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The Hidden Variable in Your Trading Success

  
  Education
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Most traders realize that trading involves a lot of psychology. And most traders readily admit that a significant portion of their trading losses, or lack of performance, is due to “psychology”. Although the term ‘psychology’ isn’t always mentioned as an explanation, you can see it easily enough in the following statements ……”I froze just as I was about to pull the trigger”….. ”I hesitated and missed that trade and was so pissed that I got myself into an impulse trade right after”….. “That large loss was not what I wanted, I held it thinking it would come back because last time I bailed out of this type of trade I got stopped out right before it reversed”….. “I was really nervous about losing money again so I got out of my winning trade way before my target”

Those are four common examples of trading psychology issues manifesting in one’s trading. Do you recognize yourself in the above statements?

All four of those statements have in common one thing, fear. Whether it’s the fear of not being perfect, the fear of being wrong, fear of losing money, fear of missing out, the fear of not being approved by others, or some other fear, the common theme is fear. Most trading mistakes are a maladaptive attempt to deal with fear or anxiety.

Emotions like fear and anxiety cannot be eliminated; it is part of the human experience. But how you respond (your behavior, the action you take in response) to anxiety and fear will determine how successful you are as a trader. Some traders recognize this and do something about it; they learn to work with the fear and anxiety to reduce the chance that they’ll continue to fall into the same old behavioral response pattern to fear and anxiety. (more…)

Set Goals

  
  Education
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goal1

Each of us needs to set goals within our personal trading programs to become successful.

We all need to know exactly what those goals mean and how to best achieve them.

It will not happen overnight, however many people seem to start strong when they decide to be a trader but then quit when things do not happen fast enough for them. Or maybe they do not start very strong, but get serious when they get into their routine of executing trades and soon become discouraged and stop doing what was working. Or maybe they finish each session strong, but that was just to recover what was lost during the rest of the time when they were not focusing on their trading strategy.

To reach a level of continuing growth as a trader, each of us must have a plan in place and then ensure that we do everything possible to begin each day very strong in our preparation steps. We must then continue to make strong confident decisions while we trader even when the results are not what we expect.

Finally, we all need to have a target each day that determines when to finish our session and be strong enough to adhere to that plan. If we keep going, it generally leads to massive losses and frustration which then stays with you until you begin to trade again. This will cause a very sour perspective of trading when you attempt to start a new session. Start Strong. Trade Strong. Finish Strong!

Set Goals

  
  Education
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Each of us needs to set goals within our personal trading programs to become successful.

We all need to know exactly what those goals mean and how to best achieve them.

It will not happen overnight, however many people seem to start strong when they decide to be a trader but then quit when things do not happen fast enough for them. Or maybe they do not start very strong, but get serious when they get into their routine of executing trades and soon become discouraged and stop doing what was working. Or maybe they finish each session strong, but that was just to recover what was lost during the rest of the time when they were not focusing on their trading strategy.

To reach a level of continuing growth as a trader, each of us must have a plan in place and then ensure that we do everything possible to begin each day very strong in our preparation steps. We must then continue to make strong confident decisions while we trader even when the results are not what we expect.

Finally, we all need to have a target each day that determines when to finish our session and be strong enough to adhere to that plan. If we keep going, it generally leads to massive losses and frustration which then stays with you until you begin to trade again. This will cause a very sour perspective of trading when you attempt to start a new session. Start Strong. Trade Strong. Finish Strong!

10 Minute Toughness

  
  Education
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If you’re looking for a simple program to develop the mental skills necessary to be a successful trader, then check out 10 Minute Toughness – The Mental Training Program for Winning Before the Game Begins. Jason Selk works with many of the worlds top athletes to develop the mental toughness needed for sports success and his program translates perfectly to trading. I’ve been working with the book for a few months now -its easy to read, easy to implement and the program is excellent! As the book says “No psychobabble, no self-help cliches, no touchy feely theories. 10 Minute Toughness is the simple and effective mental-training program to help you get focused, stay on target and find a competitive edge.” The program contains short impactful exercises to help you

  • calm your heart-rate and maintain a relaxed state of mind
  • stay focused on the aspects of your trading that will most help you succeed
  • build confidence
  • perform mental run-throughs that prepare you for the market day

What I particularly find helpful is the emphasis on process goals.  Many of us focus on goal setting in terms of performance goals like making so many points a week. A process goal shifts the focus to concentrate on the specific aspects of trading that will help you achieve the performance you are looking for. It helps you keep your attention each day on the one or two things that will improved your trading. The book is very consistent with what Brett Steenbarger teaches and yet somehow I found it more accessible and easy to implement.  The detailed examples of top athletes, baseball, basketball and football players makes the book fun to read and easy to get. This book will make a great addition to every traders library

Beliefs of Winning Traders

  
  Education
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winner1

Winners share certain behaviors and beliefs. Check to see if you possess the traits and beliefs of winning traders !!!

  1. If you have the belief that you will win, you increase your chances of trading to win. In order to have this level of conviction, you must have a thoroughly-tested plan. You also must have a clear vision of how you will proceed with your plan to reach your goal. The more detailed you can visualize your goals being achieved, the more you will strengthen your internal belief and confidence that you will reach your goals.
  2. I’m sure you’ve heard the saying “I didn’t plan to fail; I failed to plan.” Without a plan, your results will tend to be mixed and uninspiring. Commit to writing down your trading plan, and make sure you can answer the questions found in a recent TrendWatch on creating your trading plan. (more…)

100 TRADING TIPS

  
  Education
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experience2

1)Nobody is bigger than the market.

 2)The challenge is not to be the market, but to read the market. Riding the  wave is much more rewarding than being hit by it.
 
 3)Trade with the trends, rather than trying to pick tops and bottoms. 
    
 4)There are at least three types of markets: up trending, range bound, and  down. Have different trading strategies for each.
 
 5)In uptrends, buy the dips ;in downtrends, sell bounces. 
    
 6)In a Bull market, never sell a dull market, in Bear market, never buy a dull  market. 

    7)Up market and down market patterns are ALWAYS present, merely one is  more dominant. In an up market, for example, it is very easy to take sell  signal after sell signal, only to be stopped out time and again. Select trades  with the trend. 
  
 
 8)A buy signal that fails is a sell signal. A sell signal that fails is a buy signal. 
   (more…)

Mastering Reward/Risk

  
  Education
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riskrewardMost traders ignore reward/risk ratios, hoping that luck will save them when things start to go bad. 

 This is probably the main reason so many of them are destined to fail. It’s really dumb when you think about it, because reward/risk is the easiest way to  get a definable edge on the market house. 

 The reward/risk equation builds a safety net around your open positions. It’s designed to tell you how much can be won, or lost, on each trade you  take. The secondary purpose is to remove emotion so you can focus squarely on the cold, hard numbers. 

 Let’s look at 15 ways that reward/risk will improve your trading performance. 

 1. Every setup carries a directional probability that reflects a specific pattern. Always execute positions in the highest-odds direction. Exit your trades  when a price fails to respond according to your expectations. 

 2. Every setup has a price level that violates the pattern. Only take trades where price needs to move a short distance to hit this “risk target.” Look the  other way and find the “reward target” at the next support or resistance level. Trade positions with the highest reward target to risk target ratios.  (more…)

9 Trading Lessons for Traders

  
  Education
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  1. You have to be able to lose in order to win.
  2. Always be realistic with your monthly target.
  3. It is absolutely OK, and most of time, helpful to shutdown all social networking such as twitter, stocktwits, facebook. Think about it, if your friend is affecting your work, tell him to come back later. Trading is about concentration, and definitely a personal and lonely business. To be a successful trader, we must walk alone in our days and do it alone.
  4. If you are really seriously addicted to twitter, try to challenge tweets who call trade, instead of following them.
  5. When your position is right, you have to do nothing instead of doing nothing when you are wrong! [constantly taking early profit will do you more harm than good]
  6. You must keep your losses small and take more small losses than small winners to come out ahead. You will become the best trader you can be by being wrong small, not right small.
  7. It is your job to know your are wrong and not the market’s job.
  8. You have to press your winners if you really consider yourself to have the ability to make a living or extra income from trading.
  9. When you place a trade, don’t ever think this is the only trade to make. There are thousands of trades you can make. You aren’t going to miss a move for long if you trade correctly. You aren’t going to chase markets if you trade correctly. You must have a plan to enter positions based on each market’s criteria.

Trading Wisdom – Jesse Livermore

  
  Education
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[” . . . remember that stocks are never too high for you to begin buying or too low to begin selling. But after the initial transaction, don’t make a second unless the first shows you a profit. Wait and watch.”]

Jesse Livermore reiterates the importance of buying with the primary trend and beginning new deployments in small increments. Since trends can run a long time, he wisely points out that absolute stock prices are really irrelevant for buying and selling decisions for speculators.

All that matters for speculators is today’s temporal position within the prevailing trend. If the trend has time to run yet then today’s prices really don’t matter. If you buy today on a bull trend that is not yet finished, odds are that your stocks will head to even higher prices before the trend reverses. Similarly if you short sell an already battered stock when a general bear trend hasn’t yet ended, then you will probably still earn a profit. The key is carefully watching the market conditions and keeping the pulse of the primary trend with which you are betting.

But, since we cannot know for certain how long a trend has left to run before it ends, it is wise to gradually scale in positions as Jesse Livermore taught. Start out by only deploying a fraction of your desired capital in your target bet. If you are right, and the profits come, then you can scale in more as time marches on. But if you are wrong and the markets move against you, the prudent use of scaling shields you from large losses and keeps your precious capital protected until a more opportune time.

Trading Thoughts

  
  Education
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To truly become a proactive trader, you need to believe that your trade WILL go the direction you thought. This shows that you have belief in your system that finds your trade setups in the first place. If you put your trade on and the first thing you do is mark your stop or think “I hope this goes well”, then you are bound to fail as a trader. Successful traders do not hope. They do the research and use their system to find good candidates and enter the trades. It is at that point that they manage risk. They know exactly how much they have at risk and are perfectly fine if they lose that much. Why? Because it is baked into their system, and every trade does not go the way they thought. You need to be the same way in your trading.

You need to have the courage to fail, step off the curb, and enter the trade. Expect that the trade will go your way and use the power of positive thinking. Set your target, entry and your stop and then you know, at any point during the life of the trade, where you stand. If your target gets hit and you see the stock continue to go the same direction, you can’t get mad. You simply put the positive trade aside and evaluate it in a couple weeks to figure out why it continued to go beyond your target. It is at that point that perhaps you make an adjustment to your system. Perhaps you find out that it was a news item that caused the surge and then you know that it was atypical, rather than the norm, and no adjustment is needed.

In going through this thought process, you prepare yourself emotionally and as a result remove the chance of trading on emotion once in the trade. As an example, you need to be fully prepared to lose the amount invested in a single trade if your stop is triggered. If you aren’t fully prepared to take that risk, then you need to adjust the size of your trade or move on to another trade. If you prepare and emotionally accept the fact that you could be wrong, your trading becomes more mechanical and less emotional. Take some time to role-play the different scenarios and see what your reactions would be.

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