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Herd Mentality

“Making money is easy, it is keeping it that is hard.” 

Keeping the profits is what successful trading is all about. It’s not about making money. It is about risk management. Good risk management translates into good profits. Great risk management translates to great profits and a long-term career.

So what about the herd mentality?

You have all heard about it over the years. Psychologists talk about it all the time, but how does it play out in the applied trading world?

The cliché is that following the herd is dangerous – bad for trading and leads to huge losses.

But my perspective is different and one that states that following the herd is  bad only if it was not YOUR game plan. You see, traders don’t mind losing money. That’s right. They don’t. What they mind is losing money doing stupid things. And one of the stupidest things a trader can do is to follow someone else’s game plan instead of their own.

If you are going to lose money (and you are going to about half the time) then you might as well lose it doing the right thing, which is listening to YOUR ideas. Your instincts. Your research and YOUR game plan.

Trading is not complicated. We make it complicated.

Simplify the process. Break your trading down to its basics and follow your plans. And if your plans happen to be in line with the herd, then so be it. And if they don’t, that is fine too. The point is to be consistent in your approach and let the market come to you.

Great quote by Marty Schwartz which sums up where so many people go wrong in trading.

“Most people think that they’re playing against the market, but the market doesn’t care. You’re really playing against yourself”. – Marty Schwartz.
 
The full quote is was from the following paragraph from Schwartz’z book – ‘The Pit Bull’s Guide To Successful Trading’. Schwartz himself was one of the original interviewees in the original ‘Market Wizards’ book.
 
– I’ve said it before, and I’m going to say it again, because it cannot be overemphasized: the most important change in my trading career occurred when I learned to divorce my ego from the trade. Trading is a psychological game. Most people think that they’re playing against the market, but the market doesn’t care. You’re really playing against yourself. You have to stop trying to will things to happen in order to prove that you’re right. Listen only to what the market is telling you now. Forget what you thought it was telling you five minutes ago. The sole objective of trading is not to prove you’re right, but to hear the cash register ring. (more…)

THE THREE PHASES OF A TRADE

The ANTICIPATION Phase:  this is where all the left hand chart reading takes place in preparation for the right hand chart battle. It’s the PROCESS that precedes the ACTION to put on a trade. A technical trader anticipates that a past price pattern will repeat again, so he identifies the pattern, locates a current one and determines a suitable match is present.  Technical analysis is nothing more than finding previous price patterns matched with current market conditions.  Traders anticipate such repetitive behavior based on human nature and seek to take advantage of it.

The ACTION phase involves hitting the BUY key based on the previous ANTICIPATION process.  Since no one can tell the future or what the right hand side of the chart will reveal, the ACTION is based on the confidence that the trader will do what is right once a trade is put on, which is to exit gracefully at a pre-determined loss line or exit humbly at a pre-determined profit target (P2), fully accepting either/or, or an OUTCOME between one or the other, depending on current market conditions.

The REINFORCEMENT phase occurs after the trade is closed.  Whether or not the trade is a win, lose, or draw, the self-talk immediately following trade closure is vitally important for the next trade, and even the next series of trades, as future trades can be negatively or positively affected by building pathways to future success.  These pathways are neurologically based and can make or break a successful trading career.  While it is important to ANTICIPATE right side chart OUTCOMES, what is more important is DEVELOPING right side brain reinforcement.

Quotes from :Dr Alexander Elder's best seller Trading For A Living

Proper money management is essential for successful trading.

A disciplined trader cuts his losses short and outperforms a loser who keeps hanging on and hoping.

As soon as you buy, place a stop-loss order.

Greed and fear destroy traders by clouding their minds. The only way to succeed in trading is to use your intellect.

The goal of a successful trader is to make the best trades. Money is secondary. If this surprises you, think how good professionals in any field operate. Good teachers, doctors, lawyers, farmers and others make money – but they do not count it while they work. If they do, the quality of their work suffers.

Serious traders place stops the moment they enter a trade.

We all like to hope that a trade will succeed – and a stop is a piece of reality that prevents traders from hanging on to empty hope.

Learning to place stops is like learning to drive defensively.

A stop is not a perfect tool but it is the best defensive tool we have.

A Winning Trading Method is Really All About this…..

eagle-newSuccessful trading is the attempt to be on the right side of the flow of capital. Each change in price happens with a new agreement between the current buyer and seller. Buyers and sellers are always equal for a transaction to take place, the cause of movement is determined by whether the buyers want in more than the sellers want out. Prices moves when capital flows into and out of a market, and inflow pushes up prices because demand becomes more than supply, price discovery happens to find out what sellers are willing to take to sell their position.

Many crazy over bought or over sold trends occur because one side has little pressure on it, position holders, shorts, or buyers sit tight as a trend accelerates. Equity markets rise when new money has to enter to be put to work but there is little interest at selling due to position holders sitting on winning positions.

Price resistance on a chart is caused by simply being the place that current holders are taking their profits. Price support happens at the price that people on the sidelines are ready to get back in at. These are simply spots where capital flows in and out. (more…)

Traits of the Successful Trader

1. Find the plays that make the most sense to you.

Build from your unique personality.  Some traders will make a career of momentum trading, killing anything that is moving.  They could care less about a balance sheet or even the actual full name of the symbols they trade.   They just want to play and are damn good at it.   Some will find this intellectually suffocating.  They will want to trade all the markets, reading as much about as many longer term opportunities as possible.  This fits their inner need to learn, think, and grow intellectually.  Both are totally acceptable save if the momo trader is forced to trade macro plays.

2. Spend as much time trading, thinking about trading and talking about trading as you can possible stand.

The past years have gifted us a treasure of research on elite performance which provides a clear path for our success.  Time at our craft, experience, practice, reps gained determining plays are the road to successful trading.  Put down Boring New Book About Some New System You Do Not Understand and start reading The Talent Code, Bounce, Talent is Overrated, Mindset, Drive, Outliers, The Art of Learning.

3. Find a GREAT mentor.

And I do not mean necessarily at a trading firm.  Before Dr. Steenbarger went off-line and joined one of the great hedge funds of our time, I peppered him with questions.  Phil Mickelson, considered one of our greatest golfers ever, has three coaches watching his game.  Peyton Manning has a head coach, offensive coordinator, quarterback coach, and father providing him feedback.   There is little evidence of elite performers reaching their potential without high level coaching.

Four things traders can try to get Success

  1. pinnumber4Trust your gut If something looks like crap and smells like crap, then chances are, it is crap. Listen more to your gut to tell you when to cut a loss and move on.
  2. Keep it simple If something is working, keep doing it. There aren’t any bonus points for being clever. The money is the same color no matter how you make it. So do the simple things and chip away at the profits. I once had a client who felt he had to do complicated trades in order to make money. Bottom line was, he was wrong. Keeping it simple is the proven strategy for success.
  3. Probabilities don’t lie If you’re not carefully tracking the metrics on your trades, you might as well be gambling at a casino. Make it a point to track the data on your trades and study them. That way, you can do more of what’s working and less of what’s not.
  4. Avoid speculating and predicting I can’t begin to tell you how many times I see traders blow up their accounts because they try to speculate or predict what’s going to happen in the future. The simple fact is, no one knows. Even the best traders have a winning percentage of around 50 percent. That means successful trading is not about being right, it’s about what you do when you’re wrong. The bottom line is, trade what you see, not what you think.

10 ways to Master the Trade

How do you know you’re making progress on the road to successful trading? There’s one obvious answer: Check your financial  results. There is little doubt you’re doing well if you’re booking consistent profits. Thump

 But raw capital production may not be the best way to judge your growth as a trader. The road to success has many detours  where profitability isn’t the best measure of results. For example, we all go through phases in which introspection and skill  development are more urgent than short-term profits. So let’s look at 10 ways to know you’re making solid progress on the road  to market mastery: 

 1. Money management becomes your lifeline, and all your trading strategies start to revolve around its core. Risk control  becomes a key aspect of every position you take. You accept that controlling losses has a far-greater impact on your bottom line  than chasing gains. 

 2. You develop your own trading plans and strategies rather than relying on books, gurus or other people’s opinions. You notice  how you’re finding more opportunities than you have time to trade while looking through your charts. You look forward to the  trading day with a growing sense of confidence and empowerment. 

 3. You feel more like a student than a master. You learn new things every day and can’t wait to apply them to real-life trading  scenarios. You listen closely to everything you hear, trying to pick up hints and concepts that will improve your performance. You expand your studies into everything market-related, including economics, fundamentals and balance sheets. 

 4. You stop visiting stock boards and chatrooms, because they don’t add anything to your trading goals. You realize that  everyone in those places has ulterior motives. You develop a healthy skepticism about companies, market-makers and even  other traders. You realize that no one is really interested in your success as a trader, except for you.  (more…)

10 Things that each Trader Must Master

THE THREE M’s: Mind (psychology), Method (a trading edge) and Money (risk or money management).
But what does each of those things mean? Many of these answers came from other great traders sharing their wisdom in books and my own successful trading through all types of markets with bigger and bigger accounts that created a need for me to up my game and get better and better.
Mind (psychology) You must have the right winning mind set to make it in trading.
Discipline to follow your trading plan.
Perseverance to keep going through the losing periods.
Faith that your trading method works. (more…)

Howard Seidler-Trading Quotes

The single most important element to being successful in the markets is having a plan. First, a plan forces discipline, which is an essential ingredient to successful trading. Second, a plan gives you a benchmark against which you can measure your performance.

It’s important to distinguish between respect for the market and fear of the market. While it’s essential to respect the market to assure preservation of capital, you can’t win if you’re fearful of losing. Fear will keep you from making correct decisions.