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Amateur & Professional

The true mark of an amateur trader who is never going to make it in this business is one who continually blames everything but his or herself for the outcome of a bad trade. This includes, but is not limited to, saying things like:
1. The analysts are crooks.
2. The market makers were fishing for stops.
3. I was on the phone and it collapsed on me.
4. My neighbor gave me a bad tip.
5. The message boards caused this one to pump and dump.
6. The specialists are playing games.
The mark of a professional, however, sounds like this: 

•It is my fault. I traded this position too large for my account size.
•It is my fault. I didn’t stick to my own risk parameters.
•It is my fault. I allowed my emotions to dictate my trades.
•It is my fault. I was not disciplined in my trades.
•It is my fault. I knew there was a risk in holding this trade into earnings, and I didn’t fully comprehend them when I took this trade. (more…)

Trading Mantra's

“Technical analysis is a windsock, not a crystal ball. It is a skill that improves with experience and study. Always be a student, there is always someone smarter than you!

“Thou Shall Not Trade Against the Trend.”

Let volatility work in your favor, not against you.

Emotions can be the enemy of the trader and investor, as fear and greed play an important part of one’s decision making process.

Portfolios heavy with underperforming stocks rarely outperform the stock market!

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.

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.

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.

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.

It’s not the ones that you sell that go higher that matters, it’s the ones you don’t sell which go lower, that do.

Don’t think you can consistently buy at the bottom nor sell at the top. This can rarely be consistently done. (more…)

40 Great Quotes from Ed Seykota

  1. “If I am bullish, I neither buy on a reaction, nor wait for strength; I am already in. I turn bullish at the instant my buy stop is hit, and stay bullish until my sell stop is hit. Being bullish and not being long is illogical.”
  2. “Fundamentalists figure things out and anticipate change. Trend followers join the trend of the moment. Fundamentalists try to solve their feelings. Trend followers join their feelings and observe them evolve and dis-solve.”
  3. “The feelings we accept and enjoy rarely interfere with trading.”
  4. “Systems don’t need to be changed. The trick is for a trader to develop a system with which he is compatible”
  5. “It can be very expensive to try to convince the markets you are right.”
  6. “There are old traders and there are bold traders, but there are very few old, bold traders.”
  7. “I would add that I consider myself and how I do things as a kind of system which, by definition, I always follow.”
  8. “Systems trading is ultimately discretionary. The manager still has to decide how much risk to accept, which markets to play, and how aggressively to increase and decrease the trading base as a function of equity change.”
  9. “Trying to trade during a losing streak is emotionally devastating. Trying to play “catch up” is lethal.”
  10. “The elements of good trading are: 1, cutting losses. 2, cutting losses. And 3, cutting losses. If you can follow these three rules, you may have a chance.”
  11. “Losing a position is aggravating, whereas losing your nerve is devastating.”
  12. “The markets are the same now as they were five to ten years ago because they keep changing – just like they did then.”
  13. “Luck plays an enormous role in trading success. Some people were lucky enough to be born smart, while others were even smarter and got born lucky.”
  14. “Having a quote machine is like having a slot machine at your desk – you end up feeding it all day long. I get my price data after the close each day.”
  15. “A losing trader can do little to transform himself into a winning trader. A losing trader is not going to want to transform himself. That’s the kind of thing winning traders do.”
  16. “If you can’t take a small loss, sooner or later you will take the mother of all losses.”
  17. “It is a happy circumstance that when nature gives us true burning desires, she also gives us the means to satisfy them. Those who want to win and lack skill can get someone with skill to help them.”
  18. “Risk no more that you can afford to lose, and also risk enough so that a win is meaningful.”
  19. “Dramatic and emotional trading experiences tend to be negative. Pride is a great banana peel, as are hope, fear, and greed. My biggest slip-ups occurred shortly after I got emotionally involved with positions.”
  20. “Be sensitive to subtle differences between ‘intuition’ and ‘into wishing’.”
  21. “The trading rules I live by are: 1. Cut losses. 2. Ride winners. 3. Keep bets small. 4. Follow the rules without question. 5. Know when to break the rules.”
  22. “I usually ignore advice from other traders, especially the ones who believe they are on to a “sure thing”. The old timers, who talk about “maybe there is a chance of so and so,” are often right and early.”
  23. “I set protective stops at the same time I enter a trade. I normally move these stops in to lock in a profit as the trend continues. Sometimes, I take profits when a market gets wild. This usually doesn’t get me out any better than waiting for my stops to close in, but it does cut down on the volatility of the portfolio, which helps calm my nerves. Losing a position is aggravating, whereas losing your nerve is devastating.”
  24. “I intend to risk below 5 percent on a trade, allowing for poor executions.”
  25. “I don’t judge success, I celebrate it. I think success has to do with finding and following one’s calling regardless of financial gain.” (On losing streaks and over-trading) “Acting out this drama could be exciting. However, it also seems terribly expensive. One alternative is to keep bets small and then to systematically keep reducing risk during equity drawdowns. That way you have a gentle financial and emotional touchdown.”
  26. “In order of importance to me are: 1) the long term trend, 2) the current chart pattern, and 3) picking a good spot to buy or sell.”
  27. “Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.”
  28. “Fundamentals that you read about are typically useless as the market has already discounted the price, and I call them “funny-mentals”. However, if you catch on early, before others believe, you might have valuable “surprise-a-mentals”.”
  29. “If you can’t measure it, you probably can’t manage it… Things you measure tend to improve.”
  30. “The key to long-term survival and prosperity has a lot to do with the money management techniques incorporated into the technical system.”
  31. “If you want to know everything about the market, go to the beach. Push and pull your hands with the waves. Some are bigger waves, some are smaller. But if you try to push the wave out when it’s coming in, it’ll never happen. The market is always right”
  32. “To avoid whipsaw losses, stop trading”
  33. “Pyramiding instructions appear on dollar bills. Add smaller and smaller amounts on the way up. Keep your eye open at the top.”
  34. “Markets are fundamentally volatile. No way around it. Your problem is not in the math. There is no math to get you out of having to experience uncertainty.”
  35. “Our work is not so much to treat or to cure feelings, as to accept and celebrate them. This is a critical difference.”
  36. “Before I enter a trade, I set stops at a point at which the chart sours.”
  37. “Trading requires skill at reading the markets and at managing your own anxieties.”
  38. “The positive intention of fear is risk control.”
  39. “Speculate with less than 10% of your liquid net worth. Risk less than 1% of your speculative account on a trade. This tends to keep the fluctuations in the trading account small, relative to net worth. This is essential as large fluctuations can engage {emotions} and lead to feeling-justifying drama.”

WHY BEING WRONG IS THE RIGHT WAY TO BE A SUCCESSFUL TRADER!

From a very young age, we are ingrained with a powerful short-term reward system. We are taught to eat on day one and we get the reward of satisfying our hunger. This immediate gratification teaches us to always eat when we are hungry.

As we began with our education, we are rewarded when we do well in our exams and tests, by going up grade levels.

And as you get better with our grades, we soon realize that we get more approval from parents, teachers, and peers.

This gives us the reason to study very hard before we take an exam.  Because we get the assurance that we’ll receive a better grade from it. As we enter the job-market, a day’s work is rewarded with a monthly salary.

In many cases, an immediate commission is rewarded for each sale we make – or it is aggregated into a bonus at the end of the year.

How all off this reflects on trading?

Very small percentage of people makes a real income and success out of trading. (more…)

Perseverance is one of the Best Traits to Have When Trend Following!

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!

Just Give Up These 10 Things If You Are A Trader

  • Give up your need to be right: The market is always right, do not strive to be right in your predictions and opinions. Strive to go with the flow of the market.
  • Give up control: No matter how long you watch a live stock stream, you have no power over the movements. Save your emotional energy by not trying to cheer on your positions and get wrapped up in every price tick.
  • Give up blaming other factors for your losses: There is no mysterious ‘They’ causing you to lose money. Your choices cause you to lose money, or your system just had a losing trade. It is a free country and free market.
  • Give up beating yourself up for losing trades: If you followed your trading plan, then there should be zero regrets involved in a losing trade. If you did not follow your plan and lost, then money was the tuition and you paid  to learn the lesson. You must move on to the next trade. 
  • Give up your own opinions: If you took a trade based on your own opinion, you have to give up your opinion and get out if the trade moves to a place that proves you were wrong.
  • Give up your inability to change your mind: The more you believe a trade just can’t miss, the more dangerous it is. It will cause you to trade too big and stay in too long. You have to always be ready to be wrong.
  • Give up your past trades: Each trade is a new trade. Do not hold grudges against stocks and think they ‘owe’ you for past losses. Do not fall in love with a stock and hold it as it falls lower and lower.
  • Give up letting your trading define your self worth: Do not let your trading define you. Diversify your life with friends, family, hobbies, and other interests. It is not healthy to become overly obsessed with the markets.
  • Give up on losing trades quickly when your stop is hit: Your best trades will be the ones that are profitable from the start. If they immediately go against you, be prepared to be stopped out. You can destroy your trading account when you start the “It will come back, I just have to wait” chant in the midst of a death spiral.
  • Give up on price targets let your winners run as far as they will go: In the right market conditions trends can go on to unbelievable levels. The big wins during these trends can make your entire career. If you set a predefined profit target, you will not miss the opportunity when it comes. Let a trailing stop take you out.

9 Trading Rules

1. Move: Always be flexible.  The beauty of the stock market is polygamy is perfectly acceptable.  Never get married to a particular position or a particular strategy.   The market is complex, dynamic and always changing.  Learn to change with it if necessary.

2.  Plan de Vida: Always invest with a plan.  Have strict rules and a machine-like approach.

3.  Downshift: Pulling yourself out of the game when you’re not certain will help you from making debilitating mistakes.  When in doubt get out.

4. 80% Rule: Never let more than 20% of your portfolio put 80% of your portfolio at risk.  Position sizing is key to risk management.

5. Hope is a 4 letter word: Holding and hoping is not a strategy.  Cut your losses, learn from it and never look back.   Never ever get into something you can’t get out of.

6. Understand your risks: You can’t avoid black swans, but they don’t have to rip your face off.  Understand your risks and your rewards.

7. Goals and accountability: Set goals and keep track of your performance.  You are responsible for your own decisions.  Own your mistakes.

8. Psychology: Learn to control your emotions and understand the emotions of those around you.  Always remember what General Patton said: “if everyone is thinking the same then someone isn’t thinking”.   Also the famous Buffett quote: “Be fearful when others are greedy and greedy when others are fearful.”

9. Your Tribe: Always remember that there is more to life than investing.  Don’t live to invest.  Invest to live.  Being the richest man/woman in the graveyard is worthless if there isn’t anyone to bury you there