Traders should work on replacing subjectivity with cut and dry analysis. Keep yourself in a box and stick with what you know. The markets are complicated enough without our tendency to over analyze. All a trader needs is to learn how to read a small number of indicators and trade them well. Find a niche; your own niche. Simplification not complication makes a successful trader. When contemplating a trade think first and foremost about how much you are willing to lose before you attempt to calculate your expected gain. A stock is, at any given time, in the process of testing a specific price level. Questions that make a trading decision valid: WHY are you considering a trade? WHEN will you enter it? WHERE do you see it going? Multiple time frame correlation is important for high probability trades. Let the chart tell you its story. OBEY your rules of engagement…ALWAYS. Be well paid to be a follower. Loss of mental capital (drive, will, confidence) is greater than loss of monetary capital. Let the price action CONFIRM your trade analysis. Example: let a break-out test the break-out first. Trading Errors: The “Fudge” Factor 1. Trying to catch a falling knife. 2. Picking Tops 3. Failure to wait for confirmation. 4. Lack of patience. 5. Lack of a clear strategy. 6. Failure to assume responsibility. 7. Failure to quantify risk. |
Archives of “rules of engagement” tag
rssSix trading lessons from speculator Jesse Livermore
Stock operator’s reminiscences useful in today’s market
If you ask traders to choose the most influential trading book, more than likely, they’ll mention Reminiscences of a Stock Operator by Edwin LeFevre. This book describes the experiences of one of the world’s greatest stock speculators, Jesse Livermore.
Many of the anecdotal lessons included in the book are well known to experienced traders. For example: the market is always right; don’t over-trade; never argue with the tape; use stop losses, and always trade with the primary trend of the market.
Almost anyone can learn the mechanics of trading. It’s the psychological pitfalls that make trading one of the most challenging activities. No matter your skill level, it’s important to remember and obey the rules of engagement — another word for discipline.
With that in mind, this book contains dozens of important lessons. Here are a few of my favorites:
1. Learn how to lose
Livermore (speaking through the fictional character of Larry Livingston) complains how he’s made a series of trading mistakes that cost him a lot of money, although he wasn’t completely wiped out. The losses, he admits, were painful but educational:
“There is nothing like losing all you have in the world for teaching you what not to do,” he says. “And when you know what not to do in order not to lose money, you begin to learn what to do in order to win.”
After going broke three times in less than two years, Livermore has this advice: “Being broke is a very efficient educational agency.” He says that you learn little from your winners because they often take care of themselves. It’s the losers that will teach you lessons to last a lifetime. And as long as you don’t make the same mistake twice, you always have the opportunity to trade another day. (more…)
3 Stages of Trading :Simple really but difficult to manage
Ideal preparation involves commitment to clearly defined rules of engagement. This is necessary for the developing a sound, consistent pre-trade routine that is suitable for any market environment. The ideal state of mind for action is feeling confident and remaining focused on the present. The focused confidence being a direct result of adequate preparation. If you are prepared then doubt will find no home in your mind or in your charts. The ideal response to your trade should foster future confidence by building on past successes while learning from mistakes, all within the framework of maintaining a healthy balance between the two.
These three are mutually inclusive. Without each working together to create the whole, managing your trading success will be difficult. Simple really but difficult to manage. But once managed very difficult to complicate.
ACTION + RESPONSE = COMPLICATED AS IT CAUSES CONFUSION
PREPARATION + ACTION = COMPLICATED AS IT CAUSES DOUBT
PREPARATION + RESPONSE = NOT POSSIBLE WITHOUT TAKING ACTION
PREPARATION + ACTION + RESPONSE = MANAGEABLE SIMPLICITY