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10 Foolish Things a Trader Can Do

  
  Education
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01. Try to predict the future movement of a stock, and stay in it no matter what.

02. Risk your entire account on one trade with no stop loss plan.

03. Have a winning trade but no exit strategy to get out, no trailing stop or exhaustion top signal.

04. Ask for and follow the advice of others instead of trading with your own trading plan, method, rules, and system.

05. Trade your emotions instead of signals: buy when you are greedy and sell when you are afraid.

06. Trade your opinions, not a quantified method. (more…)

James P. Arthur Huprich's Market Trusms And Axioms

  
  Education
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1. Commandment #1: “Thou Shall Not Trade Against the Trend.”

2. Portfolios heavy with underperforming stocks rarely outperform the stock market!

3. There is nothing new on Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again, mostly due to human nature.

4. Sell when you can, not when you have to.

5. Bulls make money, bears make money, and “pigs” get slaughtered.

6. We can’t control the stock market. The very best we can do is to try to understand what the stock market is trying to tell us.

7. Understanding mass psychology is just as important as understanding fundamentals and economics.

8. Learn to take losses quickly, don’t expect to be right all the time, and learn from your mistakes.

9. Don’t think you can consistently buy at the bottom or sell at the top. This can rarely be consistently done.

10. When trading, remain objective. Don’t have a preconceived idea or prejudice. Said another way, “the great names in Trading all have the same trait: An ability to shift on a dime when the shifting time comes.”

11. Any dead fish can go with the flow. Yet, it takes a strong fish to swim against the flow. In other words, what seems “hard” at the time is usually, over time, right.

12. Even the best looking chart can fall apart for no apparent reason. Thus, never fall in love with a position but instead remain vigilant in managing risk and expectations. Use volume as a confirming guidepost.

13. When trading, if a stock doesn’t perform as expected within a short time period, either close it out or tighten your stop-loss point.

14. As long as a stock is acting right and the market is “in-gear,” don’t be in a hurry to take a profit on the whole positions. Scale out instead.

15. Never let a profitable trade turn into a loss, and never let an initial trading position turn into a long-term one because it is at a loss. (more…)

5 Signs You’ve Matured as a Trader

  
  Education
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1) Are Self Reliant: When you stop asking other people: “What do you think of the market?” While I respect the opinions of my colleagues, I DO NOT rely on them. I prefer to do my own homework, research and analysis. I LET THE MARKET tell me if I’m right or wrong.

The ultimate goal for traders is to make confident decisions on your own and trade with complete independence. You should not have to rely on the opinions of others because you should have conviction in your OWN ideas.

2) Stop Celebrating Winners: When you stop feeling the need to pound your chest every time you make 30 cents on a stock. (It is the flip side  of not getting depressed over every loss). Recognize what you did correctly and move on to the next trade.

The great Pittsburgh Steelers coach Chuck Noll used to say, after you score a touchdown there’s no need to start dancing. Simply hand the ball to the referee, head back to the bench and “Act like you’ve been there before!”

Same thing goes for the stock market. Don’t act like you’ve never had success trading before.

3) Let the Trades Come to You:  When you stop feeling the need to trade every day and you get over the “fear of missing out.” This is the downfall of most traders.

It took me a while to shift my focus from worrying about “missing out” to playing great defense. Once I did this, I noticed an increase in my confidence level as a trader. Keep in mind, there will ALWAYS be opportunities and it’s okay if you miss a few.

4) Feel No Need to Brag: Those traders who compulsively tell everyone about every winner are over compensating for their insecurities. It is a sign of lack of confidence. When you make a good trade or a good call on the market, and you don’t feel the need to remind everyone — its because that is what is supposed to happen.

The key is to be consistent and to separate your ego from your trading. If you are doing a good job, people will notice.

5) Loss Management: When you learn to cut losses without hesitation. No one likes to lose, but cutting losses is part of the game. I have studied the best traders throughout history and they all have the same number one rule: CUT YOUR LOSSES! Learn to accept when you are wrong and move on!

The Foundation of Technical Analysis

  
  Education
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First Principles

  • Markets are highly random and are very, very close to being efficient.
  • It is impossible to make money trading without an edge.
  • Every edge we have is driven by an imbalance of buying and selling pressure.
  • The job of traders is to identify those points of imbalance and to restrict their activities in the markets to those times.
  • There are two competing forces at work in the market: mean reversion and range expansion.
  • These two forces express themselves in the market through the alternation of trends and trading ranges.

The Four Trades

  • Traders usually view market action through charts, which are useful tools, but are only tools.
  • Trades broadly fall into with-trend and countertrend trades. These two categories require significantly different mind-sets and approaches to trade management.
  • There are only four technical trades. Some trades are blends of more than one trade, or an application of one trade to a structure in another time frame, but these are just refinements. At their root, all technical trades fall into one of these categories:
  • Trend continuation.
  • Trend termination.
  • Support and resistance holding.
  • Support and resistance failing.
  • Each of these trades is more appropriate at one phase of the market cycle than another. If you apply the wrong trade to current market conditions, you will lose.

(more…)

10 Quotes by Mark Douglas

  
  Education
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reading“I know it may sound strange to many readers, but there is an inverse relationship between analysis and trading results. More analysis or being able to make distinctions in the market’s behavior will not produce better trading results. There are many traders who find themselves caught in this exasperating loop, thinking that more or better analysis is going to give them the confidence they need to do what needs to be done to achieve success. It’s what I call a trading paradox that most traders find difficult, if not impossible to reconcile, until they realize you can’t use analysis to overcome fear of being wrong or losing money. It just doesn’t work!”
-Mark Douglas

“There is a random distribution between wins and losses for any given set of variables that defines an edge. In other words, based on the past performance of your edge, you may know that out of the next 20 trades, 12 will be winners and 8 will be losers. What you don’t know is the sequence of wins and losses or how much money the market is going to make available on the winning trades. This truth makes trading a probability or numbers game. When you really believe that trading is simply a probability game, concepts like “right” and “wrong” or “win” and “lose” no longer have the same significance. As a result, your expectations will be in harmony with the possibilities.”
-Mark Douglas

The less I cared about whether or not I was wrong, the clearer
things became, making it much easier to move in and out of positions,
cutting my losses short to make myself mentally available to take the next opportunity.
– Mark Douglas (more…)

Livermore quotes

  
  Education
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Jesse_Livermore_quotesLivermore on irationality

Trying to figure out the “why” of amarket move can often cause great emotional strife. The simple fact is, the market always precedes economic news, it does not react to economic news. The market lives and operates in future time.

 
Livermore on knowing yourself

It is my conclusion that playing the market is partly an art form, it is not just pure reason. If it were pure reason, then somebody would have figured it out long ago. That’s why I believe every speculator must analyze his own emotions to find out just what stress level he can endure. Every speculator is different, every human psyche is unique, every personality exclusive to an individual. Learn your own emotional limits before attempting to speculate, that is my advice to any one who has ever asked me what makes a successful speculator. If you can’t sleep at night, because of your stock market position than you have gone too far, if this is the case then sell your position down to the sleeping level. (more…)

We want to be right

  
  Education
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 Two wrongs don’t make a right in life but in the stock market two wrongs (and plenty more) will help you get on the right road to making money.   The market says the trading game is about making money not about stroking the ego.  The “right” road is the “wrong” road when your on Wall Street.  Hey, if  you doing it to be right, then you’re “doing it wrong!”

What is an Ostrich?

  
  Education
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An ostrich will hide itself by lying flat against the ground, or run away when frightened. In dangerous situation, it will stick its head in the ground.
In the stock market, an ostrich is referred to as someone who ignores bad news even when bad news is clearly affecting his portfolio. He will ignore the market and pretend not to know anything. It is not advisable to be an ostrich.

The Crash of 1929 -Video

  
Education, Video
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Here is a link to the transcript of this documentary.

Narrator: At sea and on land, everyone seemed to be making money. It was a stampede of buying. And major speculators like John Jacob Rascob whipped up the frenzy. He told readers of The Ladies’ Home Journal that now everyone could be rich. September 2nd, Labor Day. It was the hottest day of the year. The markets were closed and people were at the beach. A reporter checked in with astrologer Evangeline to ask about the future of stock prices. Her answer: the Dow Jones could climb to heaven. The very next day, September 3rd, the stock market hit its all-time high.

Ben Karol, Former Newspaper Delivery Boy: My father and I had an ongoing discussion about the stock market. And I used to say, “Pop, everybody’s getting rich but you. You know, you work so hard and you’re never going to make a nickel. All you do is you keep delivering these newspapers and that’s about it. The guy who’s shining shoes is in the stock market, the grocery clerk is in the stock market, the school teacher’s in the stock market. The teller at the bank is in the stock market. Everybody’s in the stock market. You’re the only one that’s not in the stock market.” And he used to sit and laugh and say, “You’ll see. You’ll see. You’ll see.”

Narrator: On September 5th, economist Roger Babson gave a speech to a group of businessmen. “Sooner or later, a crash is coming and it may be terrific.” He’d been saying the same thing for two years, but now, for some reason, investors were listening. The market took a severe dip. They called it the “Babson Break.” The next day, prices stabilized, but several days later, they began to drift lower. Though investors had no way of knowing it, the collapse had already begun

(more…)

The Right Side

  
  Education
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A quote from one the best traders of our time, Jesse Livermore: “It takes a man a long time to learn all the lessons of all his mistakes. They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side. It took me longer to get that general principle fixed firmly in my mind than it did most of the more technical phases of the game of stock speculation.”

Being a bull or a bear alone is meaningless out of the crucial context of the current market conditions. All that really matters for the great game of speculation is being on the “right side”, knowing when the markets are in a bull or a bear trend and deploying your speculative capital accordingly.

Once again Livermore ties speculation back into the speculator’s own internal emotions. He points out that it makes no sense to be bullish or bearish as a rule, but to carefully watch the market conditions in order to be on “the right side” at any given moment. Most speculators are burdened with an innate emotional bias to be bullish that is dangerous and must be eradicated if they wish to succeed in speculation. (more…)

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