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Beliefs of Winning Traders

Winners share certain behaviors and beliefs.  Check to see if you possess the traits and beliefs of winning traders

1. My trading objectives are perfectly clear, and I truly believe I will achieve these goals. If you have the belief that you will win, you increase your chances of trading to win.  In order to have this level of conviction, you must have a thoroughly-tested plan.  You also must have a clear vision of how you will proceed with your plan to reach your goal.  The more detailed you can visualize your goals being achieved, the more you will strengthen your internal belief and confidence that you will reach your goals.

2. I have created a plan to achieve my trading goals. I’m sure you’ve heard the saying “I didn’t plan to fail; I failed to plan.”  Without a plan, your results will tend to be mixed and uninspiring.  Commit to writing down your trading plan, and make sure you can answer the questions found in a recent TrendWatch on creating your trading plan.

3. I prepare my plan before the trading day starts. If you don’t have a plan of action once the trading bell rings, you are moving from the proactive mentality into a reactive approach.  I contend that the more reactive you become, the more you will get in late to market moves and dramatically diminish your reward-to-risk ratio. I prepare after the close for the next day’s trading, seeking to stay proactive and a step ahead of the rest of the crowd.

4. I regularly monitor my trading results to measure my progress toward my goals. Trading results tend to follow a zig-zag approach similar to how a plane is guided to its destination.  At periodic steps along the way, if a pilot is off course, they will set a new course towards the target.  This is called course correction.   Once you have defined your trading target, your periodic evaluation should lead you to assess what is taking you off course and encourage you to make the necessary corrections to get you back on target. (more…)

10 Points -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;
  • Unwillingness to accept losses – This leads traders to alter their trade plans after trades have gone into the red, turning what were meant to be short-term trades into longer-term holds and transforming trades with small size into large trades by adding to losers; (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.

Personal Strengths and Weaknesses

We all have different personal strengths and weakness.  Many people focus on transforming a weakness into a strength. While that is admirable, the reality is that it’s not always possible. Although I agree with the basic idea of brain plasticity, and I whole-heartedly agree with the idea of always striving for self-improvement, I also know that as humans we have a certain degree of natural-born temperament and not everything about us can be changed.

Although we can’t always build or change every weakness into strength, the good news is that we can always leverage our strengths, if we know how. And that is mighty powerful. It’s so powerful that if you leverage the right strengths in the right way they can do an excellent job of not just counter-balancing your weaknesses, but can propel you so far ahead  that those weaknesses pale in comparison.

One of the most powerful things you can do for yourself is identifying your natural strengths and then work to see how you can build on them.

We all have different personal strengths, and knowing how to leverage them is an important part of successful trading. A major consideration here is that you try to identify and leverage your own personal strengths, and not simply copy someone else’s. All too often I see struggling traders running from one style to another style whenever they see someone else’s success. One of the primary reasons why copying someone else’s trading style doesn’t always pay off in trading is because of different personal strengths.

Checklist for Sucess in Trading

1. My trading objectives are perfectly clear, and I truly believe I will achieve these goals. If you have the belief that you will win, you increase your chances of trading to win.  In order to have this level of conviction, you must have a thoroughly-tested plan.  You also must have a clear vision of how you will proceed with your plan to reach your goal.  The more detailed you can visualize your goals being achieved, the more you will strengthen your internal belief and confidence that you will reach your goals.

2. I have created a plan to achieve my trading goals. I’m sure you’ve heard the saying “I didn’t plan to fail; I failed to plan.”  Without a plan, your results will tend to be mixed and uninspiring.  Commit to writing down your trading plan, and make sure you can answer the questions found in a recent TrendWatch on creating your trading plan.

3. I prepare my plan before the trading day starts. If you don’t have a plan of action once the trading bell rings, you are moving from the proactive mentality into a reactive approach.  I contend that the more reactive you become, the more you will get in late to market moves and dramatically diminish your reward-to-risk ratio. I prepare after the close for the next day’s trading, seeking to stay proactive and a step ahead of the rest of the crowd.

4. I regularly monitor my trading results to measure my progress toward my goals. Trading results tend to follow a zig-zag approach similar to how a plane is guided to its destination.  At periodic steps along the way, if a pilot is off course, they will set a new course towards the target.  This is called course correction.   Once you have defined your trading target, your periodic evaluation should lead you to assess what is taking you off course and encourage you to make the necessary corrections to get you back on target.

5. I quickly discard negative emotions that can hurt my trading results. When you lose, you want to learn from the experience, then put it behind you. You cannot afford to dwell on a loss once the trade is complete. You have to have total focus on the new moment and forget about the past, save for the time you allocate to evaluating past trades (which should be done outside market hours).

6. I am focused on the market during the trading day, and not easily distracted by non-market activities during trading hours. This can be a tough one for many traders who have many responsibilities.  If this is the case, define the time you will be focused on the market and make arrangements not to be interrupted.

Mark Minervini's trading wisdoms

  • Being wrong is acceptable, but staying wrong is totally unacceptable. Being wrong isn’t a choice, but staying wrong is.
  • Understand that you will always make mistakes. The only way to prevent mistakes from turning into disasters is to accept losses while they are small and then move on
  • Concentrate on mastering one style that suits your personality. Most people just cannot weather the learning curve. As soon as it gets difficult, and their approach isn’t working up to their expectations, they begin to look for something else. As a result, they become slightly efficient in many areas without ever becoming very good in any single methodology.

The Hidden Variable in Your Trading Success

Most traders realize that trading involves a lot of psychology. And most traders readily admit that a significant portion of their trading losses, or lack of performance, is due to “psychology”.  Although the term ‘psychology’ isn’t always mentioned as an explanation, you can see it easily enough in the following statements ……”I froze just as I was about to pull the trigger”….. ”I hesitated and missed that trade and was so pissed that I got myself into an impulse trade right after”…..  “That large loss was not what I wanted, I held it thinking it would come back because last time I bailed out of this type of trade I got stopped out right before it reversed”….. “I was really nervous about losing money again so I got out of my winning trade way before my target”

Those are four common examples of trading psychology issues manifesting in one’s trading.  Do you recognize yourself in the above statements? (more…)

The Hidden Variable in Your Trading Success

Most traders realize that trading involves a lot of psychology. And most traders readily admit that a significant portion of their trading losses, or lack of performance, is due to “psychology”. Although the term ‘psychology’ isn’t always mentioned as an explanation, you can see it easily enough in the following statements ……”I froze just as I was about to pull the trigger”….. ”I hesitated and missed that trade and was so pissed that I got myself into an impulse trade right after”….. “That large loss was not what I wanted, I held it thinking it would come back because last time I bailed out of this type of trade I got stopped out right before it reversed”….. “I was really nervous about losing money again so I got out of my winning trade way before my target”

Those are four common examples of trading psychology issues manifesting in one’s trading. Do you recognize yourself in the above statements?

All four of those statements have in common one thing, fear. Whether it’s the fear of not being perfect, the fear of being wrong, fear of losing money, fear of missing out, the fear of not being approved by others, or some other fear, the common theme is fear. Most trading mistakes are a maladaptive attempt to deal with fear or anxiety.

Emotions like fear and anxiety cannot be eliminated; it is part of the human experience. But how you respond (your behavior, the action you take in response) to anxiety and fear will determine how successful you are as a trader. Some traders recognize this and do something about it; they learn to work with the fear and anxiety to reduce the chance that they’ll continue to fall into the same old behavioral response pattern to fear and anxiety. (more…)

Trading Wisdom-One Liners

  • Look at your trading as a series of probabilities, don’t focus on any single profit or loss.LOP1
  • Want what the market wants.
  • Do your homework. Come prepared to each day’s trading.
  • Never take a trade on the open in the direction of a that day’s gap.
  • Don’t risk too much of your trading capital on any single idea.
  • Remain flexible.
  • Believe what you see. If the market’s going up or down, it’s going up or down.
  • Anything can happen. The wildness lies in wait.
  • Verify your trading methods or systems.
  • Caveat emptor (“Let the buyer beware.”) when buying a trading system or hiring a mentor.
  • Your own personal psychology will express itself regardless of your chosen method.
  • An opinion isn’t worth much, your own or someone else’s.
  • Watch how the markets react to the news.
  • Learn from your mistakes.
  • Stay in the now. Don’t trade yesterday, today. Don’t trade tomorrow, today.
  • Don’t worry about a missed opportunity. Another one is on the way. Besides there were several that just passed of which you were totally unaware.
  • If you don’t risk, you can’t make money. If you lose all your trading capital, you can’t trade. Find balance.
  • Markets don’t go in a single direction. The trend will wobble on it’s way to its destination.
  • The trend is your friend. Unless you’re a counter trend trader, and then only it’s end is your friend.
  • Tomorrow’s another day, a whole new trading opportunity. Be optimistic.
  • Forgive yourself. Take the lesson, and move on.

Larry Hite-Trend Following Legend Who Respects the Risks

Larry Hite was featured in Market Wizards. Market Wizards is a must read for all trend followers. On one level you will learn various trading tips however on the other hand, do not be think that your trading will be so easy. Trend following as easy as it is, is very difficult.

Try to internalize some of Larry Hite’s trading tips for trend followers:

I have noticed that everyone who has ever told me that the markets are efficient is poor.

People develop systems and people will make mistakes. Some will alter their system or jump from system to system as each one has a losing period. Others will be unable to resist second-guessing the trading signals. People don’t change.

The very first rule we live by at Mint is: Never risk more than 1% of total equity on any trade. Secondly, we always follow the trends and we never deviate from our methods. In fact, we have a written agreement that none of us can ever countermand our system. Thirdly, diversify in two ways. A. we trade more markets worldwide than any other money manager. B. we use lots of different systems ranging from short term to long term.

Over-rated indicators: Overbought/oversold indicators.

Two basic rules: (1) if you don’t bet, you can’t win. (2) If you lose all your chips, you can’t bet.

Never trade counter to the market trend.