the amount of money we can afford to lose. What does that mean? For me, it means if losing X amount of money in a trade can affect how I eat this week then I am overexposed. It is the same with buying a house or a car: will these payments negatively affect my basic lifestyle? If the answer is yes then it may be best to suspend the pleasure of something new.
3. Trying to make up for past losses with aggressive market decisions. If we have a string of losers or one big loser then we can be tempted to make up the loss by doubling up or going all in on a “sure thing”, exposing ourselves to much greater losses. Keep in mind that in the market anything can happen, including losing all your money! Losses are best made up not with home runs and grand slams but with singles, doubles, and an occasional triple.
4. Investing on the basis of rumor or questionable advise. Chat rooms, mail solicitations, or pop-up ads that promise sure and fast profits are for fools and are not going to make anyone rich. “Making smart investment decisions invariably requires that you perform your own research, apply your own standards based on clearly identified risk standards, and do your homework directly.”
5. Trusting the wrong people with your money. “As a group, analysts’ advice has led to net losses for their clients.” Bottom line here is “anyone buying stocks and trading options should be making their own decisions and not relying on expensive advice.”
6. Adopting beliefs that simply are not true about the markets. “The market thrives on beliefs that, although strongly held, are simply not true.” When we believe that the market is there to make us rich if only we can find the secret to do so then we harbor false beliefs. When we believe that the market will always come back to make us whole, then we are working under the assumption of a faulty belief system. When we believe that the market makes the same logical sense as the world we are used to living and working in, then our beliefs are in direct opposition to the markets. The list can go on and on. Keep in mind here that the market is specifically designed to take advantage of human nature and those who trade by their emotions… human nature and emotions based on assumptions.
7. Becoming inflexible even when conditions have changed. We may have a great trading strategy that works in a trending market but when the market turns volatile our strategy can lose money. The same goes with a strategy that works best in a volatile market but not in a trending one. It is the ole’ square peg in a round hole experiment. It just won’t fit so we should not waste our energy trying to make it work. Know your strategy and know your market and you will know when to get in and when to stay out.
8. Taking profits at the wrong time. When the market starts working in our favor we tend to be very quick in taking profits but when not very slow in removing losses. On the one hand, we are afraid the market will take what little profit we have if we do not exit immediately with at least a small profit; on the other hand, we feel the market owes us something when it goes against us, therefore we hold on until it comes back. As hard as it may be the only way we can ever make money in the stock market is to let the winners run. Think about it this way: reverse what has become common practice so that the winners are allowed to do what the losers have been allowed to do and let the losers get knocked out quickly just like our winners have been. See if this makes a difference in the bottom line.
9. Selling low and buying high. “A worthwhile piece of market wisdom states that bulls and bears are often overruled by pigs and chickens.” In other words, we will never get anywhere in our trading is we are ruled by fear (at the bottom) and greed (at the top). Selling low and buying high is where the emotions step back in and where the market takes advantage of our human nature. Unfortunately, retail investors get the short end of the stick here as they are the last to get in (at the top) and the first to get out (at the bottom).
10. Following the trend instead of thinking independently. “Crowd mentality is most likely to be wrong. Crowds don’t think. They react.” This takes us all the way back to rule number one: have rules. One of the rules should be to follow our own thinking and not that of the crowd. By the time the crowd jumps on board, the move is usually over anyway! Hence, reaction instead of action.
Some really good lessons here as an old adage continues the provide the best lesson of all: learn from your mistakes!
7 Weakest Points of Trading
The weakest part of any trading method is the trader themselves. There are many, many, robust trading systems and methods that do make money in the long term. The problem is the trader having the discipline and mental toughness to trade one of them consistently. The vast majority of time it is not a system failure but traders that fail in this game through one of seven common errors. If you can understand these error and overcome them you could make a lot of money in the right market conditions.
- The trader must have the discipline to take the system’s entries and exits.
- The trader must have the discipline to take the stop loss on a losing trade when it is hit and not keep holding and start hoping.
- No matter the method the trader has to manage risk through proper position sizing, getting greedy and trading too big will blow up even the best systems.
- It is the trader that must have the perseverance to stick to the method even during losing periods, and also stick with trading until success is reached.
- If a trader can not manage their mind then the stress will break them, I have seen this happen many times. If you can’t handle losing you can’t trade.
- The trader must find a robust method, must understand why it has an edge, and must believe in their methodology.
- The trader has to know themselves and trade the method that fits their risk tolerance levels and own psychology. (more…)
Why Traders Lose Their Discipline
- Environmental distractions and boredom cause a lack of focus – All of us have limits to our attention span and these are easily taxed during quiet times in the market;
- Fatigue and mental overload create a loss of concentration – The demands of watching the screen hour after hour make it difficult to be sharp, creating fatigue effects that are well-known to pilots, car drivers, and soldiers;
- Overconfidence follows a string of successes – It is common for traders to attribute success to skill and failure to situational, external factors. As a result, a string of even random wins can lead traders to become overconfident and veer from trading plans–especially by trading too frequently and/or trading excessive size; (more…)
Top Ten Reasons Traders Lose Their Discipline
Losing discipline is not a trading problem; it is the common result of a number of trading-related problems. Here are the most common sources of loss of discipline, culled from my work with traders:
10) Environmental distractions and boredom cause a lack of focus;
9) Fatigue and mental overload create a loss of concentration;
8) Overconfidence follows a string of successes;
7) Unwillingness to accept losses, leading to alterations of trade plans after the trade has gone into the red;
6) Loss of confidence in one’s trading plan/strategy because it has not been adequately tested and battle-tested;
5) Personality traits that lead to impulsivity and low frustration tolerance in stressful situations;
4) Situational performance pressures, such as trading slumps and increased personal expenses, that change how traders trade (putting P/L ahead of making good trades);
3) Trading positions that are excessive for the account size, created exaggerated P/L swings and emotional reactions;
2) Not having a clearly defined trading plan/strategy in the first place;
1) Trading a time frame, style, or market that does not match your talents, skills, risk tolerance, and personality.