It is never easy…and those that promise you that are not telling you the truth.
Perseverance is one of the Best Traits to Have When Trend Following!
Trend following is a marathon. There will always be those that say it is over!
It takes losses in the stock market to make future great traders and learning from mistakes is one of the best teachers.
Have a trading plan….and more importantly…Make sure you follow your own rules!
Headline: Stocks Rose/Fell Today by 1% Because of _______
How to read it: Millions of shares traded hands today because investors all have different goals, strategies, risk profiles, holding periods and ideas.
Headline: [Popular economist/fund manager] Expects Market Volatility to Pick Up Later This Year
How to read it: Saying you expect volatility to pick up at some point in the future is like saying you expect it to rain at some point in the future. And volatility works both ways — to the upside and the downside — so really this is just a way of saying the markets will fluctuate, which of course they will.
Headline: George Soros Gained/Lost $1 Billion
How to read it: Soros has around $25 billion so what he does with his money shouldn’t concern most investors.
Headline: Markets Got Slaughtered Today: A Sign of Worse Things to Come?
How to read it: No one ever really knows why stocks rise or fall on a single day. The market is up just over 50% of all trading days and down just under 50% of all trading days so you can never put too much stock in any one day.
Headline: Investors Are Dealing With More Uncertainty
How to read it: The future is always uncertain. The past just feels more certain because now we know what really happened.
Headline: Are Market Overbought Here?
How to read it: Ask us again in a few months.
Headline: [Democrats/Republicans/current or past president] Caused X% of Economic or Stock Market Growth
How to read it: Presidents or political parties don’t personally control economies or stock markets made up of millions of participants and trillions of dollars all wrapped up within a complex adaptive system. These things don’t come with levers that you can pull to make them rise or fall.
Headline: The Stock Market Enters a Painful Correction
How to read it: Retirement savers rejoice as stocks fall on the week. Those with decades to save & invest should hope it continues.
Headline: _____ Could Cause Gold Could Rise to $1500/oz.
How to read it: Total guess. No one has a clue.
Headline: Is This the Stock-Picker’s Market We’ve Been Waiting For?
How to read it: It’s both always and never a stock-picker’s markets because it all depends on the quality of the stock-picker, not the market.
Headline: Goldman Sachs Expects Stocks to Rally For the Next 3 Months
How to read it: Big financial firms have so many strategists that there will surely be a research piece put out in the coming days that totally contradicts whatever they just predicted.
Headline: When Will the Fed Raise Rates?
How to read it: Has Fed policy really ever helped you make better investment decisions? Even if you knew exactly what they were going to do in the future you still have no idea how other investors will react.
Headline: Investors Panic as Stocks Enter a Bear Market
How to read it: Don’t panic — expected returns and dividend yields go up during bear markets. This is a good thing for long-term investors.
Headline: A Perfect Storm Caused Markets to Fall
How to read it: Stuff happens in the markets and we like to attach important-sounding narratives to everything. 100-year storms now seem to come around once a month or so. (more…)
1.Good trades are generally winners from the very start.
2. Good trades do not take a lot of thinking about; they are triggered through robust entry signals.
3. Good trades aren’t really stressful. With the right position sizing and entry level it should not
cause high stress but instead confidence in your decision.
4. Good trades don’t have to be baby sat and watched for every tick. Good trades can be left alone to work.
5. Good trades are not hard to hold because they are in the direction of the trend for your time frame and get little heat put on them.
6. Good trades hit your price target or trailing stop before your stop loss.
7. Time is on the side of a good trade; the longer you can stay with it the more money you make.
8. Good trades inspire you to stay in them as they become more profitable while bad trades make you want out of them as they lose money.
9. Good trades are psychologically hard to get into because they are generally against the consensus. Bad trades are hard to get out of because you have to admit you are wrong.
10. Good trades make you happy; bad trades make you miserable.
The following questionnaire asks you to assess your emotional experience during your trading. Specifically, you’ll be rating how often you’ve experienced the following feelings over the past two weeks. Below, I’ll explain how to score the questionnaire; please complete the items before looking at the scoring. My next post will explain how to interpret your results.
Please use the following scale for your responses:
1 = rarely
2 = occasionally
3 = sometimes
4 = often
5 = most of the time
1) I feel happy when I’m trading _____
2) I feel stressed when I’m trading _____
3) I feel alert and energetic when I’m trading _____
4) I feel discouraged when I’m trading _____
5) I feel capable of succeeding at my trading _____
6) I blame myself when my trading doesn’t work out _____
7) I feel satisfied with my trading results _____
8) I feel edgy and frustrated when I’m trading _____
9) I feel in control of what happens in my trading _____
10) I make impulsive decisions when I’m trading _____ (more…)
All types of traders have different emotional responses to winning trades as well as losing trades. The mindset of a winning trend follower is much different than most. There is no excitement on a winning trade nor emotional distress on a losing trade. The reason there is no excitement on a winning trade is due to the humbleness of the winning trend follower. He or she did nothing different. They were consistent in their plan and the market moved. The reason is very simple why these small group of winning trend followers succeed. The winning trend follower has an exact plan and knows that he is playing the odds. He or she keeps their losses small…or try to do so…however there will always be gaps or limit moves against them. There is only 4 possibilities when we trade:
big losses
big wins
small losses
small wins… (more…)
Many a trading firm looks for a history of athletic participation in the search for trading talent. While athletics, as performance domains, share some characteristics with portfolio management and trading, the overlap is far from perfect. Both athletics and trading are competitive activities, and both require practice and disciplined performance. It is not surprising that the personalities that gravitate to competitive sports are also drawn to market competition.
What differentiate athletics and trading, however, are the requisite cognitive skills. The pattern recognition and deep analyses typical of short-term traders and investors are not necessarily skills required of sprinters, weightlifters, baseball outfielders, or football linemen. Many sports require rapid hand-eye coordination; not necessarily explicit decision-making under conditions of risk or uncertainty. Across many trading firms and types of trading, I have not found a strong correlation between athletic achievement and trading success.
Only risk 1% of total trading capital per trade with stop losses and proper position sizing. Proper positions sizing makes the emotional impact of any one trade only one of the next one hundred a totally different mental perspective than an all in/have to be right Hail Mary trade.
We come to the market from different walks of life and bring with us the mental baggage of our upbringing and prior experiences. Most of us find that when we act in the market the way we do in our everyday life, we lose money.
You success or failure in the market depends on your thoughts and feelings. It depends on your attitudes towards gain and risk, fear and greed, and on how you handle the excitement of trading and risk.
Most of all, your success or failure depends on your ability to use your intellect rather than act out your emotions. A trader who feels overjoyed when he wins and depressed when he loses cannot accumulate equity because he is controlled by his emotions. If you let the market make you feel high or low, you will lose money. (more…)
The day the trader stops blaming the markets, politicians, or ‘They’ and ‘Them’ for losses and starts taking responsibility for their own trading could be the day that they begin to change from losing money to making money. In the end the market is like the ocean and we are the surfer, we choose the surfboard and the waves and the ocean really doesn’t care what we do it’s just there. The quality of our ability to ride a wave is based on our skills, technique, and experience our emotions contain no edge. In the end we win or lose based on our ability to overcome our own weaknesses.
Market price action is neutral to our existence, it is our method that determines our profitability and we choose how we will trade.
Profitability comes from our total trading profits being bigger than our total trading losses, we control our entries and exits.
The size of our draw down in capital is determined by the quality of our risk management and we manage our own risk.
Trading too big for a trading account size almost guarantees failure, we control our own position sizing.
Profitability only comes from trading with an edge, we are responsible for finding and trading with our own edge.
