There are things that make you win in the stock market over the long term and then there are things that make you lose quickly even in the short term. The key to trading success is learning the difference quickly and doing what really works not what you emotions or opinions tell you to do.
If you want to win then you must create your own trading plan and follow it, if you want to lose just trade whatever you want whenever you want based on your own opinion.
If you want to win then you must control your risk carefully with only 1% or 2% of your capital at stake in every individual trade, if you want to lose then just trade huge position sizes, put all your chips on the table.
If you want to win plan your entries and exits before you enter a trade then follow them, if you want to lose ask for everyone’s opinion and just make decisions based on other people.
If you want to win cut your losses short and let your winners run, if you want to lose hold your losers and hope that they come back and sell your winners quickly to lock in gains.
If you want to win trade only the best high quality stocks in the market, if you want to lose trade the junk and hope for a miracle come back.
If you want to win then build complete confidence for your system through chart studies and back testing, if you want to lose trade with no idea of if what you are doing even works.
If you want to win go with the current trend of the market, if you want to lose fight the trend and trade against it.
If you want to win then go long the hottest stocks in a bull market, if you want to lose short the hottest stocks in a bull market.
Do what makes money not what you feel like doing.
Archives of “risk” tag
rss13 Things- Learned About Humans and the Financial Markets
- Predictions do not work as tomorrow is uncertain. We will only boast about things we have predicted right and talk nothing about the other half we got wrong.
- Skills can bring us moderate success. However, luck is needed to be a big success. (credit to Jon)
- We tend to credit our successes to good skills and blame our failures on poor luck.
- Some of us rely on luck (most unknowingly) by investing for high returns (and losses). A few of us will make big money but most of us will end up much poorer.
- Some of us deliberately limit the luck factor by choosing investment products with capital guarantee and guaranteed returns. None of us will make big money but none of us will be very much poorer.
- We need to know how much we can afford to lose (financially and emotionally) before deciding to be No. 4 or No. 5, or somewhere in between.
- We have many biases. The degree of success in investing or trading depends on how much we can keep our biases in check. No, we cannot remove our biases totally.
- Confirmation bias – we see what we want to see. We seek out evidence to validate our investment decision and ignore those that suggest otherwise.
- Availability bias – we are influenced by the things we observe. If people we knew made a lot of money through property investment, we will think that properties are the best investments in the world and develop a preference for it.
- Loss aversion bias – we want to be compensated for high returns before we decide to take the risk to invest. We often wait for markets move and show high returns before we want to invest. We are not interested if markets are not moving.
- Hindsight bias – we tend to say “I knew it” after an event has happened.
- Survivor-ship bias – we only get to hear stories of successes but many stories of failures were untold. See No 2 and No 3.
- Most us do not know what we want in life. We think we will be happier with more money.
The 7 Habits of Highly Successful Traders
Traders must have the perseverance to stick to trading until they break through to success. Many of the best traders are just the ones that had the strength to go through the pain, learn, and keep at it until they learned to be a success.
- Great traders cut losing trades short. The ability to accept that you are wrong when a price goes to a place that you were not expecting is the skill to push the ego aside and admit you are wrong.
- Letting a winning trade run as far as it can go in your time frame is crucial to having big enough winners to pay for all your small losing trades.
- Avoiding the risk of ruin by risking only a small portion of your capital on each trade is a skill to not get arrogant and trade too big, if you risk it all enough times you will lose it all eventually.
- Being reactive to actual price action instead of predictive of what price action will be is a winning principle I have seen in many rich traders. Letting price action give you signals is trading reality, trading your beliefs about what price should be is wishful thinking.
- Great traders are bullish in bull markets and bearish in bear markets, until the end when then trend bends.
Great traders care more about making money more than any other thing. Proving they are right, showing off, or predicting the future is not as important as hearing the register ring.
7 rules for dealing with risk
1. Overcome Fear. Fear clouds judgment.
2. Remain Flexible. Surprise outcomes may require a change of plan.
3. Take reasoned risks. Risk can be good if the odds are in your favour.
4. Prepare to be wrong. Plan in advance how to deal with unfavourable outcomes.
5. Actively seek reality. See the world as it is rather than as you want it to be.
6. Respond quickly to change. If your plan calls for some action in the face of unfavourable outcomes, don’t delay.
7. Focus on decisions, not outcomes. In the face of risk, good choices can have bad outcomes, and bad choices can have good outcomes.
From :Inside the Mind of the Turtles :Curtis M Faith
Benjamin Graham on RISK
“It has been an old and sound principle that those who cannot afford to take risks should be content with a relatively low return on their invested funds. From this there has developed the general notion that the rate of return which the investor should aim for is more or less proportionate to the degree of risk he is ready to run. Our view is different. The rate of return sought should be dependent, rather, on the amount of intelligent effort the investor is willing and able to bear on his task.”
—-Benjamin Graham, The Intelligent Investor (New York: HarperBusiness, 2003), p. 88.
Discipline
Learning to accept losses as part of the game and cutting them short is the single most important step towards becoming consistently profitable. It sounds simple, but in reality is extremely difficult for everybody. Why? Because we’ve been taught that giving up is for losers and we should fight till last breath. I certainly agree that you should not give up quickly, but only if you can influence the end result. Let me be clear, the stock doesn’t know that you own it and it doesn’t care that you cannot afford to lose the money. The market will strip your last cloth if you don’t know how to manage risk. You have to understand and accept your power. You cannot move the market. You cannot tell him where to go and how fast. This is why so many people, who are successful as entrepreneurs and engineers, have troubles breaking even in the capital markets. It takes a special kind of person. Someone, who can forget his ego and concentrate on what actually works. Very few people are able to reach that level and to distinguish their trading life from their personal life.
Trading or investing is a skill that can be learned. There are two ways to learn a new skill in general. Through the school of hard knocks and through the mentorship of others that have the gift of teaching. To become a successful trader, you need to somehow implement both approaches. Nothing can replace personal experience. You can hire the best mentors in the world to teach you and purchase the most expensive equipment and trading software, but this is not going to help you to build a new skill. Skill building is subdued to eternal physical laws. There are a hundred billion neurons in your brain. For every skill that you possess (speaking a language or driving a car), there is a certain combination of connections between some of your neurons. To build a new skill, you need to build a new net of connections. This is why every beginning is hard, this is why big changes do not happen overnight. You have to establish new connections, which takes hard work via repetition and visualization. (more…)
7 Lessons for Traders
1. You always have to have cash, especially when no one else has it. (John Burbank of Passport Capital has said the same: “Cash is most valuable when others don’t have it.”)
2. No free lunch- it’s not free, or it’s not lunch.
3. You can’t change people! You can change yourself, but not others.
4. You only see reality under extreme stress- you want to get to know someone, you need to see them under extreme stress.
5. Volatility is not risk!
6. Always assume you will have bad luck.
7. Few variables to win. Once you have to think about more than 3 variables, your odds of winning are low.
Calmness
How do you handle adversity? What do you do when the markets go against you? Do you get angry and defensive or do you stay calm and play offensive?
When the markets go against you, do you overtrade? Do you try to make all of your losses in one deal? Or do you stay calm, take a breather and reevaluate the market?
When our emotions go up, our intelligence comes down. We make bad decisions. We take it personally. Then we start doubting ourselves and we start losing confidence. Then we start losing more and more…
When we stay calm, we can evaluate the market from an objective place. We can see the market for what it is and not what we want it to be. Then we can take a calculated risk.
RISK in Trading -Anirudh Sethi
Life is full of risks, and risks are all around you as a trader. In a perfect world there would be no risks and any decision you make will turn out to be the best one. You can hope for win after win, and not even have to worry about the prospect of losing. Yet this is an unrealistic and impossible scenario because as we all know trading is all about risk. However, there is no need to be afraid of risk. We need to accept the fact that it is there, and rather than focusing on fear we need to know how to deal with it and manage it.
This is where risk management comes into play. As a trader you need to be disciplined. You need to know how to understand the way you are thinking. At the end of the day it is all about trading psychology. Trading is not solely about getting an understanding of the market, and the trading skills such as recognizing trading patterns and managing risks. It is also about training yourself to be self-assured without being too risky. It is about being cautious, but not wait too long to take an action. It is about blocking emotions and sentiments which could impair your judgments. The market is constantly changing and you are going to be constantly faced with challenges, and so risk is inevitable. However the risk taht you tae can be calculated.
Thus as a trader you will need to balance out your trading skills with your trading psychology so as to master the mental game of trading. Here are some general rules which can help you in risk management:
- Emotions have no place in trading. You need to make well planned and well calculated decisions that are not affected by sentiments. Otherwise your decision making process is going to take longer, and in all probability, be skewed.
- You need to accept that you are not perfect, and so there are going to be times when you succeed, and other times when you fail and lose money. Successes and failures will result in different, and extreme emotions, but these emotions need to be controlled so as to keep thinking straight.
- In order to minimize risks, many traders are well aware that it is best to opt for diversification. Having an diversified portfolio will help to reduce your risks. Money should be distributed across different kinds of investments so that in case a certain trading decision goes wrong it will be less likely to affect the trader in a dramatic way as one would still have other investments at one’s disposal.
- Gaining experience is what many traders believe in in order to succeed. Through experience you gain more insight and knowledge, as well as trading skills. However despite their importance, they are not going to be enough to back your progression as a trader. You need to couple this up with clear thinking.
- You need to have the willingness to take risks. However the risks that you take can be calculated and appropriate. Trading is risky, but in time you will learn how to go about it so as to minimize risks and the results thereafter. For instance, you should only risk money that you can afford to lose. Otherwise, it is best not to trade at all in such cases.
Guts to SHORT at Peak…. Glory to Instant Profits
Dear Readers, Today morning I wrote 5077 as Peak NF possibility for the day. It went upto 5072 only. Sensing its failure here, my Message to all Subscribers: Now, at 5065…. Short NF with a Risk of Rs.13. Below 5055 it will tumble upto 5004. Within minutes NF tumbled to 5006. Instant gain of 59
In the same message: Now at 1075, Sell RIL with a stop of 1086-1092. Reliance just in Minutes slid from 1077 to 1056, nearest to its day’s low 1053
At opening bell :Catch Bharti above 289.50 for supergains tgt 297 ,303.50 (It kissed 302)
The point tobe noted here is: Shorting at the peaks. Its possible only when I am committed in my market analysis work at the bottom of my heart. My Levels mentioned in the web-site are the same but my MESSAGES at the right time will trigger action to subscribers for grand gains, unhesitant to Short too which is a rarity.
Just Follow Levels, Make your Vallets Deep, Deeper, Deepest
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