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Trading Profits in relations to Time and Accuracy

  
  Education
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The size of profits of a trading system, is related to time and accuracy. They are inter-related and it is not possible to get the best out of all 3 factors in any trading system.

Before I elaborate further, I shall define what these 3 factors mean.

Size of profits – I am referring to the average amount of profits the system will earn per trade.

Time – The average length of time you held on to a trade.

Accuracy – The percentage that the system is correct and earns you a profit.

Big Profits = Long Time = Low Accuracy

For systems that aim for big profits, they must allow a greater range of fluctuations for the trade. By having a large trading range will in turn prevent you from getting stopped out so soon. Hence, you will be in a trade for a longer period of time. Besides having a larger profits, it will also serve you losses that are bigger, because your stop loss limit has to be further from your entry point. It is more difficult to grasp for the relationship with accuracy.

Small Profits = Short Time = High Accuracy

On the contrary, a highly accurate trading system allows you to be right most of the time but each time when you are right, you take very small profits. This is possible by making very tight stops in your trades such that you lock in profits as soon as you make them. Hence, you will be in and out of the trades very fast and frequently. This is typical to intraday trading or mean reversion models or even band trading. (more…)

Hallmark of a Position Day Trader

  
  Education
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hallmark-trader

  • Routine and Predictable daily methodology
  • Psychological Control: Discipline, Focus, Patience
  • Macro vs Micro Market Analysis … seeing the Big Picture
  • Comprehensive intraday Hit List analysis
  • Multiple intraday Set-up opportunities
  • Various chart pattern recognition … low risk opportunities
  • Capital preservation = risking less than 50% maximum stop loss.
  • Expectation & Time Exits: Scalp, Breakeven, Profit Target, Let Profits Run
  • Trading Execution Commitment: honoring Set-up signals, not P&L

    • TRADING MANTRA'S

      
      Education
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    trading-mantrasEven the best traders in the market have trading sessions that are less than optimal.  Human nature dictates that we make mistakes, and trading the stock market is no exception.  Subsequently, there is always room for improvement, whether you are a novice trader or a seasoned veteran. 

    1. Stick to Your Guns – Don’t try to run from the market.  The only way to boost trading profits is to stay in the game and keep trading.  Running from the trades and the action will keep you out of the market, whether it is hot or cold.  Sticking to your trading plan and enacting trading discipline are the keys to producing profits.

     

    1. Set Stop Losses and Take Profits – “Set and forget” trading is generally profitable.  When you place each trade, remember to place your exit and stop loss, and then let the market be your guide.  Have a preset limit of how much you’re willing to win and how much you can lose.  Technical analysis will tell you the best price for selling (near resistance) and the best place for buying (near support).  Support and resistance points are the best places to put limit orders. (more…)

    Ten Questions to ask Yourself Before Every Trade

      
      Education
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    If you are just randomly trading what you like with no real underlying system, method or planning then unfortunately your odds of success in the long term are slim. Trading a winning methodology is what creates an edge in trading.

    Consistently trading a robust system or methodology enables you to trade in a way that historically wins, controls risk, and does not bring your ego and your emotions into your trading in a destructive way.

    Ten questions to ask yourself before every trade:

    1. Does this trade fit my chosen trading style? Whether it is:  swing trading, momentum, break out, trend following, reversion to the mean, or day trading?
    2. How big of a position do I want to trade? How much capital am I going to risk? Am I limiting my risk to 1% or 2% of my trading capital?
    3. What is my risk of ruin based on my capital at risk?
    4. Why am I entering the trade here? What is the trigger to trade?
    5. How will I exit with a profit? A price target or trailing stop? (more…)

    IMPROVE YOUR RISK/REWARD STRATEGIES

      
      Education
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    Enter every trade with a plan and stick to it.  Understand first who you are as a trader.  Do you like to daytrade?  Do you prefer swing trading?  What is your risk tolerance level?  Everyone has a unique style and situation.  As a result, what might be a great entry point for a swing trader may turn out to be a not-so-good entry for a daytrader.  A trader with a low tolerance of risk might find that trade far too risky.  The key here is to know why you’re entering a trade, what it would take for you to exit (stop loss) and an appropriate target.  These should all be determined BEFORE you enter the position.  Many unsuccessful traders have one or two of these criteria figured out before they enter the trade.  It’s the third one that derails them.

    Patience is a virtue

      
      Education
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    As a professional trader I still get all the urges to system chase and break the rules as much as anyone, but the key is learning how to control those urges.

    This week has seen some fantastic set ups in the market, and I have known which way the price would likely move thanks to the powerful tools I have at my disposal, but the problem has been that the price just hasn’t been retracing to the levels that I have been waiting at.

    This can cause some people to want to just jump in because they have been right about the overall direction the last 10 times, or even worse some people may even be tempted to enter the market without using a stop loss thinking that the price will come their way in the end.

    These urges and acting upon them show a lack of patience and discipline and this is what the market punishes the most. (more…)

    Hallmark of a Position Day Trader

      
      Education
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  • Routine and Predictable daily methodology
  • Psychological Control: Discipline, Focus, Patience
  • Macro vs Micro Market Analysis … seeing the Big Picture
  • Comprehensive intraday Hit List analysis
  • Multiple intraday Set-up opportunities
  • Various chart pattern recognition … low risk opportunities
  • Capital preservation = risking less than 50% maximum stop loss.
  • Expectation & Time Exits: Scalp, Breakeven, Profit Target, Let Profits Run
  • Trading Execution Commitment: honoring Set-up signals, not P&L

    • Trade Your Plan

      
      Education
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    After yesterday’s close, we received an e-mail from a long-time subscriber, who asked us the following question, “When you see a position that is going against you and the market is dropping, and you are losing money on a trade, but your stop loss hasn’t been hit yet, how do you stay with the position? What is your secret? Do you pullback and look at the big picture or do you simple assume its all noise as long as it doesn’t hit that lower low? This is my biggest problem with tracking your trades and most of the time you are right in holding on.” … Because we thought our answer to his question may be beneficial to other traders as well, we wanted to share our reply to his e-mail, which was…

    “The key point you stated is ‘but your stop loss hasn’t been hit yet.’ When we put on a trade, it’s like entering into a contract, so we try to stay the course and simply follow the plan. Over the years, we’ve found it’s best to stick with our original analysis because we usually plan a trade at night, or in the pre-market, without the stress of live trading. During the trading session, in the heat of the moment, there is so much pressure that we have to fight the voice in our heads telling us to sell the position when everything around is crumbling. It basically comes down to planning the trade and trading the plan…easier said than done, right? Sometimes, if you have a feeling things are going bad, and you’re an active trader, you can maybe sell 1/4 or 1/3 of the position to ease your mind. However, you must have the discipline to get back in once the coast is clear. Try to lay out a plan, write it on paper, and stick to it. The one thing every trader must accept, in order to be successful, is a loss. You must be fully prepared to lose what you’re risking. Once you accept losses as part of the trading game, the pressure to be right is not so intense.

    Look at trading like a pie chart

      
      Education
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    • Risk Management:  Stop loss, profit target, Risk / Reward, and position sizing.
    • Trading Game Plan:  expectations for the next session, Levels of Interest, and intraday tape reading.
    • Psychological Health:  Staying positive and keeping your head.
    Notice the three green segments in the middle of the circle (that, as I was told today by a friend of mine, looks like the Google Chrome icon).  These three segments are isolated to remind you how crucial it is to have ALL of those pieces full of their green color while you’re trading – if one of them is missing, the other two will have to compensate for its absence.  If we took the above example, we would notice that the psychological health was damaged right away, as the trader immediately went into denial about the initial failure of his position.  The trader then got pissed off, and risked more money in order to compensate for his initial loss, damaging both his trading game plan and his risk management.  The center circle is now empty for this particular trader, and he has become a loose cannon.

    4 Valuable Trading Lessons

      
      Education
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    A). No matter how good you think you’re in the knowledge of the financial markets, your perception would change when your hard-earned money is at stake. No matter how much you’ve read about trading, you’ll realize that theory is different from practice when the market shows you its true color.

    B). If you lose in the markets, don’t despair. It means you’re only paying tuition fees to the markets. Eventually, you’ll stop losing more than you gain and become a great trader and harvest profits from the markets on annual basis. It may take some time and perseverance to achieve this. Just make sure you learn from your mistakes and never repeat them.

    C). The best strategies are trend-following strategies. One of the best trading methods is to buy pullbacks in an uptrend or sell rallies in a downtrend. Some indicators can be used to attain this aim (like moving averages). It pays to go with the overall trend. When a trend changes, it must be confirmed before one starts going with it.

    D). It is very dangerous to trade without stop loss or to refuse to go out of the market that’s going against you. There are no other ways protect your account as a private trader. This is a way to deal with the permanent uncertainty in the markets. You mayn’t make profits sometimes, but you can make your losses to be as small as possible. By taking risk management serious, you’ll never lose a huge percentage of your portfolio. When you specialize on not losing, you’ll eventually make money and go ahead in the markets.

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