– James Dalton
– Henri-Frederic Amiel
– John Mack
– Alan “Ace” Greenburg
– James Grant
Archives of “successful traders” tagrss
- Managing your risk, you will not be around to win if you do not control your risk per trade. How many losses in a row can you survive? Surviving the market is magic at times.
- Trading a consistent methodology is magical because you will be consistent enough to make money when a market environment rolls around that it works in, single trades by themselves mean nothing outside the context of a method.
- Trading a methodology you believe in will enable you to trade it through draw downs instead of giving up.
- Understanding your edge will enable you to have the mental toughness to trade knowing eventually you will get the pay off.
- Trading price action versus your own opinion will help you magically be on the side of the majority most the time.
- Trading in the direction of the trend will enable you to be right more times than wrong most of the time.
- Cutting losses short and letting winners run will make you profitable. Now that is the magic of asymmetry.
- Only trading in markets and trading vehicles you understand will keep you safe from many big mistakes.
- Doing nothing when you do not know what to do is a plan that will save you much money.
- Spending thousands of hours studying charts, reading books from successful traders, and doing the right homework will make you successful eventually so all your friends can tell yo how lucky you are. Then you can tell them that is isn’t magic, trading is a lot of hard work.
|1. Managing the risk of ruin.|
Do not risk so much on any one trade that 10 losing trades in a row will destroy your account. risking 1% to 2% of your trading capital per trade is a great baseline for eliminating the risk of ruin.
2. Only trade with a positive risk/reward ratio.
Only take trades where your possible reward is at least two or three times the amount of capital you are risking in the trade.
3. Always trade in the direction of the prevailing trend.
Always trade in the direction of the flow of capital for your specific time frame. Shorting rockets and catching falling knives is not profitable in the long run.
4. Trade a robust system.
Back test and study your trading method, system, or style to ensure it is a winning system historically. The key is that it had bigger winners than losers over the long run in the past.
5. You must have the discipline to take your entries and exits as they are triggered.
You must take your entries when they trigger, your losses when they are hit, and your profits when a run is over to be a successful trader.
6. You must persevere through losing periods.
All successful traders were able to overcome their losing periods to come back and make the big money. If you quit you will not be around for the opportunity to win big.
7. If you want to be a winning trader you must follow your trading plan not your fear and greed.
Emotions will undo a trader more than anything else. Trading too big is due to greed, missing a winning trade due to no entry is a sign of fear, traders must trade the math and probabilities not their own opinions or emotions.
1) Understand the true realities of the markets. 2) Be responsible for your own trading destiny. 3) Trade only with proven methods. 4) Trade in correct proportion to your capital. 5) Manage risk. 6) Stay long-term oriented. 7) Keep trading in correct perspective and as part of a balanced life. The common theme is self-control. As I’ve often said, if you can master yourself, you can master the markets.
“Nothing you can do – talking, thinking, reading, imagining- is more effective in building skill than executing the action, firing the impulse down the nerve fiber, fixing errors, honing the circuit.”
This explanation reveals why it is impossible to transfer trading prowess from one person to another. You can’t talk, think, read, or imagine your way to elite performance. The key lies in the “doing”, going through the motions. Now that’s not to say talking or reading about trading isn’t helpful. It is. I pick up tons of insight from talking with other investors and traversing the trading blogosphere. I’m like a hungry orphan hiding below the tables of successful traders just hoping they’ll drop a few morsels of wisdom I can chew on. Yet it’s not a substitute for “executing the action”. Nothing replaces sitting in front of my computer, monitoring positions, assessing potential trades and most importantly pulling the trigger. (more…)
Reading Nassim Taleb’s newest book Anti-Fragile really got me thinking about how traders are broken.
Traders can become fragile and be broken in several ways:
- They can quit because they believe that trading successfully is impossible.
- They can lose half their account or all of their account and just give up.
- They can become emotionally traumatized by one huge loss or a string of losses and just not be able to trade any more due to the pain going forward.
- A trader can lose faith in them self as a trader.
- A trader can lose faith in their system.
- A trader can trade too big and blow up their account, they want to trade, they believe they can make it back but have no money.
A trader can become anti-fragile they can benefit from adversity at times by:
- Having 100% confidence that they will be in the 10% percentile of consistently winning trades, it is just a matter of time.
- They do not give up after losing the majority of their very first account they just accept it as paying tuition and start again this time with faith they will win.
- The anti-fragile trader trades small, their emotions do not bleed into their trades, each trade is just 1 of the next 100. They risk 1% of capital per trade.
- The successful trader identifies themselves as a successful trader, losing trades do not change who they are.
- The trader believes that time is on their side and draw downs are just temporary, short term losses do not change the trader’s belief in long term success.
- Successful traders know that their trading account is their life blood, guarding it against big losses is their #1 priority.
Fragile traders are inevitably broken, anti-fragile traders are not only not broken but benefit from circumstances by learning, growing, and becoming more resolved to win. Adversity makes them stronger.
- Trading affects psychology as much as psychology affects trading.
- Emotional disruption is present even among the most successful traders.
- Winning disrupts the trader’s emotions as much as losing.
- Size kills.
- Training is the path to expertise.
- Successful traders possess rich mental maps.
- Markets change.
- Even the best traders have periods of drawdown.
- The market you’re in counts as much toward performance as your trading method.
- Execution and trade management count.
- Devise a trading plan and follow it. I believe the best trading strategy is the one you’ve been able to review, back test and fits your trading style and risk tolerance. It is important that you know all vitals of the trade (the entries, possible exit targets, and where your stops may be prior to placing your trade orders.) By having a concrete plan, you assist in removing the emotion out of the equation.
- Stick with the trend!There’s a reason why the cliché “The trend is your friend” exists. It’s because it’s true! Successful traders will always tend to follow the trend when trading. Remember, if you trade with the trend, you have the majority of the market on your side.
- Control your emotions.This by far is the hardest thing for any trader to do. After all, it has been said that emotional control is 90‐95% of trading and the rest is your strategy. Therefore, I can’t say it enough times… Figure out a way to trade without emotions. To help with this matter, I believe it’s vital that you trade only with capital you can afford to lose. If you are using money that you need to pay your bills, you will almost certainly get emotional about every trade you make. In addition, I found that the more confident you are about your trading strategy, the better the chances are that you can trade with little emotional stress.
- Record your trades in a trade journal.When I first started trading, I was a bit lax about this concept. But once I started doing recording my actions, I found that I was able to identify my strengths and weaknesses. I take about 30‐45 minutes each day after I’m finished trading for the day to review my trades and to analyze any disconnect from my original plan. This helps me strengthen my conviction of my plan.
- Never trade unless the signal is clear.There are times when the market can confuse you. For me, confusion is a clear cut signal to keep out of the market. I always want my trades to be high probability signals. My signal has generated a winning percentage of more than 70%. So if I’m uncertain about a signal why would I want to take it, knowing that the chance of it winning is more like a coin toss or less? To me, that is gambling… and I do not consider myself a gambler.
- Never make trades because you are bored. Sitting on the sidelines waiting for your next trade signal to line up can be very unsettling. Many traders have learned that trading out of boredom can blow out your account in a hurry. For me, trading out of boredom while failing to follow your trading signal is gambling.
You have to do the mental work to let go of the need to know what is going to happen next or the need to be right on each trade. In fact the degree to which you think you know, assume you know, or in any way need to know what is going to happen next, is equal to the degree to which you will fail as a trader. Mark Douglas The most successful traders have found a way to inoculate themselves from the stress of trading, and from the outcome of their most recent trades. Here’s how they do it: They have an unshakable belief in the fact that 1) While the outcome of any given trade is uncertain they believe in their edge over a series of trades. In other words they know the expectancy of their method and have confidence that over a series of random outcomes, the odds are in their favor. 2) Anything can happen! In other words they have learned to think of every trade like tossing a coin – they don’t need to know what will happen. They don’t expect to either win or lose. This firm belief in the uncertainty of any given trade, while knowing that over a series of trades you will be profitable, is very liberating. When you learn the mental discipline of letting go of the result of any individual trade you keep your mind in a state where it can easily perceive the opportunities that the market is offering. It is not distracted by focusing on your expectations of what you think should happen – it can perceive what is most likely to happen. The Body/Mind Connection
There are useful parallels between chess and trading. In the below quotation there is actually more than one lesson for those willing to consider it.
Pal Benko, a chess grandmaster said:
“Patience is the most valuable trait of the endgame player. In the endgame, the most common errors, besides those resulting from ignorance of theory, are caused by either impatience, complacency, exhaustion, or all of the above.”
1) Ignorance of theory
2) Impatience / Patience
See this 1 chess lesson morphed into 4 lessons:
Let me have a little go at highlighting some things that we can perhaps learn from this chess quote that apply to trading. (I’d love it if you told me yours in the comment section below. Go on, be brave and join in – dialogue is good :-))
1) Ignorance of Theory
Ed Seykota has been recorded as saying something like: until you master the basic literature and spend some time with successful traders, you might consider confining your trading to the supermarket.
Naturally with trading, getting comfortable with the basics is an important step. Make sure, however, not to end up one of those paralysed and stuck in student mode. At some point you have to be willing to move from student to trader. One of the useful ways of ‘spending time with traders’ if you are not employed in a trading firm is to utilise things like Stocktwits, trading groups, forums etc. (more…)