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INQUISITIVENESS & COMPREHENSION for Traders

  
  Education
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INQUISITIVENESS:  Just another word for curiosity and is the ever-present desire for information and understanding.  Unfortunately this characteristic can easily turn into  analysis paralysis, wherein the sheer quantity of information overwhelms the decision making process itself.  The solution is to remain focused on a very small segment of the market and is at the very heart of successful trading. There is just too much information out there to ever be able to make sense of it all.  Instead, the idea should be to direct your energy toward your trading methodology and not stray when tempted to.

  COMPREHENSION: This is the trader’s ability to attend to the smallest details of his or her trading plan.  I believe a trader must have rules for entering and exiting a trade before the trade is made.  In the beginning these rules can be in the form of a checklist wherein before each trade all the details of your rules are checked and verified.  With time, the rules become such as a part of your psyche that the checklist is in your head and can be confirmed with quick precision.  The key is to never change the rules. When the rules stay the same your mind will not be able to play tricks on you.

Personal Strengths and Weaknesses

  
  Education
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We all have different personal strengths and weakness.  Many people focus on transforming a weakness into a strength. While that is admirable, the reality is that it’s not always possible. Although I agree with the basic idea of brain plasticity, and I whole-heartedly agree with the idea of always striving for self-improvement, I also know that as humans we have a certain degree of natural-born temperament and not everything about us can be changed.

Although we can’t always build or change every weakness into strength, the good news is that we can always leverage our strengths, if we know how. And that is mighty powerful. It’s so powerful that if you leverage the right strengths in the right way they can do an excellent job of not just counter-balancing your weaknesses, but can propel you so far ahead  that those weaknesses pale in comparison.

One of the most powerful things you can do for yourself is identifying your natural strengths and then work to see how you can build on them.

We all have different personal strengths, and knowing how to leverage them is an important part of successful trading. A major consideration here is that you try to identify and leverage your own personal strengths, and not simply copy someone else’s. All too often I see struggling traders running from one style to another style whenever they see someone else’s success. One of the primary reasons why copying someone else’s trading style doesn’t always pay off in trading is because of different personal strengths.

Trading Quotes

  
  Education
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Human emotion is both the source of opportunity in trading and the greatest challenge.
Master it and you will succeed.
Ignore it at your peril.

Trade with an edge, manage risk, be consistent, and keep it simple.
The entire Turtle training, and indeed the basis of all successful trading, can be summed up in these four core principles.

Good trading is not about being right, it’s about trading right.
If you want to be successful, you need to think of the long run and ignore the outcomes of individual trades.

Trading with an edge is what separates the professionals from amateurs.
Ignore this and you will be eaten by those who don’t.

Edges are found in the places between the battleground between buyers and sellers.
Your task as a trader is to find those places and wait to see who wins and who loses.

Mature understanding of and respect of risk is the hallmark of the best traders.
They know if you don’t keep an eye of risk, it will set its eye on you.

Ruin is the risk you should be concerned with the most.
It can come like a thief in the night and steal everything if you’re not watching carefully.

Don’t spent all your time admiring the fancy tools in the magazine.
First learn how to use the basic ones well. It’s not the size of your tools that counts but how you use them.

Keep it simple. Simple time-tested methods that are well executed will beat fancy complicated method every time.

Trading with poor methods is like learning to juggle while standing in a rowboat during the storm. Sure, it can be done, but it is much easier to juggle when one is standing on a solid ground.

Trading is not a sprint; it is boxing. The market will beat you up, screw with your head, and do anything it can to defeat you. But when the bell sounds at the end of the twelfth round, you must be standing in the ring in order to win.

The market does not care how you feel. It will not prop up your ego or console you when you are down.
Therefore, trading is not for everyone. If you are unwilling to face the truth about the markets and the truth about your own limitations, fears and failures, you will not succeed.

I always say that you could publish my trading rules in the newspaper and no one will follow them.
The key is consistency and discipline. Almost anybody can make up a list of rules that are 80% as good as what we taught our people. What they couldn’t do is give them the confidence to stick with those rules even when things are going bad.

Top Trend Traders Bank Millions, Ride The Trend

  
  Education
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Famed Stanford University psychologist Leon Festinger once said, “A man with a conviction is a hard man to change. Tell him you disagree and he turns away. Show him facts or figures and he questions your sources. Appeal to logic and he fails to see your point.” 
Although trend following has been one of the most successful trading strategies for decades, some critics downplay the massive profits accumulated by trend followers, arguing there are just a few chance winners — “lucky monkeys,” they claim. 
BEAT THE AVERAGES
Not true. Large numbers of trend followers have found a way to outpace market averages. They have done so with hard work and the ability to stick with a trading plan — usually for a very long time. Some argue, “There’s no romance in trend following.” The romance is found in returns. Money is the ultimate aphrodisiac. 
PROFITS COUNT
Think of it this way: Performance data examples from the great trend followers could be the foundation of every college finance class. When you show up on the first day, instead of your teacher handing you a syllabus and telling you to buy certain books, you are handed one piece of paper that simply shows the performance histories of professional trend following traders for the last 50 years.
HUGE WINNERS
The entire semester could be built around that study alone. But first, to judge systematic trend following performance, you need a baseline. The S&P 500 is the barometer for making money in the markets. Comparing to it is wholly appropriate (even though some might carp). Who are some of the top-performing trend following traders over the last 30 years? How much have they made? Consider: 
o Bruce Kovner is worth more than $4.1 billion
o John W. Henry is worth $840 million
o Bill Dunn made $80 million in 2008
o Michael Marcus turned an initial $30,000 into $80 million
o David Harding is now worth more than $690 million
o Ed Seykota turned $5,000 into $15 million over 12 years
o Kenneth Tropin made $120 million in 2008
o Larry Hite has made millions upon millions over 30 years
o Louis Bacon is worth $1.7 billion
o Paul Tudor Jones is worth $3 billion
o Transtrend, a trend-trading fund, has produced hundreds of millions, if not billions, in profit (more…)

Preserving Psychological Capital

  
  Education
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Estimates are that 75-95% of all traders lose all their trading capital in the first year, and only about 5-10% of those that get into trading are able to stay profitable on a consistent basis after 5 years. This is not encouraging. However, since the majority of people tend to be overconfident, most believe that they are not going to be among the casualties.

What is behind this overconfidence?

Some of the most highly educated professionals such as doctors, lawyers and engineers who are used to being first in their class–the best of breed in whatever they do– fail miserably as traders and investors. The reason is that the process of trading and investing is completely different from activities and ways of thinking that bring success outside of the markets. Trading is a counterintuitive to what we are taught growing up. As we grow and develop, we acquire levels of control. We learn to control our bodies, movements, environments, who we chose as friends, lovers and mates, our educational goals, where and how we live. We get cozy and comfortable in our little worlds where we make the rules, and live out our lives in accord with them. Yes, there is a lot going on in the world, but it really doesn’t mean all that much unless it affects us directly. When external challenges face us in our personal lives, we take control, problem solve, and get done what needs to be done.

In the markets things are quite different. There is no way to control the market forces. Markets are larger than life, yet they are life. Millions of people from every part of the world are there making decisions that affect you in either a positive or a negative fashion. Millions of nameless and faceless people are trying to take your money before you take theirs. There is no situation in the life of most people that compares with this. That is why successful trading and investing requires one to adopt an entirely new brain-set.

The majority of people are simply not neurologically flexible enough adapt to this new environment. They insist on adapting the markets to their own worldview, and they fail—sometimes miserably so.

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Small losses almost always become larger and larger losses, leading to every manner of emotional distress as you are holding and hoping, or in complete denial that the position could possibly turn against you. Holding and hoping leads to larger losses and more emotional carnage until you are a financial and neuropsychiatric basket case and you just want out at any cost. Desperation, anxiety or depression set in and remind you of every time in your life you were told that you were not good enough, that you would never amount to anything or that you didn’t deserve to win or be successful. You are now in a state where both financial and psychological capital are depleted–all because you didn’t take a small loss.

How do you preserve your financial and psychological capital? You learn to embrace risk by using rigorous risk management techniques. The most important of these are position sizing, stops and money management. You take small losses. You take small losses! You let winning positions run and take profits and trail stops as they are running. Please memorize this until it is burned into the connections in your brain: The single biggest reason for failure as a trader or investor is the inability to take small losses and letting them grow into larger losses.

Developing A Method is Hard Work

  
  Education
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MgmtLesson

Shortcuts rarely lead to trading success. Developing your own approach requires research, observation, and thought. Expect the process to take lots of time and hard work. Expect many dead ends and multiple fail-ures before you find a successful trading approach that is right for you. Remember that you are playing against tens of thousands of profession-als. Why should you be any better? If it were that easy, there would be a lot more millionaire traders.

Developing a method is Hard work

  
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HARD-WORKShortcuts rarely lead to trading success. Developing your own approach requires research, observation, and thought. Expect the process to take lots of time and hard work. Expect many dead ends and multiple fail-ures before you find a successful trading approach that is right for you. Remember that you are playing against tens of thousands of profession-als. Why should you be any better? If it were that easy, there would be a lot more millionaire traders.

Anticipation ,Action & Reinforcement

  
  Education
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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.

Concept of Risk

  
  Education
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concept of riskSuccessful trading has absolutely nothing to do with making money and everything to do with trading successfully. Making money will only ever be a by-product of successful trading. Successful trading is not a by-product of making money. When you attach trading to money and money to emotions and emotions to money you’ll have taken your first loss but you won’t know it yet.

Trading has everything to do with personal psychology, rules, systems, discipline, focus and skill. Like anything else that’s skill based, once you start it takes time and practice to become skilful. Ultimately trading is about making decisions between two choices, to buy or sell. As simple as these two choices are the variables that effect the decisions surrounding them can be as complex as the human mind can make them.

10 Trading one Liners

  
  Education
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  • Correct knowledge and the ability to change behavior are the most important parts of successful trading.
  • It has taken years to understand that being wrong is what trading is all about.
  • Trading is not taking long to look at a trade.
  • Losing never stopped her from staying with her plan as she knew how to lose small and go with her program.
  • If you can’t EXECUTE in getting in, you sure can’t execute to get out.
  • A trained trader understands success as “You lose good and you’re wrong small.”
  • Learn from others’ mistakes, and it is cheaper than learning from your own mistake
  • In your trading you will find you do not ever control the market but only your position
  • You can stop (remove) your position wherever YOU want!
  • I have often said the BIG money is on the surprise side.
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