- Commit to doing the work to become a successful trader.
- Study the top resources for trading success.
- Decide what level of annual returns you want to make on average.
- Decide the maximum capital draw down level you can tolerate and accept.
- Become a reactive trader not a predictive trader, learn how to trade price action.
- Focus on a system with a winning risk/reward ratio. Bigger winning trades than losing trades.
- Build and back test a trading methodology that is profitable over many different market environments and meets your requirements.
- Write a trading plan that quantifies entries, exits, positions sizing, and your rules.
- If you have the personalty to trade this system and plan with real money then proceed.
- Eliminate the risk of ruin by never losing more than 1% of trading capital on any one trade. (more…)
Archives of “stock market” tag
rssThe Market Is King
If you are a disciplined, follow the rules trader, then I am sure you are familiar with the many and various ways the stock market can play tricks on you. For instance, a disciplined, technical trader will adhere to a particular strategy based on current market conditions. In so doing, trades are assessed and entered based on specific criteria, usually by combining mechanical and discretionary means.
Technical traders base their current trade decisions on past price action, noting distinct historical patterns that have the possibility of replication. However, the outcome of two strategically similar trades are never exactly alike if for no other reason than those trading a specific stock now are not the same ones who traded it two months, or even two weeks or two days previous. The elements of uncertainty (e.g., changes in sentiment and differences of opinion) exert such an influence on stock prices that exact replication is impossible. Therefore, the market enjoys a “King Jester” status. (more…)
10 Laws of Stock Market Bubbles
- Debt is cheap.
- Debt is plentiful.
- There is the egregious use of debt.
- A new marginal (and sizeable) buyer of an asset class appears.
- After a sustained advance in an asset class’s price, the prior four factors lead to new-era thinking that cycles have been eradicated/eliminated and that a long boom in value lies ahead.
- The distance of valuations from earnings is directly proportional to the degree of bubbliness.
- The newer the valuation methodology in vogue the greater the degree of bubbliness.
- Bad valuation methodologies drive out good valuation methodologies.
- When everyone thinks central bankers, money managers, corporate managers, politicians or any other group are the smartest guys in the room, you are in a bubble.
- Rapid growth of a new financial product that is not understood. (e.g., derivatives, what Warren Buffett termed “financial weapons of mass destruction”).
Trading Psychology Observations
-From working with developing traders, I’d say that 90% don’t/can’t sustain the process of keeping a substantive journal. Among the group that does journal, well over 90% of the entries are about themselves and their P/L. I almost never see journal entries devoted to figuring out markets.
-A sizable proportion of traders who have been having problems are trading methods and patterns that used to work, but are no longer operative. The inability to change with changing markets affects traders intraday (when volume/volatility/trend patterns shift) and over longer time frames (when intermarket patterns shift).
-Some traders habitually look for tops in a rising market and bottoms in a falling one. There’s much to be said for countertrend methods, but not when the need to be right exceeds the need to make money.
-An underrated element in trading success is mental flexibility: the ability to shift views and perceptions as new data enter the marketplace. It takes a certain lack of ego to form a strong view and then modify it in the face of new evidence.
-Many traders fail because they’re focused on what the market *should* be doing, rather than on what it *is* doing. The stock market leads, not follows, economic fundamentals. Some of the best investment opportunities occur when markets are looking past news, positive or negative.
According To Psychologists : 20 Facts -Why Traders Lose Money in Market ?
- Men trade more than women. And unmarried men trade more than married men. 5
- Poor, young men, who live in urban areas and belong to specific minority groups invest more in stocks with lottery-type features. 5
- Within each income group, gamblers under perform non-gamblers. 4
- Investors tend to sell winning investments while holding on to their losing investments. 6
- Trading in Taiwan dropped by about 25% when a lottery was introduced in April 2002. 7
- During periods with unusually large lottery jackpot, individual investor trading declines. 8
- Investors are more likely to repurchase a stock that they previously sold for a profit than one previously sold for a loss. 9
- An increase in search frequency [in a specific instrument] predicts higher returns in the following two weeks. 10
- Individual investors trade more actively when their most recent trades were successful.11
- Traders don’t learn about trading. “Trading to learn” is no more rational or profitable than playing roulette to learn for the individual investor.
These 13-cent stamps beat the U.S. stock market
Are stocks always the best long-term investment?
Maybe not.
When some obscure Hawaiian stamps from 1851 go up for auction later this month, they are expected to fetch from $50,000 to $75,000 each.
And if they do, that will mean they have almost certainly been a better financial investment — probably a much better investment — over the past 165 years than the U.S. stock market.
The 13-cent so-called “Missionaries” were used by Christian missionaries in the Hawaiian islands to send letters home. At the time, Hawaii was an independent kingdom. The Associated Press reports that the stamps are part of a 77-stamp collection being sold by Bill Gross, the bond market guru. Ten such “Missionaries” in near-mint condition are being sold.
If the stamps sell for $50,000 each, that will represent a compound annual return of 8.1% over the initial 13-cent purchase price. If the stamps sell for $75,000, you can raise that to 8.4%. (more…)
17 Points from William J. O’Neil
William O’Neil is likely one of the greatest traders of our time based on many things. O’Neil made a huge amount of money while he was only in his twenties, enough to buy a seat on the New York Stock Exchange. He runs an amazingly successful investment advisory company to big money firms. He is also the creator of the CAN SLIM investment strategy which the American Association of Individual Investors named the top performing investment strategy from 1998 to 2009. This non-profit organization tracked more than 50 different investing methods, over a 12 year time period. CANSLIM showed a total gain of 2,763% over the 12 years. The CAN SLIM method is explained in O’Neil’s book “How to Make Money in Stocks”
Those closest to O’Neil that have seen his private trading returns say that they are greater tna Warren Buffett of George Soros over the same period of time. Here are some of the best things that he is quoted as having said.
RISK MANAGEMENT
- I make it a rule to never lose more than 7 percent on any stock I buy. If a stock drops 7 percent below my purchase price, I will automatically sell it at the market – no second-guessing, no hesitation.
- Some people say, “I can’t sell that stock because I’d be taking a loss.” If the stock is below the price you paid for it, selling doesn’t give you a loss; you already have it.
- Letting losses run is the most serious mistake made by most investors.
- The whole secret to winning in the stock market is to lose the least amount possible when you’re not right.
METHOD
- 90% of the people in the stock market, professionals and amateurs alike, simply haven’t done enough homework.
- The first step in learning to pick big stock market winners is for you to examine leading big winners of the past to learn all the characteristics of the most successful stocks. You will learn from this observation what type of price patterns these stocks developed just before their spectacular price advances. (more…)
David Halsey,Trading the Measured Move -Book Review
David Halsey throws out the old notion of a measured move: that you copy an AB move up (or down) and paste it on a retracement low (or high) of C to get your price target D. In Trading the Measured Move: A Path to Trading Success in a World of Algos and High Frequency Trading(Wiley, 2014) he substitutes Fibonacci levels.
He uses three trade setups: the traditional 50% retracement measured move (MM), the extension 50% MM, and the 61.8% failure. When a trade is entered, its target is 123% from a swing high or low (and sometimes from a breakout) that is followed by a retracement (50% in the traditional setup). That is, the target is AB + 23%. Halsey shows both successful and failed MM trades on charts—unfortunately usually grey bars on a black background, which makes them hard to decipher.
The measured move trade setups are not stand-alones. Halsey discusses the use of multiple time frames, seasonality, NYSE tools, tick extremes and divergences, and gaps. He also discusses how to manage positions and take profits, advanced (actually, pretty basic) risk management, trading psychology, and having a trading plan and journal. (more…)
9 Trading Wisdom for Traders
NEVER THROW MORE MONEY AFTER A LOSING POSITION
Never add to a losing position under any circumstances. Throwing more money at a losing trade will burn your capital faster than you can imagine. This is the main contributor that eliminates losing investors from the trading game. The only thing that happens when you buy more of a losing position is that your net worth declines. You hope that it may turn around eventually and your decision to buy will prove fortuitous. For every example of a fortune from an unexpected turnaround, there are ten examples of bleak outcomes.
ALWAYS INVEST ON THE WINNING SIDE
Do not worry about trading on the bullish or bearish side, but always trade on the winning side. This is a brilliant piece of wisdom. Learn to master the art and science of investing on the winning side. You should be willing to change sides immediately when one side has gained the upper hand. You cannot stay rigid in your positions because the market is dynamic. Keep a close eye to see if the facts have changed regarding the company. If the facts have changed, you must change.
DO NOT HANG ONTO A LOSING POSITION
Failure to admit you were wrong and holding onto losing positions will cost you money. Watching your capital deplete in front of your eyes is de-motivating and mentally exhausting. However, your mind will be even more exhausted if you hold onto a losing trade. You will get more and more fearful with each passing minute, day and week.
In the meantime, you are missing out on a treasure chest of potentially profitable stocks that are waiting to make you money. Bad decisions are valuable sources of learning to master your trading technique. Cut your losses, adapt your trading strategy to include your new knowledge, and search for stocks that will make you money. In the stock market, time is money; there is no time to watch your stock fall all the way to the bottom. (more…)
14 Points for Traders
1. Have a profit? Forget it. Have a loss? Forget it even quicker.
2. It was never my thinking that made the big money for me. It was my sitting, my sitting tight.
3. There is only one side to the stock market and it is not the bull side or the bear side, but the right side.
4. If you don’t know what’s going on, don’t do anything.
5. Markets are never wrong, opinions often are.
6. Don’t be too curious about the reasons behind moves.
7. The smarter you are, the longer it takes.
8. When time is up, markets will reverse.
9. Don’t expect the tape to be a lecturer. It’s enough to see that something is wrong.
10. Don’t imagine that a market that once sold at 150 is cheap at 130.
11. A man does not swear eternal allegiance to either the bear or bull side.
12. People believe what it pleases them to believe.
13. Trend followers plan when they will get out before they ever get in.
14. Know every day what your portfolio is worth. Calculate what your risks are on any given day for all positions.