Hot stocks are only good when they are in up trends, when the party is over you have to break up with them.
Hot stocks are great to trade in and out of but you don’t want to turn them into a life long investment.
A good stock might look great on the outside with it’s price action but it may not have the best fundamentals for getting serious with.
Hot stocks are great for the short term but for the long term you want a solid investment.
Be careful with hot stocks they may look great on the outside but they can break your heart at any moment.
A hot stock can be a lot of fun for awhile but they can be a lot of drama when no one wants them anymore.
As long as a hot girlfriend is very popular she will be happy but when no one wants to date her she goes into a downward spiral. This applies to hot stocks as well.
This pattern must appear after a preceding trend in the price.
An outside bar would have taken out the stops of both the bulls and the bears, with no follow-through. Hence both sides become less confident and this leads to range-trading behavior.
Hammer bottom
After a downtrend, the market opens near to the previous close, drops a lot, before closing the period up towards the level at which it opened.
Signals an end of the downtrend where the next period will be characterised by range trading.
Shooting star
After an uptrend, the market opens near the previous close, rallies a lot, but closes the period down towards the level at which it opened.
Signals that that supply and demand have become more balanced, and this balance can mean range trading.
Hanging man
After an uptrend, market does not rise much but falls a lot, before closing back up near to the level at which it opened.
This is bearish, and represents the last buyers getting into the uptrend.
In the great game that is trading, the game never really changes.
New technology is introduced; new methodologies are dreamed up; new investment fads come and go. But the essentials of trading are the same now as they were generations ago.
There is a class of books that brings home this timelessness. Four of the best are The Money Game by Adam Smith; Devil Take the Hindmost by Edwin Chancellor; Extraordinary Popular Delusions and the Madness of Crowds by Charles MacKay; and of courseReminiscences of a Stock Operator by Edwin Lefevre (with the guidance of Jesse Livermore).
The oldest of the above is MacKay’s book, published in 1841. The Psychology of the Stock Market, by G.C. Selden, is another addition to the “timeless classics” list.
Though published in 1912, Selden’s book could have been published yesterday. This makes complete sense, as the main topic — human psychology — has not changed at all in the past century.(more…)
It is impossible to make money trading without an edge.
There are many ways to create an edge in the markets, but one this is true—it is very, very hard to do so. Most things that people say work in the market do not actually work. Treat claims of success and performance with healthy skepticism. I can tell you, based on my experience of nearly twenty years as a trader, most people who say they are making substantial profits are not. This is a very hard business.
Every edge we have is driven by an imbalance of buying and selling pressure.
The world divides into two large groups of traders and investors: fundamental traders who base decisions off of financial analysis, understanding of the industry and a company’s competitive position, growth rates, assessment of management, etc. Technical traders base decisions off of patterns in prices, volume or related data. From a technical perspective, every edge we have is generated by a disagreement between buyers and sellers. When they are in balance (equilibrium), market movements are random.
Knowledge is the key to winning and gain in the Stock, Commodity and Futures, and Forex markets.
Trading on trust is a fools game.
Do not attempt to place a trade. If the market triggers the exit signal you had predefined, without emotion follow it immediately. Many traders enter the market with more ‘hope’ than understanding. You have to take complete charge of your trading. The best way to do this is to get knowledge and all of the information you can about the market you wish to trade and then form a plan.
You plan should include not only the entry parameters but also the exit parameters. The departure is the most important. Your trade should be protected. Failure to admit that you’re wrong when the trade is moving south is one of the reasons.
Learn to trade on knowledge. There isn’t any need for fear and hope that get in your way. When you’re able to trade on knowledge, you’ll have the ability to react to trading opportunities when it’s time to do 31 and to exit out.
Your best friend needs to be the Stop Loss order.(more…)
Who really wants to define a loss? Only smart trend followers. Most people think they can postpone a loss. They become investors instead of traders. Many refuse to define a loss. I have seen traders not close a losing trade, after they realized that the trade’s potential is greatly diminished and has gone against them. They want to right. All the way to the poor house. This is a typical trading error when trend following. You need an exact plan when you are trend following. You can not make it up as you are going. This is what losers do. Besides having the exact plan you must believe in it and follow it. Do not think of the money. Think in terms of percentages. Follow your rules and stay in the marathon of trend following. Successful trend following is not about tips or magic indicators. It is about you and how you approach the markets. You must be willing to take losses once it is clear the trade is not working.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts, commodity options or forex can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results. You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources.
2. Events that you think are affected by cardinal announcements like the employment numbers at 8:30 am on Friday are often known to many participants before the announcement
3. It’s bad to try to make money the same way several days in a row
4. Markets that have little liquidity are almost impossible to profit from.
5. When the stock market is way down, policy makers take notice and do what they can to remedy the situation.
6. The market puts infinitely more emphasis on ephemeral announcements that it should.
7. It is good to go against the trend followers after they have become committed.
8. The one constant, is that the less you pay in commissions, and bid asked spread, the more money you’ll end up with at end of day. Too often, a trader makes a fortune on the prices showing when he makes a trade, and ends up losing everything in the rake and grind above.
9. It is good to take out the canes and hobble down to wall street at the close of days when there is a panic.
10. A meme about the relation between today’s events and those of x years ago is totally random but it is best not to stand in the way of it until it is realized by the majorit of susceptibles
11. All higher forms of math and statistics are useless in uncovering regularities.
Here’s a great video about trading psychology, even though it’s not directly about the stock market, futures or Forex, and doesn’t reveal any day trading tips. But it does contain a secret most traders are violating every day.
Trading is a great business. I love it, I’m passionate about it, and it is so much fun that I’d do it even if there were no money involved.
But it’s not just me. We traders are a passionate bunch.
We spend a LOT of time reading, studying, trying different indicators, tweaking indicators, testing various strategies and looking at chart after chart after chart.
And then you add the money factor – and well, we can get to be a bit obsessive (just ask any trader’s spouse!).
Work ethic is good, and it does take a certain amount of experience in the markets to become successful. The problem arises when you take things TOO seriously. That causes a block of your mental and emotional energy. And in extreme cases, it can have negative consequences in the rest of your life.
This video isn’t about trading. It’s about life. And therefore, it is about trading.
Enjoy, and leave a comment below with your reaction to the video.
Three popular trading personality types are intuitive, data oriented, and impulsive.
The data-oriented trader focuses on concrete evidence and is often very risk averse. They seek out as much supporting data for a trading decision as possible. The trader who prefers to do extensive back-testing of a trading idea exemplifies data-oriented type. Consider incorporating elements of data oriented trader personality into your trading style regardless of your natural inclinations. Make sure you have adequate information (a reason) before executing a trade. Particularly important is to have and trade a detailed trading plan in which risk is minimized and entry and exit strategies are clearly specified. Most often however, the data-oriented trader may take things a little too far. Searching for “the perfect” knowledge that just doesn’t exit in the trading world. At some point, one must accept the fact that he or she is taking a chance and no amount of data analysis can change this fact.
The intuitive trader is the opposite of the data-oriented trader. Trading decisions are based upon hunches and impressions rather than on clearly defined data. There’s a difference between being an intuitive trader who develops this style over time and one who is naturally intuitive. The experienced intuitive trader, bases decisions on data and specific market information. But, as a seasoned trader, analyzes the data quickly and efficiently. It happens so quickly that it seems like it occurs intuitively, but it is actually based on solid information. Ideally, all traders should gain extensive experience to the point where sound decisions are made with an intuitive feel.
A third trader personality type is the impulsive trader (gambler). This is the most dangerous style. The impulsive trader allows his or her decisions to adversely influence trading decisions. Rather than looking at information logically and analytically, information is discounted completely. The impulsive trader seeks out risk and enjoys taking risky, exciting trades. Impulsive traders can often make huge profits one day and see large draw downs the next. Your personality can have a huge influence on your trading performance. Identify your assets and liabilities, and work around your personality when it is necessary.
1. Money Management: * “I trade on my own information and follow my own methods.” *“The desire for constant action irrespective of underlying conditions is responsible for many losses on Wall Street, even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.”
2. Business of Investing: * “I believe that anyone who is intelligent, conscientious, and willing to put in the necessary time can be successful on Wall Street. As long as they realize the market is a business like any other business, they have a good chance to prosper.” 3. The Investor Self: *“My satisfaction always came from beating the market, solving the puzzle. The money was the reward, but it was not the main reason I loved the market. The stock market is the greatest, most complex puzzle ever invented – and it pays the biggest jackpot…it was never the money that drove me. It was the game, solving the puzzle, beating the market that had confused and confounded the greatestminds in history. For me, that passion, the juice, the exhilaration was in beating the game, a game that was a living dynamic riddle…” 4. Market Analysis: *“What beat me was not having the brains enough to stick to my own game – that is, to play the market only when I was satisfied that precedents favored my play.” *“It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibly expressed by a brilliant mind.” 5. Routines: *“It is what people actually did in the stock market that counted – not what they said they were going to do.” *“The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.” (more…)
