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Seven Sins of Trading

  
  Education
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7numbers1. Trading an inappropriate position size.
Simply put…if you risk too much, you’ll lose too much. In my eyes, this is the single most important rule of trading. Risking only 1-2% of an acct value is crucial to staying in the game.

2. Not knowing when to take the loss.
If you cannot answer the questions “Where am I taking the loss,” and “Where is my profit target” then stay out of the market. If you leave these decisions for later, then you will make them emotionally, which will be the worst decisions a trader can make.
3. Trading on someone else’s research or recommendation.
We have all heard stock tips thrown our way. Sometimes we might even hear people throw out potential trades that they are watching and become tempted to jump in. Sometimes I throw out stocks that I am trading and I am watching. The problem is that you might not know what this person is watching for, what strategy this stock fits, or what types of efforts are thrown into their research. If you take these stocks into consideration, make sure they are trades you would have likely come across on your own by conducting your own research. (more…)

Ten Ways to Trade With an Edge

  
  Education
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An edge is an advantage that a trader has over his competitors, allowing him to generate and retain profits from other traders . There can be many types of  trading edges through risk management, psychological management, and through better trading methods.

Here are a few:

  1.  A selective trader that only trades the best set ups, trends, and stocks has the advantage of waiting for the fat pitch and not just swinging at every ball thrown his way.
  2. Simply using correct position sizing can put you in the top 10% of traders simply by not blowing out your account and staying in the game by maximizing winners and minimizing losers..
  3. Risking no more than 1% of your capital per trade brings your risk of ruin down to almost zero and allows the trader to survive losing streaks. You have the edge of being around to have a winning streak later on.
  4. Only taking trades with a risk-to-reward of 3 to 1 or better gives the opportunity to have bigger winners than losers in the long run which is needed to be profitable. 
  5. Trading in the direction of the trend in your time frame gives you an edge over those losing money by fighting the trend.
  6. Having the discipline to follow a trading plan gives you an edge over those that trade based on fear and greed. (more…)

Writing your trading plan?

  
  Education
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  1. Why am I trading? This is not a trivial question to ask; and you must answer it honestly. Are you trading to make money? Or are you trading for the thrill? In other words, are you trading like an investor or like a gambler?
  2. What are my trading goals? Again, not a trivial question. Are you trying to gain a few dollars for extra spending money? Trying to fund your retirement? Trade for a living? Or are you trying to amass a fortune and retire early to a life of luxury? How you answer this question will identify the level of risk that you will have to endure.
  3. What is the size of my trading account? An obvious question.
  4. What is my skill level? Be honest.
  5. What is my tolerance for risk? And does that tolerance bear any relation to my skill level? It’s no good having a high tolerance for risk if your skills are inadequate.
  6. What must I do to improve my skill level?
  7. If my skill level is low, what trading size can I use to ensure that a single bad decision will not wipe me out? Preserving capital and staying in the game long enough to LTP good trading practices is crucial.
  8. What is my preferred trading instrument and have I familiarized myself with the behavior, range and velocity of that instrument? Some trades, like bonds and the ETF’s can move at a glacial pace.
  9. What indicators will I use to identify my entries and exits? Here, “the more, the merrier” may not be the wisest choice. Remember, there can be paralysis by (over)analysis.
  10. Where will I place my initial stop; and how will I manage them? You may have a trailing stop strategy, or you may plan to just exit when your indicators say, “Get out!”
    (more…)
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