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Trading To Win

One of the easiest mistakes any trader can make is not a ‘trading’ mistake at all. Rather, the mistake is complacency with his or her trading skills and knowledge. Unfortunately, trading is not like riding a bike – you can (and will) forget how. Obviously you’ll always know how to enter orders, but the efficiency and accuracy of your trading will diminish without constant renewal of your trading mindset.

The reason that most traders don’t undergo psychological self-development is a lack of time, and that’s understandable. However, a good book, DVD or Coaching Class is actually an investment in yourself, and ultimately an investment in your bottom line. Today as a primer, and a challenge, I’d like to review some self-development concepts that Ari Kiev explores in his book ‘Trading To Win, The Psychology Of Managing The Markets‘. This in no way is a substitute for his excellent book, but they are still useful ideas even in this abbreviated form. None of them are going to be new to you, but all of them will be valuable to you.

1. Plan the entire trade before you enter the trade. Have an entry strategy, and an exit point (both a winning exit point and a non-winning exit point). This will inherently force you to look at your risk/reward ratio. Write these entries and exits down in a journal.

2. Eliminate distractions.
It’s difficult enough to find trading time at all if it’s not your regular job. If you’re a part-time trader who trades at work between meetings and phone calls, think about this: there are full-time professional traders who are concentrating on nothing other than taking your money. It’s not that they’re better or smarter than you – they just have the time to focus. If you must trade, set aside blocks of time to study or trade without distraction. Or it may be more feasible to do your trading on an end-of day basis, meaning you
place your orders and do your ‘homework’ the night before when you can
focus on it.

3. Choose a method or a small group of methods, and stick to them.
Far too often we see a trader adopt a new indicator or signal only to see it backfire. Become a master of your favorite signals, rather than a slave to any and every signal. Understand that an indicator will fail sometimes. That’s ok. The sizable winning trades should more than offset the small losing trades initiated by an errant signal. This trading method is designed to eliminate the emotional bias of trading.

4. Choosing not to trade can also be a prudent choice. You’ll frequently hear ‘don’t fight the tape’. The same idea also applies to a flat market – you can’t make stocks do something they’re just not going to do. Wait for good entries into a developing trend rather than force a bad entry into an unclear trend. (more…)

What's The Real Purpose of Trading?

purpose-realThe real purpose of trading is not to make money. If that’s your goal you probably struggle with it a lot. But all of the following tend to work.

If you goal is to be a great trader, then you probably will do well.

If you goal is to use trading as a way to measure your self-development, then you will probably do well.

If you just love trading and that’s why you do it, then as long as you are willing to work on yourself you will probably do well.

Those, in my experience, are the key motivations that bring success in trading.

What Trading Teaches Us About Life

Trading is a crucible of life: it distills, in a matter of minutes, the basic human challenge: the need to judge, plan, and seek values under conditions of risk and uncertainty. In mastering trading, we necessarily face and master ourselves. Very few arenas of life so immediately reward self-development–and punish its absence.

So many life lessons can be culled from trading and the markets:

1) Have a firm stop-loss point for all activities: jobs, relationships, and personal involvements. Successful people are successful because they cut their losing experiences short and ride winning experiences.

2) Diversification works well in life and markets. Multiple, non-correlated sources of fulfillment make it easier to take risks in any one facet of life.

3) In life as in markets, chance truly favors those who are prepared to benefit. Failing to plan truly is planning to fail.

4) Success in trading and life comes from knowing your edge, pressing it when you have the opportunity, and sitting back when that edge is no longer present.

5) Risks and rewards are always proportional. The latter, in life as in markets, requires prudent management of the former.

6) Happiness is the profit we harvest from life. All life’s activities should be periodically reviewed for their return on investment.

7) Embrace change: With volatility comes opportunity, as well as danger.

8) All trends and cycles come to an end. Who anticipates the future, profits.

9) The worst decisions, in life and markets, come from extremes: overconfidence and a lack of confidence.

10) A formula for success in life and finance: never hold an investment that you would not be willing to purchase afresh today.

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