Archives of “successful traders” tag

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Fear and Greed

  
  Education
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Day trading is a system based on rules, but as charts are analyzed and prices fluctuate, traders may find that they have a difficult time sticking to those rules when fear or greed become involved in the analysis. Successful traders are able to buy despite feelings of fear and sell despite feelings of wanting to prolong the holding of a stock.

A confident trader will still take the time to test and re-test a stock. At first glance a stock might look like it’s in top shape and performing as expected, but a successful trader will not solely rely on first glance appearances. Those who day trade stocks know that in an instant the market can change and it’s important to stay abreast of company information as well as market news and conditions. A successful trader will stick to the rules set up in day trading systems to ensure that his or her reactions remain unbiased throughout the trade.

Effective day trading strategies focus on providing consistent and disciplined actions. Successful traders have a consistent approach to the market and trading. They will take the time to systematically build up their own trading system that takes into account their own personal elements of risk control and they will take the time to stick to their original trading plan. It’s not that traders shouldn’t make changes based on market information, but that the changes made should be based on established trading rules that help traders determine what their entry and exit points on a trade should be.

Some of the best day trading tips that a trader can get help them deal with fear and greed. Many traders find that they may be able to memorize the rules and familiarize themselves with knowing how to accurately interpret stock charts, but they also need to learn how to prepare themselves to deal with fear and greed.

Fear in trading primarily takes on two basic forms – the fear of loss and the fear of missing out. The fear of loss leads to selling stocks prematurely and as a result, they aren’t able to capitalize and recover fully on the trade. When they start to enter into trades, the trade isn’t given enough time to mature and the trader sells so that more isn’t risked.

The fear of missing out is another form of fear that compels people to abandon their rules so that they don’t lose out on another major stock move. These fears need to be dealt with because they will impact a trader’s entry and exit decisions.

Greed is the motivation for over-confidence. Dreams of “making it big” in trading can cloud a trader’s perspective. Again, they abandon the rules of their trading system in the hopes that more money will come their way. Traders need to learn how to deal with greed so they can maintain their focus and not have their thoughts be swept away with illusions.

Know When to Trade (and When Not to Trade)

  
  Education
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Successful traders know when to trade: they trade when their system tells them to. That might seem like an obvious point, but people too often forget it during the excitement of actually having money on the line.
A trader should be governed by his or her system, not by the circumstances of the moment, the market, or the outcome of a few trades. Keep a long-term perspective which focuses on developing a consistent, repeatable strategy. You won’t know what is successful or what fails if you constantly change your reasons for trading.
It is hardest to keep this kind of control when you’re experiencing losses. But this is also the most crucial time to be consistent. Otherwise, you won’t know how to avoid downturns in the future, or how to prevent them from becoming too damaging. (more…)

Jesse Livermore / "How to trade stocks"

  
  Education
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–“All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why the numerical (technical) formations and patterns recur on a constant basis.”

–“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.”

–Don’t take action with a trade until the market, itself, confirms your opinion. Being a little late in a trade is insurance that your opinion is correct. In other words, don’t be an impatient trader.

–“It is foolhardy to make a second trade, if your first trade shows you a loss. Never average losses. Let this thought be written indelibly upon your mind.”

–“Remember this: When you are doing nothing, those speculators who feel they must trade day in and day out, are laying the foundation for your next venture. You will reap benefits from their mistakes.”

–“When a margin call reaches you, close your account. Never meet a margin call. You are on the wrong side of a market. Why send good money after bad? Keep that good money for another day.”

–“Successful traders always follow the line of least resistance. Follow the trend. The trend is your friend.”

–A prudent speculator never argues with the tape. Markets are never wrong–opinions often are.

–Few people succeed in the market because they have no patience. They have a strong desire to get rich quickly.

–“I absolutely believe that price movement patterns are being repeated. They are recurring patterns that appear over and over, with slight variations. This is because markets are driven by humans–and human nature never changes.”

–When you make a trade, “you should have a clear target where to sell if the market moves against you. And you must obey your rules! Never sustain a loss of more than 10% of your capital. Losses are twice as expensive to make up. I always established a stop before making a trade.”

–“I am fully aware that of the millions of people who speculate in the markets, few people spend full time involved in the art of speculation. Yet, as far as I’m concerned it is a full-time job–perhaps even more than a job. Perhaps it is a vocation, where many are called but few are singled out for success.”

–“The big money is made by the sittin’ and the waitin’–not the thinking. Wait until all the factors are in your favor before making the trade.”

Trading is stressful

  
  Education
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 It certainly can be stressful, and it certainly is stressful for many. It doesn’t have to be, however. Successful traders have a certain mindset. They put little importance on any given trade. Their focus is on the long haul, not short-term gains. They know that if they attend to the aspects of trading that are within their control (i.e., trade selection, entry, risk control, and trade management), the profits will take care of themselves.

Wisdom From Bruce Kovner

  
  Education
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On protecting emotional equilibrium:

To this day, when something happens to disturb my emotional equilibrium and my sense of what the world is like, I close out all positions related to that event.

On the first rule of trading:

The first rule of trading — there are probably many first rules — is don’t get caught in a situation in which you can lose a great deal of money for reasons you don’t understand.

On making a million:

Michael [Marcus] taught me one thing that was incredibly important… He taught me that you couldmake a million dollars. He showed me that if you applied yourself, great things could happen. It is very easy to miss the point that you really can do it. He showed me that if you take a position and use discipline, you can actually make it.” (more…)

Trading Wisdom

  
  Education
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  • Buy from the scared, sell to the greedy.
  • Buy their pain, not their gain.
  • Successful traders are quick to change their minds and have little pride of opinion.
  • I made my money because I always got out too soon. (Bernard Baruch)
  • Don’t try to buy at the bottom and sell at the top. It can’t be done except by liars. (Bernard Baruch)
  • Throughout all my years of investing I’ve found that the big money was never made in the buying or the selling. The big money was made in the waiting. (Jesse Livermore)
  • The faster a stock has climbed, the quicker it will fall.
  • The more certain the crowd is, the surer it is to be wrong. (Menschel)
  • Bear markets begin in good times. Bull markets begin in bad times
  • Never confuse genius with a bull market.
  • Always sell what shows you a loss and keep what shows you a profit

Count down 3, 2, 1 to be a Trader

  
  Education
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3) Focus on the psychology and mental skills that are necessary to succeed in the market.  Learn to read the market charts in terms of the pscychology of the other traders.

2) Learn about risk control in depth.  What this really means, options available to you, how you can marry it up with your financial objectives in the market place etc.

1) Only when you have the above dialled in should you investigate ways of putting trades on in the most advantageous positions to generate the returns you are looking for.

I think if people were to count down 3, 2, 1 there would be many more successful traders. 

Six Positive Trading Behaviors

  
  Education
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1) Fresh Ideas – I’ve yet to see a very successful trader utilize the common chart patterns and indicator functions on software (oscillators, trendline tools, etc.) as primary sources for trade ideas. Rather, they look at markets in fresh ways, interpreting shifts in supply and demand from the order book or from transacted volume; finding unique relationships among sectors and markets; uncovering historical trading patterns; etc. Looking at markets in creative ways helps provide them with a competitive edge.
2) Solid Execution – If they’re buying, they’re generally waiting for a pullback and taking advantage of weakness; if they’re selling, they patiently wait for a bounce to get a good price. On average, they don’t chase markets up or down, and they pick their price levels for entries and exits. They won’t lift a market offer if they feel there’s a reasonable opportunity to get filled on a bid.
3) Thoughtful Position Sizing – The successful traders aren’t trying to hit home runs, and they don’t double up after a losing period to try to make their money back. They trade smaller when they’re not seeing things well, and they become more aggressive when they see odds in their favor. They take reasonable levels of risk in each position to guard against scenarios in which one large loss can wipe out days worth of profits.
4) Maximizing Profits – The good traders don’t just come up with promising trade ideas; they have the conviction and fortitude to stick with those ideas. Many times, it’s leaving good trades early–not accumulating bad trades–that leads to mediocre trading results. Because successful traders understand their market edge and have demonstrated it through real trading, they have the confidence to let trades ride to their objectives.
5) Controlling Risk – The really fine traders are quick to acknowledge when they’re wrong, so that they can rapidly exit marginal trades and keep their powder dry for future opportunities. They have set amounts of money that they’re willing to risk and lose per day, week, or month and they stick with those limits. This slows them down during periods of poor performance so that they don’t accumulate losses unnecessarily and have time to review markets and figure things out afresh.
6) Self-Improvement – I’m continually impressed at how good traders sustain efforts to work on themselves–even when they’re making money. They realize that they can always get better, and they readily set goals for themselves to guide their development. In a very real sense, each trading day becomes an opportunity for honing skills and developing oneself.

Bill Lipschutz-Trading Quotes

  
  Education
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Missing an opportunity is as bad as being on the wrong side of a trade. Some people say (after they have the opportunity to realize a profit) “I was only playing with the market’s money.” That’s the most ridiculous thing I ever heard.

When you’re in a losing streak, your ability to properly assimilate and analyze information starts to become distorted because of the impairment of the confidence factor, which is a by-product of a losing streak. You have to work very hard to restore that confidence, and cutting back trading size helps achieve that goal.

I don’t have a problem letting my profits run, which many traders do. You have to be able to let your profits run. I don’t think you can consistently be a winner trading if you’re banking on being right more than 50 percent of the time. You have to figure out how to make money by being right only 20 to 30 percent of the time.

Successful traders constantly ask themselves: What am I doing right? What am I doing wrong? How can I do what I am doing better? How can I get more information? Courage is a quality important to excel as a trader. It’s not enough to simply have the insight to see something apart from the rest of the crowd, you also need to have the courage to act on it and stay with it.

It’s very difficult to be different from the rest of the crowd the majority of the time, which by definition is what you’re doing if you’re a successful trader.

So many people want the positive rewards of being a successful trader without being willing to go through the commitment and pain. And there’s a lot of pain.

Avoid the temptation of wanting to be completely right.

Keys for Successful Traders

  
  Education
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mentalstrengthThe biggest obstacle to successful trading is failing to recognize that losses are part of the game, and, further, that they must be accommodated. The perfect trading system that allows for only gains does not exist. Expecting, or even hoping for, perfection is a guarantee of failure. Trading is akin to batting in baseball. A player hitting .300 is good. A player hitting .400 is great. But even the great player fails to hit 60% of the time! Remember, you don’t have to be perfect to win in the markets. Practically speaking, this is why you also need an objective money management system.

experience

It takes experience to succeed. Now, some people advocate “paper trading” as a learning tool. Paper trading is useful for testing methodologies, but it has no real value in learning about trading. In fact, it can be detrimental, because it imbues the novice with a false sense of security. “Knowing” that he has successfully paper-traded during the past six months, he believes that the next six months trading with real money will be no different. In fact, nothing could be farther from the truth. Why? Because the markets are not merely an intellectual exercise, they are an emotional one as well. Think about it, just because you are mechanically inclined and like to drive fast doesn’t mean you have the necessary skills to win the Daytona 500.

 

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