“Not risking is the surest way of losing. If you do not risk, risk eventually comes to you. There is simply no way to avoid taking a risk. If a person postpones taking risks, the time eventually comes when he will either be forced to accept a situation that he does not like or take a risk unprepared.”
“Anyone who buys or sells a stock, a bond, or a commodity for profit is speculating if he employs intelligent foresight. If he does not, he is gambling.”
“Most successful traders at some stage have a breakthrough, an Aha! experience. Often this is not new information, or a new approach, but the time was just right, they had matured and were ready to ‘see’ in a new way, to apprehend things clearly on a conceptual level, rather than a technical level.”
Archives of “successful traders” tag
rss6 Trading Sins
1. Thinking that trading is a get-rich-quick scheme.
2. Reacting emotionally to market movement instead of assessing the market rationally using proven methods for high probability trades.
3. Chasing the Market.
4. Lack of preparation – entering the market with little or no understanding of what the probabilities are and how to handle them. Being unaware of special events or announcements that may be big marketmovers.
5. Butterfly Trading. Trying one method after another without mastering any.
6. “Go-it-alone” Syndrome, hoping to discover the ‘secret code’ for trading. Most successful traders have learned from other successful traders. This can eliminate years of trial and error, and some very painful trading losses.
Confidence: How to Apply the Goldilocks Principle as a Trader Read more
An absolutely crucial characteristic all successful traders share is confidence. Success is only achieved when a trader has the confidence to execute his ideas without being overcome by emotional fears. I believe that creating a game plan and sticking to it will foster confidence in the long run because the trader defines all aspects of his trade that he can control; the rest is left to the market. Confidence based on winning trades is fleeting, but confidence based on the ability to objectively execute ideas leads to long-term, unbreakable confidence.
Yet I often see two primary psychological problems that traders experience with regard to confidence. There is overconfidence and underconfidence, both of which lead to very serious complications in one’s trading. Overconfidence occurs when the trader has had a string of winners and feels indestructible. A common statement of reflection once destruction occurs is usually something like: “I thought I knew more than the markets” or “I thought I had trading all figured out.” The trader usually begins to get sloppy in their trading and takes poor risk/reward trades, believing it will just work out for them. Hard-earned profits can disappear in a very short time if overconfidence is present — unless the trader has learned the techniques to recognize this and nip it in the bud quickly. (more…)
Think Like Las Vegas
Do you think of each trade as an island, as the great hope, or do you think in terms of probabilities over a series of trades? Casinos make their money by keeping the odds in their favor over a large number of bets. And that’s how successful traders think too. They don’t get attached to the success or failure of any given trade. Their primary goal is to stay calm, relaxed and open to the market’s opportunities so that they can execute their edge precisely and keep the odds in their favor. Thats why I make such a big deal about emotional clearing and staying calm. The emotional clearing technique I use is literally worth tens of thousands of dollars to me in bottom line results.
How to Trade in Stocks by Jesse Livermore
I will just write what the market is going to do tomorow, for that just have some patience for time being till then few quotes from Jesse Livermore’s book How to Trade in Stocks (one of my favorites, originally written in 1940). Pay particular attention to the first quote!
- “Successful traders always follow the line of least resistance – follow the trend – the trend is your friend”
- “Wall Street never changes, the pockets change, the stocks change, but Wall Street never changes, because human nature never changes”
- “Just because a stock is selling at a high price does not mean it won’t go higher” (more…)
Characteristics of Successful Trader
- Successful traders have absolute control over their emotions, they never get too elated over a win and too depressed over a loss.
- Successful traders seldom think of prices too high or low.
- Successful traders do not panic, they make adjustments rather than revolutionary changes to their trading style. (more…)
Learning through Failure
Very often we learn more from our failures than from our successes. The path to success travels inevitably through certain failures.
A look at successful traders and entrepreneurs shows that they have been able to survive failure as many times as they have had to. They use failure as feedback. They learn from it and make changes and go on. Many super traders have experienced crushing loss in their early trading years. All of them picked themselves up, made adjustments, and with the sure belief that they could make it back through better trading, did just that.
Successful traders are able to ride through periods of drawdown easily because they believe the drawdown to be only temporary. They distinguish the difference between simple losses and loss that comes from mistakes. Their confidence in their methods and their ability and their vision of what the markets can provide reassures them about their future success. Any period of loss is viewed as transitory.
Fear of failure keeps many traders from the success they so dearly want. They are afraid to fail and therefore either afraid to trade or to admit the failure and learn from it. I’m not saying you should like loss. Winning traders don’t want to punish themselves, but successful traders don’t dread loss either because they know that whatever happens, they can make it back. And they can learn.
Strangely enough, failure is often a necessary stepping stone to success. Those who are too fearful of failure may never get to the success they long for. Fear can lead us not only away from the thing we fear but also away from the thing we seek. Ironically, fear can also lead us directly into the thing we fear. My thesis is that underneath fear of failure is a sense of scarcity.
Confronted with a drawdown, a trader who fears failure will often stop trading or change methods or systems only to junk the new methods or systems at the next drawdown.
The winning trader will not inflexibly keep doing what doesn’t work. His open mindedness allows him to recognize the difference between market conditions and methodologies that do or don’t have a probability of success. A trader with a sense of abundance and a verified method for trading won’t crumble under temporary loss because he’ll know he’s simply passing through a difficult time that will end. He distinguishes between loss and inept or error prone trading.
The flexible trader with the willingness to admit mistakes will learn from the failure, honor that failure as feedback; make corrections, and proceed with the improvements. The winning trader, just as the winning athlete, is in a constant and never ending process of development and growth.
Look at the history of your trading and write down several major failures. As you study each failure, look for similarities and differences between them. Look for the lessons. Identify and define the problems. Look for valid solutions.
As you trade each day, do the same thing with individual mistakes. Write them down as they occur along with the lesson learned. Look for repetitions. Commit to your own development and growth as you learn through experience. Remember, if you can’t make a mistake, you can’t make anything, including money.
Confronted with a drawdown, a trader who fears failure will often stop trading or change methods or systems only to junk the new methods or systems at the next drawdown.
The winning trader will not inflexibly keep doing what doesn’t work. His open mindedness allows him to recognize the difference between market conditions and methodologies that do or don’t have a probability of success. A trader with a sense of abundance and a verified method for trading won’t crumble under temporary loss because he’ll know he’s simply passing through a difficult time that will end. He distinguishes between loss and inept or error prone trading.
The flexible trader with the willingness to admit mistakes will learn from the failure, honor that failure as feedback; make corrections, and proceed with the improvements. The winning trader, just as the winning athlete, is in a constant and never ending process of development and growth.
Look at the history of your trading and write down several major failures. As you study each failure, look for similarities and differences between them. Look for the lessons. Identify and define the problems. Look for valid solutions.
As you trade each day, do the same thing with individual mistakes. Write them down as they occur along with the lesson learned. Look for repetitions. Commit to your own development and growth as you learn through experience. Remember, if you can’t make a mistake, you can’t make anything, including money.
Nuggets of Wisdom from Jesse Livermore, Greatest Trader Ever
In the early part of the 20th century, Jesse Livermore was the most successful (and most feared) stock trader on Wall Street. He called the stock market crash of 1907 and once made $3 million in a single day. In 1929, Livermore went short several stocks and made $100 million. He was blamed for the stock market crash that year, and solidified his nickname, “The Boy Plunger.” Livermore was also a successful commodities trader.
I think the most valuable knowledge one can gain regarding trading and markets comes from studying market history, and studying the methods of successful traders of the past. Jesse Livermore and Richard Wyckoff are two of the most famous and successful traders of the first half of the 20th century. Many of the most successful traders of today have patterned their trading styles after those of the great traders of the past.
Here are some valuable nuggets I have gleaned from the book, “How to Trade Stocks,” by Jesse Livermore, with added material from Richard Smitten. It’s published by Traders Press and is available at Amazon.com. Most of the nuggets below are direct quotes from Livermore, himself.
• “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.
• Livermore’s money made in speculation came from “commitments in a stock or commodity showing a profit right from the start.” Don’t hang on to a losing position for very long.
• “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.” (more…)
5 Trading Thoughts
Gut feel is very important. Being a successful trader also takes courage; the courage to try, the courage to fail, the courage to succeed, and the courage to keep If trading is your life, it is a tortuous kind of excitement. But if you are keeping your life in balance, then it is fun. All the successful traders have a balanced life; they have fun outside of trading. The first rule of trading is that don’t get caught in a situation in which you can lose a great deal of money for reasons you don’t understand. Place your stops at a point that, if reached, will reasonably indicate that the trade is wrong, not at a point determined primarily by the maximum dollar amount you are will to lose per contract. A common mistake is to think of the market as a personal nemesis. The market, of course, is totally impersonal; it doesn’t care whether you make money or not. |
A word from Bruce Kovner
Bruce Kovner is one of the world’s most successful traders. The following below is extracted from his Market Wizardsinterview:
“A greedy trader always blows out. I know some really inspired traders who never managed to keep the money they made. One trader at Commodities Corporation – I don’t want to mention his name – always struck me as a brilliant trader. The ideas he came up with were wonderful; the markets he picked were often the right markets. Intellectually, he knew markets much better than I did, yet I was keeping money, and he was not.”
Q: So where was he going wrong?
“Position size. He traded much too big. For every one contract I traded, he traded ten. He would double his money on two different occasions each year, but still ended up flat”.
And, from further on in the interview:
“First, I would say that risk management is the most important thing to be well understood. Undertrade, undertrade, undertrade is my second piece of advice. Whatever you think your position ought to be, cut it at least in half. My experience with novice traders is that they risk three to five times too big. They are taking 5 to 10 percent risks on a trade when they should be taking 1 to 2 percent risks.”
Prudent risk control, combined with the power of compounding, can lead you a long way in this game.