Archives of “sure thing” tag

rss

15 Mistakes by Traders

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

1) Always wants to be in the game .. more time means less money
2) Wants money quickly .. you can’t control the market 
3) Finds it very inexact – which system – how much to risk – there are no hard and fast rules .. 
using a positive expectancy system with a clear edge will work out over a period of time if risk is proportionate
4) Finds it boring to trade small
Since no trade is a sure thing and even with positive expectation, it is possible to have a string of 10 consecutive lossees. It is important to risk less to give probabilities a chance to work in your favour
5) Wants immediate gratification – can’t wait
You don’t control the market
6) Keeps looking for new indicators/systems – the sure system
There is no definiteness..
7) Keeps trying new indicators
Nothing works all the time
8) Keeps switching between different techniques – he wants the techniques to work 100% of the time
Nothing works all the time.. Instead stick with a few proven systems and trade them all the time
9) Very Adventurous
You are here to make money and not for thrills
10) Wants to make big money overnight.. Multiple positions – excess leverage
Since you can never be sure if the next trade is a winner or if the next 10 trades are losers, why would you want to risk too much (more…)

HOW TO LOSE MONEY IN THE STOCK MARKET

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

There are so many ways to lose money in the stock market but whether it is from blindly trusting what turns out to be a Bernie Madoff ponzi scheme to refusing to take a loss on a “sure thing”, the root cause of losses is our inability to objectively perceive market action without the many and varied biases associated with “money on the line”.

According to Mark Douglas…

In any particular trade you never really know how far prices will travel from any given point. If you never really know where the market may stop, it is very easy to believe there are no limits to how much you can make on any given trade. From a psychological perspective this characteristic will allow you to indulge yourself in the illusion that each trade has the potential of fulfilling your wildest dream of financial independence. Based on the consistency of market participants and their potential to act as a force great enough to move prices in your direction, the possibility of having your dreams fulfilled may not even remotely exist. However, if you believe it does, then you will have the tendency to gather only the kind of market information that will confirm and reinforce your belief, all the while denying vital information that may be telling you the best opportunity may be in the opposite direction.

There are several psychological factors that go into being able to assess accurately the market’s potential for movement in any given direction. One of them is releasing yourself from the notion that each trade has the potential to fulfill all your dreams. At the very least this illusion will be a major obstacle keeping you from learning how to perceive market action from an objective perspective. Otherwise, if you continually filter market information in such a way as to confirm this belief, learning to be objective won’t be a concern because you probably won’t have any money left to trade with (italics mine).

From Chapter Four of THE DISCIPLINED TRADER

Bottom line:  successful trading is about making money…not about being right.

5 Mistakes Traders Make Again & Again

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

There is a big difference between bad traders and good traders, here is what I think separates one from the other:

  1. Bad traders continually have the desire to short the hottest  stocks with the strongest momentum. What is their reasoning? “It can’t go any higher, this price is ridiculous.” Do they understand it is a bull market, no. Do they understand the technicals or fundamentals that are driving this stock? No. Bad traders just trade their beliefs good traders trade proven methods.
  2. Bad traders continually believe they have found the trade “That just can’t lose.” It is a sure thing. No doubt about it. They trade BIG, they trade a HUGE position size. Unfortunately the most obvious trades are usually the losing trades, so they lose, and lose big. Good traders divide out their trades so that no one trade has too big of an impact on their account. Good traders realize EVERY trade can win or lose so they plan a quick exit for if they are wrong.
  3. Bad traders do not do the proper homework before they begin to trade. Really  Bad traders enter the markets with a mile of ego along with mud puddle deep understanding of what really works in trading. Bad traders have the belief that they are more clever than the markets and they can win based on their own intelligence. The problem is they do not do the homework of studying charts, trends, robust systems, winning methods, the right psychology for winning traders, risk/reward ratios, or the danger of the risk of ruin, or how the top performing stocks acted historically, and on and on. The good traders learn what it takes to succeed in trading, the complete story, while the bad traders learn some basics and think they are ready. They are wrong. The markets will show them.
  4. Bad traders make low probability trades, they are where the profits come from for the good traders. They go short in bull markets and long in bear markets. They sell naked puts on stocks collapsing into death spirals and sell calls on the best momentum stocks. They trade with big risks for small profits. They have a few small wins but some really huge losses. When they have a winner they take the profits quickly, but if they have a loser they let it run hoping that it will come back. They are the ones that lose the money, they are on the other side of the good traders trades.
  5. Bad traders want a good tip. They just want to be handed a winning system or a hot stock that just can’t lose. They do not even understand what all the talk of trading psychology and risk management is all about. They don’t need all that, they just want to make money. They just want the fish, they do not care about the fishing pole, bait, boat, or how to fish. Unfortunately they were to busy looking for that fish and didn’t understand the art of fishing, they will drown in the market ocean because they never learned how to swim themselves.

Defining Risk

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Defining Risk“Take a chance! All life is a chance. The man who goes the furthest is generally the one who is willing to do and dare. The “sure thing” boat never gets far from shore.”
Dale Carnegie (1888 – 1955)

In 1998 Economics Professor and Nobel Prize winner Paul Samuelson (1915 – ) noted that:

“Many people now believe that if they simply hold stocks long enough they will not, lose money for statistics have shown that since 1926 the U.S. equity market has not suffered a loss in any given 15 year.” (more…)

10 Mistakes

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Don’t miss to Read …..

1.  Failing to follow your own rules. Here we go again with the rules!  Always rules!  The reason we have rules is because the market has none of its own.   Rules keep us focused and keep our emotions in check.  Thomsett describes the market as a “dangerous place” that is “full of temptations, promises of easy money, and artificial excitement.”  Sounds like the perfect place to have a set of rules!

2.  Forgetting your risk tolerance limits.  Risk tolerance refers to the amount of risk we can afford to take and are willing to take.  As traders, we should expose themselves only to the amount of money we can afford to lose.  What does that mean?  For me, it means if losing X amount of money in a trade can affect how I eat this week then I am overexposed.  It is the same with buying a house or a car:  will these payments negatively affect my basic lifestyle?  If the answer is yes then it may be best to suspend the pleasure of something new.

3.  Trying to make up for past losses with aggressive market decisions. If we have a string of losers or one big loser then we can be tempted to make up the loss by doubling up or going all in on a “sure thing”, exposing ourselves to much greater losses.  Keep in mind that in the market anything can happen, including losing all your money!  Losses are best made up not with home runs and grand slams but with singles, doubles, and an occasional triple.

4.  Investing on the basis of rumor or questionable advise.  Chat rooms, mail solicitations, or pop-up ads that promise sure and fast profits are for fools and are not going to make anyone rich.  “Making smart investment decisions invariably requires that you perform your own research, apply your own standards based on clearly identified risk standards, and do your homework directly.”

5.  Trusting the wrong people with your money. “As a group, analysts’ advice has led to net losses for their clients.”   Bottom line here is “anyone buying stocks and trading options should be making their own decisions and not relying on expensive advice.”

6.  Adopting beliefs that simply are not true about the markets.  “The market thrives on beliefs that, although strongly held, are simply not true.”  When we believe that the market is there to make us rich if only we can find the secret to do so then we harbor false beliefs.  When we believe that the market will always come back to make us whole, then we are working under the assumption of a faulty belief system.  When we believe that the market makes the same logical sense as the world we are used to living and working  in, then our beliefs are in direct opposition to the markets.  The list can go on and on.  Keep in mind here that the market is specifically designed to take advantage of human nature and those who trade by their emotions… human nature and emotions based on assumptions.

7.  Becoming inflexible even when conditions have changed.   We may have a great trading strategy that works in a trending market but when the market turns volatile our strategy can lose money.  The same goes with a strategy that works best in a volatile market but not in a trending one.  It is the ole’ square peg in a round hole experiment.  It just won’t fit so we should not waste our energy trying to make it work.  Know your strategy and know your market and you will know when to get in and when to stay out.

8.  Taking profits at the wrong time. When the market starts working in our favor we tend to be very quick in taking profits but when not very slow in removing losses.  On the one hand, we are afraid the market will take what little profit we have if we do not exit immediately with at least a small profit; on the other hand, we feel the market owes us something when it goes against us, therefore we hold on until it comes back.  As hard as it may be the only way we can ever make money in the stock market is to let the winners run.  Think about it this way:  reverse what has become common practice so that the winners are allowed to do what the losers have been allowed to do and let the losers get knocked out quickly just like our winners have been.  See if this makes a difference in the bottom line.

9.  Selling low and buying high. “A worthwhile piece of market wisdom states that bulls and bears are often overruled by pigs and chickens.”   In other words, we will never get anywhere in our trading is we are ruled by fear (at the bottom) and greed (at the top).  Selling low and buying high is where the emotions step back in and where the market takes advantage of our human nature.  Unfortunately, retail investors get the short end of the stick here as they are the last to get in (at the top) and the first to get out (at the bottom).

10.  Following the trend instead of thinking independently. “Crowd mentality is most likely to be wrong. Crowds don’t think. They react.”   This takes us all the way back to rule number one: have rules.  One of the rules should be to follow our own thinking and not that of the crowd.  By the time the crowd jumps on board, the move is usually over anyway!  Hence, reaction instead of action.

Some really good lessons here as an old adage continues the provide the best lesson of all: learn from your mistakes!

Keys to Trader Self-Talk

  
  Education
#  #  #  #  #  #  #  #  #  #

“And the talk slid north, and the talk slid south . . .” Rudyard Kipling

What do you say to yourself when you trade? Now some of you may be thinking, “Talk to myself? I don’t talk to myself.” But of course you do. You’re talking to yourself when you think that. That’s how we think. We think in words (and sounds, pictures and feelings). But most precisely we think in words; therefore, we talk to ourselves.

When you’re considering entering a market, what are you saying to yourself? Are you saying, “What if I lose? “What if I’m wrong?” If you hesitate before entering and have trouble pulling the trigger, I guarantee you’re saying something similar to that.

Since good trading is very much about controlling the risk, often the first consideration is where to put our stops. You might first ask yourself,”What is my risk?” This is better than asking, “What if I lose?” However, it still takes your thoughts to risk and loss rather than reward and profit. If you’re hesitating when you should be entering the market, you could change your comment to something like, “How much can I make?”or, “What if this trade is a big winner?”

Of course, not everybody hesitates to enter a trade: some jump the gun and some overtrade. These people are anticipating large profits. If you hear yourself saying, “This is going to be a big move!” or “This is going to the moon!”, you’ll need to activate caution. Remember, gamblers often think they’ve got a sure thing. When you hear yourself promoting a trade, it would be wise to ask yourself, “What is my risk?” and “What would have to happen to know that I’m wrong or no longer right?” Our self-talk reveals our biases. If you’re talking up your trade or talking it down, you have a good clue that you’ve lost your neutrality. In such an instance it would be advisable to ask yourself, “What is the market showing me now? What does the market want? What do I know for certain? Have my rules for entry been met?”

If you hear yourself saying, “I don’t believe this!” Look out. You’re warning yourself that you’re not taking the market action at its face value; an extremely dangerous thing to do. Remember price is your predominant reality when you trade.

Some traders demean themselves when they trade. They speak to themselves in negative ways they would never let another person talk to them. They call themselves stupid idiots, failures, fools, losers, and so forth. While their intention in so speaking might be to motivate themselves to better behavior, it seldom does. Self-denigration rarely produces good results. Have you ever noticed that the more you scold yourself, the more your behavior reproduces itself? The strangest secret is that we become what we say. I tell my clients that I won’t allow anybody to speak unkindly to my clients, including themselves.

Much better to encourage yourself. “You can do better than this.” “You don’t need to do that again.” “I’ll do better tomorrow.”

Start writing down the words you say at critical junctures in your trading. You’ll begin to understand where your thinking is helpful and harmful, and you’ll be able to change the direction of your thoughts by shifting your words. There’s an article on my website discussing the critical importance of questions. Check it out. What if you could learn to direct your words and thoughts in such a way that you truly support your success in trading?

HOW TO LOSE MONEY IN THE STOCK MARKET

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

There are so many ways to lose money in the stock market but whether it is from blindly trusting what turns out to be a Bernie Madoff ponzi scheme to refusing to take a loss on a “sure thing”, the root cause of losses is our inability to objectively perceive market action without the many and varied biases associated with “money on the line”.

According to Mark Douglas…

In any particular trade you never really know how far prices will travel from any given point. If you never really know where the market may stop, it is very easy to believe there are no limits to how much you can make on any given trade. From a psychological perspective this characteristic will allow you to indulge yourself in the illusion that each trade has the potential of fulfilling your wildest dream of financial independence. Based on the consistency of market participants and their potential to act as a force great enough to move prices in your direction, the possibility of having your dreams fulfilled may not even remotely exist. However, if you believe it does, then you will have the tendency to gather only the kind of market information that will confirm and reinforce your belief, all the while denying vital information that may be telling you the best opportunity may be in the opposite direction. (more…)

40 steps in the Traders Journey

  
  Education
#  #  #  #  #  #  #  #  #  #  #

They are as follows:

  1. We accumulate information, we learn- buying books, asking questions, maybe going to seminars and researching what really works in trading.
  2. We begin to trade with our ‘new’  found knowledge.
  3. We make profits only to give it back very quickly and then realize we may need more knowledge or information.
  4. We accumulate more information.
  5. We switch the stocks we are currently following and trading.
  6. We go back into the market and trade with our better system. this time it will work.
  7. We lose even more money and begin to lose of confidence that we can even be traders. The reality of losing money sets in.
  8. We start to listen to other traders and what works for them.
  9. We go back into the market and continue to lose more money.
  10. We completely switch our style and method.
  11. We search for more information.
  12. We go back into the market and start to see a little progress.
  13. We get ‘over-confident’ in a single trade and put on a big position believing it is a sure thing and the market quickly takes our money.
  14. We start to understand that trading successfully is going to take more time and more knowledge than we ever anticipated. MOST PEOPLE WILL GIVE UP AT THIS POINT, AS THEY REALIZE WORK IS INVOLVED.
  15. We get serious and start concentrating on learning a ‘real’ methodology.
  16. We trade our methodology with some success, but realize that something is missing.
  17. We begin to understand the need for having rules to apply our methodology.
  18. We take a sabbatical from trading to develop and research our trading rules.
  19. We start trading again, this time with rules and find some success, but over all we still hesitate when we execute.
  20. We add, subtract and modify rules as we see a need to be more proficient with our rules. (more…)

Spotting the Best Trades

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Let me begin by telling you of my system for isolating trades with odds 10 to 1 in my favor. Those are million dollar odds. Unfortunately, I still haven’t developed a method for calling all the big moves all the time. What I have done is develop a set of criteria that will, when they coincide, tell you the odds are heavily in favor of either an up or down move.

This method seldom speaks, but when it does, you have as close to a sure thing as you’ll ever get. As you will see, this method will not call all the swings, but that’s not its purpose. Its function is to segregate the super trades from trades that are questionable.

Trading in this manner is much easier because it allows you to take a longer term view of the market. I have found there is no need to monitor the market on a trade-by-trade basis, or, at times, even a daily basis. The signals are so strong that you don’t need to concern yourself with a microscopic view.

I use two major tools for selecting “bankable trades”. They are: 1) premium relationships, and 2) open interest. When these two click, the odds are 75% in your favor. To further substantiate the 75% probability, I also check contrary opinion, the market’s reaction to news, trend direction, and a few chart formations.

by Larry Williams, excerpt from his book, How I Made $1,000,000 Trading Commodities Last Year.

Go to top