- You absolutely must have an edge. In the short run, you can get lucky and make money doing something that has no edge, but expected value will catch up with you. Don’t gloss over this point, because it might just be the single most important thing we can say about trading–you have to have an edge.
- You must be consistent. You must trade with discipline. Nearly everyone who writes anything about trading says these things, but the why is important: you must be consistent because the market is so random. You cannot change your approach based on short-term results because those short term results are confounded by the level of noise in the market. In other words, you can lose doing the right thing and make money doing the wrong thing. Too many traders make adjustments based on evaluating a handful of trades, and this is likely a serious (fatal) error. See point 1: have an edge, and, now, apply that edge with consistent discipline. Markets are random; you don’t have to be.
- Luck matters. There’s no denying that, but so does skill and so does edge. In fact, the more skillful you are as a trader, paradoxically, the more luck matters. (See Mauboussin book and video link near the end of this post.) You can be successful without luck, but the wildly successful traders (who are outliers) always have some significant component of luck. If the overall level of investment skill in the market is rising (far from a certain conclusion, in my opinion), then performance will converge and luck will play a bigger part for the top performers.
- If you understand the part luck plays in your results, you will realize that emotional reactions to your results are largely inappropriate. Yes, that sentence sounds like something a Vulcan (from Star Trek) would say, but it’s true. Too many traders ride the emotional roller coaster from euphoria to depression based on their short term results, and this really doesn’t make sense because you’re letting luck (random fluctuation) jerk your emotions around. (It is worth considering, though, that this works for some traders and may actually help their performance.)
Archives of “stock market” tag
rss19+1 Habits Of Wealthy Traders
1. Wealthy traders are patient with winning trades and enormously impatient with losing trades. Yes, I often fell prone to that. I tend to hope too much when things are going bad. I have time stops, but tend to close positions/strategies too early when having a nice gain. Too often I hold on to exit time when losing. I’m constantly working on that bad habit.
2. Wealthy traders realise that making money is more important than being right. Yes, but always hard to realise a loss.
3. Wealthy traders view technical analysis as a picture of where traders are lining up to buy and sell.Disagree, I have never found any evidence that this actually is true.
4. Before they eneter every trade they know where they will exit for either a profit or loss. Disagree, I use time stops. I have never in my testing found any value whatsoever in using targets or stop-loss.
5. They approach trade number 5 with the same conviction as the previous four losing trades. Yes, agree, but noe easy as confidence drops the more losers I have.
6. Wealthy traders use “naked” charts. Yes, I use no traditional indicators. I only use price action.
7. Wealthy traders are comfortable making decisions with incomplete information. Yes, very true. I try to make my trading as simple as possible. I avoid reading news.The only newspaper I read is The Economist. Except from that I only read football/soccer news and investment blogs on the internet. (more…)
The James Bond Method To Stock Trading
So you want to be high flyer? Drive fast cars, attract the hot women, and travel the world? What sounds like the James Bond way of living, isn’t actually too far off that of a successfully wild stock trader?
While this approach might not be the most risk-adverse style of trading , we can all learn a thing or two from James Bond when it comes to making big bucks in the stock market.
Don’t worry about the consequences
While he may get himself into some crazy situations, James Bond never lets fear get in the way of getting the job done. Bond will walk straight into dark hallways and rooms filled of bad guys, confident that he has the upper hand.
Just like Bond, you too can block out potential consequences of stock trading. Don’t let the fear of losing money or a failed trade scare you away. Head into any situation, confident in your trading strategy.
Never get stressed out
For as great as Bond is, no other action hero gets caught into messy situations as much as Bond does. From the initial capture to just seconds before he finds his way out, Bond never loses his cool.
He stays calm under pressure and focuses on what to do next, rather than what might happen.
Just like Bond, you too can learn to keep cool under difficult situations. Understand that you don’t necessarily need to sell at the first sign of red or throw more money at the stock. Simply stay calm, asses the situation, and find your way out.
Don’t stick around too long (more…)
Nicholas Darvas: Trend Trader
From a Time Magazine article in 1959:
Darvas places his buy orders for levels that he considers breakout points on the upside. At the same time, he places a stop-loss sell order just below his buy order, so that if the stock does not move straight up after he buys, he will be sold out and his loss cut. “I have no ego in the stock market,” he says. “If I make a mistake I admit it immediately and get out fast.” Darvas thinks his system is the height of conservatism. Says he: “If you could play roulette with the assurance that whenever you bet $100 you could get out for $98 if you lost your bet, wouldn’t you call that good odds?” If he has a big profit in a stock, he puts the stop-loss order just below the level at which a sliding stock should meet support. He bought Universal Controls at 18, sold it at 83 on the way down after it had hit 102. “I never bought a stock at the low or sold one at the high in my life,” says Darvas. “I am satisfied to be along for most of the ride.”
Right Trading Mindset
Back test, study charts, and only trade proven strategies: No trading should begin until you know that your system is a historically profitable one through multiple trading environments. There are many ways to do this and the depth of study into your specific trading system is up to you. But if you do not know how what you are currently doing performed historically then you need to stop until you do understand.
- Small losses: Keeping your losses small so you can keep your will and desire to trade strong. Nothing breaks a new traders mindset faster than big, painful losses of capital that are very hard to come back from.
- Build confidence through having winning trades: A lot of the great traders we get to see on social media have built up themselves through many years of learning from failure and then hitting their stride with winning months and winning years. Even if your wins are small, wins will help you build the mindset that you can do this and be successful as a trader. Build yourself up through consistent disciplined trading and winning streaks.
- Trade with the right principles: Trading with the right core trading principles like going with the trend in your time frame, never losing more than 1% of your trading capital on any one trade, and follow your trading plan 100% can go a long way to solidifying your peace of mind as trader knowing you will not do anything that will really hurt yourself in the markets.
Match your beliefs to your trading methodology: We can only effect trade a system that matched our strong beliefs about the markets. If you believe in the nature of trends you have to find the markets that trend and trade them. If you are convinced that market always revert to the mean then a robust mean reversion is what you can comfortably trade. Swing trading for traders that love trading ranges, and day trading for those that want action and no overnight risk. The question is who are you as a trader and what trading style matches your personality and risk tolerance.
Most Important Qualifications for a Successful Trader
I believe that one of the most important qualifications for a successful trader is “POISE”, which to me is defined as stability, a well balanced person with dignity of manner – as it relates to the stock market.
A poised person is a person who can handle their hopes and their fears in a calm manner.
The other qualification is “PATIENCE” to wait for the opportune time, when as many factors as possible are positioned in the traders favor.
Poise and patience are the close friends of successful traders.
The final qualification is “SILENT”. Keep your own silent counsel – keep your victories and your failures to yourself – learn from them both.
Poise, patience and silence are attributes that must be cultivated.
These virtues do not come automatically to the stock market trader.
High-frequency trading: when milliseconds mean millions
Asked to imagine what a Wall Street share-dealing room looks like and the layman will describe a testosterone-fuelled bear pit crammed full of alpha males in brightly coloured jackets, frantically shouting out bid and offer prices.
He couldn’t be more wrong. Technological advances mean that stocks are now traded digitally on computer servers in often anonymous – but heavily guarded – buildings, generally miles away from the historic epicentres of finance, meaning the brash men in sharp suits depicted in films such as the The Wolf of Wall Street have been dethroned as the kings of finance.
Computer programmers have taken their crown thanks to the code they churn out, which is able to execute trades thousands of times faster than any human. (more…)
Nassim Taleb’s Risk Management Rules of Thumb
Rule No. 1- Do not venture in markets and products you do not understand. You will be a sitting duck.
Rule No. 2- The large hit you will take next will not resemble the one you took last. Do not listen to the consensus as to where the risks are (that is, risks shown by VAR). What will hurt you is what you expect the least.
Rule No. 3- Believe half of what you read, none of what you hear. Never study a theory before doing your own observation and thinking. Read every piece of theoretical research you can-but stay a trader. An unguarded study of lower quantitative methods will rob you of your insight.
Rule No. 4- Beware of the nonmarket-making traders who make a steady income-they tend to blow up. Traders with frequent losses might hurt you, but they are not likely to blow you up. Long volatility traders lose money most days of the week.
Rule No. 5- The markets will follow the path to hurt the highest number of hedgers. The best hedges are those you alone put on. (more…)
The Psychology Of Market Timing
The biggest enemy, when market timing the stock market via mutual funds, ETF’s, even individual stocks (or in any trading for that matter), is within ourselves. Success is possible only when we learn to control our emotions.
Edwin Lefevre’s “Reminiscences of a Stock Operator” (1923) offers advice that still applies today:
Caution Excitement (and fear of missing an opportunity) often persuades us to enter the market before it is safe to do so. After a down trend a number of rallies may fail before one eventually carries through. Likewise, the emotional high of a profitable trade may blind us to signs that the trend is reversing.
It is important to follow a tried and true timing strategy that puts you in the right position for established trends, and also gets you out of failed trends quickly to protect capital. Excitement results in losses more often than not.
Patience Wait for the right market conditions. There are times when it is wise to stay out of the market and observe from the sidelines. (more…)
Market Gravitates or We Spot those LEVELS…. Mystery !!
Here in this very space we have written Y’day and updated today intra-day too: @ 9106 wrote to Sell CNX Bank INDEX on any Rise. It would tumble to 8719 level very shortly. Bang on… just in 48 hrs it collapsed to exactly our level, precisely 8715, a whooping fall of 400 points.
In the same breathe you were forewarned that for NF not crossing 5165-68 would weaken it to 4994 – 4970 levels. Exactly from 5168 of y’day it has nosedived uptill 5017.
These are indices: Non-manipulatable, Non-influential. How did it happen, who did it, can there be any attributes at all !!!! Its our ever dependable charts, Analytical skills and wisdom of Insight. Collectively Technical Analysis. Just Pure Intelligence.
Yesterday I written about Bank stocks…Just click here
Read Yesterday’s Guesstimates
Many Traders had asked about MTNL…..and they say I don’t about failure calls.First of all about MTNL….Technically was /still looking hot …But I had written many times never act blindly in market and always consider price as Father of stock/Commodity.
-Now click here and see…the reason ..Why MTNL had crashed in yesterday’s trade.
Now about Failure calls.If I recommend any stock or do analysis then I always write Support/Resistance levels. (more…)