Archives of “stop loss” tag

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Common Mistakes for losing Money

  
  Education
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Trading is an evolutionary process. Nobody can wake up being a Master Trader. Unfortunately there is no book or magic trick that can turn you into the highly profitable trader. Although the belief and the hope to obtain those skills instantly is still in place.

The statistics say that only the ones with the self-dedication and discipline succeed in this business.

The most common mistakes leading to losses:

-Trading against the market;

-No trade potential;

-No serious buyers or sellers in the stock;

-Wide stop-loss;

-Fear of loss.

Traders should stay calm during the trading, this helps to observe and analyze the situation on the market much better, see some small details and make a competent decision.

Panic, stress or fear, always lead to mistakes.

One of the serious problems in trading is rush and mania to be present on the market all the times, opening positions when there is no potential for a trade or where the market is either flat or going the other direction.

Tips to resolve the mistakes:

1. Always look at the market. If there is no clear picture of the market’s behavior, don’t risk your money.

2. Always look at a trade potential. If you look at the daily charts and see that the daily bars are just 20 cents long, then look for other stocks, where the potential is at least 40 cents.

3. Always look either at the Open Book or Market Maker window and Tape. If you don’t see any order flow on the Tape or the order sizes are small (less than a 1000 shares), then don’t enter the trade.

4. Always know where you are going to place you stop-loss order. If it is more than 10 cents away from your entry point, don’t enter the trade.

5. If you’re just not sure, or if the situation is uncertain, don’t enter the trade.

Following these tips requires some work and changes to our habits. It is not easy at all! We always hear sayings that the trader should be disciplined. What it actually means is changing your old habits and training yourself to have new ones. It is not comfortable, but it brings positive results, which will be noticeable on your month-end P/L report.

Ed Seykota’s Magic Trading System

  
  Education
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1: Do not stress about whipsaws – one good trend pays for them all.

A whipsaw is when you enter a stock, but get stopped out quickly.  In a period of whipsaws, this may happen many times.  This can be frustrating to a trader or investor, and it may cause them to change their system.  But the fact is that one good trend will pay for all of these whipsaws, and if you change your system you lose the benefit of that!

2: When you Catch a Trend, ride it to the end.

Your system must be able to jump on a trending stock (for instance, up if you are going long), but then also be able to ride that trend to the end.  Many novice traders will jump out of stocks before they are finished trending because they are scared the market has gone too far.  Let your system tell you when the trend is ending, and only exit once it does.

3: When you show a loss, give the loss a toss.

Every single successful money manager ever interviewed has said something along the lines of: “Cut your losses short”.  Get rid of your losses.  Keep your winners.  And once you have your system don’t second guess it!  Being stopped out is part of the process.

4: We know if our risk is right when we make a lot of money, but can still sleep at night.

Risk is the amount of risk per trade (the price between your entry and your stop loss), and how much your total risk is (regarding how many positions you have open at one time). (more…)

How to Trade Through the Pain

  
  Education
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10 painful aspects of trading and what to do about them.

  1. The pain of losing money. (Trade smaller so it is not as painful, it is just an outcome not an emotion).

  2. The pain of being wrong about a trade you were sure about. (You lost simply because the market didn’t match your trade, trend followers lose money in choppy markets, swing traders lose money in trending markets, it’s the market not you. As long as you followed your own plan.)
  3. The pain of a draw down in capital.
  4. Consecutive trading losses hurt. They make you doubt yourself, your method, and your system. (You need to remember your winning trades, your winning years, or your back-testing, or paper trading of the method. You have to keep the faith or get with a method you have faith in).
  5. The embarrassment of public losses. You told everyone who would listen about a great trade you were taking and you were wrong. Social media has given us all the ability to embarrass ourselves anytime we want. (Never be overconfident in any trade, but always be sure of your stop loss.)
  6. The pain of of admitting you were wrong. (Cut your loss and move on to the next trade, trade reality not your ego.)
  7. Losing paper profits, you are up 20% on a trade then a massive whip saw takes back those profits in one move. (Take your trailing stop and move on to the next trade, there is truly no reason to cry over spilled milk.)
  8. You are following a guru and come to realize he truly is a salesman not a trader. (You stop following gurus and look to learn how to trade for yourself using a method and a trading plan).
  9. You buy a super hot stock that you have researched for many weeks then it goes down due to a bear market. (Only trade stocks long in up-trending markets)

  10. You start trading a system that did amazing in back-testing and promptly lose 10% of your account. (You have to stick with it so it can win in the long term, you may need to make slight adjustments in position sizing or stops to account for volatility that you may have missed.)

SIMPLIFY

  
  Education
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simplifyWhen we follow a standardized process for trade execution, we help negate the impact that emotions can have on that process.  And when we create a set of rules within which is a subset of rules that allow for less mechanical, more intuitive management of our trades, we can potentially realize additional profits from those intangible insights into market direction without over-exposing our account to risk.  Here is how it works:

  S – Scan your charts .  Create a “Watch List” to help manage your inventory of trading opportunities.

I – Identify a high probability set up.    

 M – Map out the trade’s entry point, stop-loss exit point, and profit exit point. 

P – Pull the trigger.  By systematizing the process as we are talking about here, the anxiety associated with executing a trade is greatly reduced.  Instead of focusing on whatever issues keep you from pulling the trigger, your focus is on following a procedure, a set of instructions.  Mapping out and understanding exactly what our risk is also reduces the anxiety of entering a trade.    

 L – Let the market do its thing.  It’s not very often that you won’t have to take some heat on a trade.  It’s a great feeling when a trade goes in your favor immediately and stays that way.  But that’s the exception and not the rule.  As a good friend of mine would say, “Let it breathe!”  (more…)

Mental Toughness

  
  Education
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MENTALTOUGHNESSYou must eliminate “Human Emotion” as much as possible in this business. It is paramount to success.  Unless you are adapt at predicting the future, your mind is a far weaker ally than all the tools in your toolbox.

Using a Star Wars analogy: the Jedi were superior in mind control and were able to play tricks with weaker minds. Humans are emotional bunches who are not fully prepared for the forex market.

Really once you overcome fear, self-doubt, emotions, and attachment to money you, will be on your way to long term success. Depending on how much power those words have over you, will determine amount of time needed to develop needed skills for growth.

Remember you will learn how to control fear, self-doubt, emotions, and attachment to money as those are human emotions buried inside each of us since birth. Abundance is our birthright, yet many never reach full potential. (more…)

Trading Wisdom from Richard D. Wyckoff

  
  Education
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“You can learn from this how to develop independent judgment, so that you need never ask anyone’s opinion or listen to anyone’s tips, or take anyone’s advice.  You can so train your judgment that you will know just what to do and when to do it.  When you are in doubt you will do nothing.” –Richard D. Wyckoff

Wyckoff was talking here about trading.  He was talking on the subject of studying the markets to determine how they operate.  You will find developing your own trading strategy/method can be the most rewarding and challenging experience of your lifetime.  You need to be comfortable with the risk, before you are comfortable with the reward.  There is an age old saying, ‘If you can’t stand the heat, then stay out of the kitchen.’

As traders, we are exposed on a daily basis to the trading concepts of risk and reward.  Personally, my own reward to risk tolerance took some time for me to feel comfortable with it.  How much do you want to risk on each trade, and how much are you looking to make at a minimum?

Are you at its minimum profit objective going to make more money than you risk?  So if you would take two trades, and one would win and the other would hit your stop loss, would you turn a small profit on your trading?  Obviously, the goal of every trader should be the three general trading rules. (more…)

Don't Lose the Lesson!

  
  Education
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lessonLosing trades can have the same affect – if you let them. However, if you look at each trade as just one of your next 100 or even one of the next 1000 trades you’ll make in the next year, you’ll begin to attach far less emotion to the outcome of each trade. Detaching emotion from individual trades is one of the best ways to build confidence in yourself and your long-term success as a trader.

Losses are inevitable; they simply are a part of trading. How you handle losses is what can ultimately determine your level of success moving forward. Even a losing trade can be beneficial if you take what you can from it. Ask yourself, “Why did this trade fail? Is it a function of a market reversal, or a miscalculation on my part? Was my stop-loss set too close as a result of too large a position? Did I micromanage this trade and adjust my numbers on the fly? Did I completely abandon my trading plan?” A loss means you’ve already paid the tuition, so you might as well stick around for the lesson.

Ask the right questions when a trade doesn’t work out or when you hit a rough patch with your trading. The answers you find can help you greatly as you progress as a trader. Whether those answers allow you to avoid making the same mistake again or if they just give you some closure following a bad experience, take what positives you can find and move forward.

Bottom line: cut the loss but keep the lesson!

Opportunity Knocking

  
  Education
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OPPORTUNITY KNOCKSTrading provides one of the last great frontiers of opportunity in our economy. It is one of the very few ways in which an individual can start with a relatively small bankroll and actually become a multimillionaire. Of course, only a handful of individuals succeed in turning this feat, but at least the opportunity exists. A rigid stop-loss rule is an essential ingredient to the trading approach of many successful traders. Winning streaks lead to complacency, and complacency leads to sloppy trading.

Nicolas Darvas Quotes

  
  Education
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Discipline:
“I knew now that I had to keep rigidly to the system I had carved out for myself.”
Risk/Reward:
“I was successful in taking larger profits than losses in proportion to the amounts invested.”
Exiting profitable trades:
“I decided to let my stop-loss decide.”(Speaking on when to exit an up trending stock)
Bear Markets
“I also learned to stay out of bear markets unless my individual stocks remain in their boxes or advance.” (more…)

Art Huprich’s Market Truisms and Axioms

  
  Education
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Raymond James’ P. Arthur Huprich published a terrific list of rules . Other than commandment #1, they are in no particular order:

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

• Portfolios heavy with underperforming stocks rarely outperform the stock market!

• 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.

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

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

• 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.

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

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

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

• 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.” (more…)

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