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Wisdom Thoughts for Traders

  
  Education
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If your not sure and don’t have an edge, cash IS a strategy.

If you are on a cold streak, reduce size by 70% and tighten stops for a week.

Stocks aren’t people, they cant be trusted, an algorithm doesn’t care that you think you know the story or the chart.

Don’t be “all in” in any name, you will blow up your account.

It’s totally cool to change your mind right after a trade, the market changes by the minute, so should you.

Pick one strategy and stick to it. This may take time if you are a beginner.

You have to break a few eggs to make an omelet, so take losses but keep them very small.

I haven’t taken someone else s idea in a long time, you have just as good a chance of being right or wrong as some other putz.

Don’t have 15 technical indicators on your screen, that’s and EKG not a chart. Less is more.

Don’t trade pissed off, it will crush your P&L

Guess who wins when you “revenge” trade?

Take partial profits on the way up and raise your stops.

When you have three losing trades in a row, take a walk around the block. You may get an epiphany, at the very least it’s therapeutic.

Realize early that the market will always be smarter than you.

Paul Tudor Jones: The Secret To Successful Trading

  
  Education
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“The secret to being successful from a trading perspective is to have an indefatigable and an undying and unquenchable thirst for information and knowledge. Because I think there are certain situations where you can absolutely understand what motivates every buyer and seller and have a pretty good picture of what’s going to happen. And it just requires an enormous amount of grunt work and dedication to finding all possible bits of information.

You pick an instrument and there’s whole variety of benchmarks, things that you look at when trading a particular instrument whether it’s a stock or a commodity or a bond. There’s a fundamental information set that you acquire with regard to each particular asset class and then you overlay a whole host of technical indicators and that’s how you make a decision. It doesn’t make any difference whether it’s pork bellies or Yahoo. At the end of the day, it’s all the same. You need to understand what factors you need to have at your disposal to develop a core competency to make a legitimate investment decision in that particular asset class. And then at the end of the day, the most important thing is how good are you at risk control. 90% of any great trader is going to be the risk control.”

Gorman & Kennedy, Visual Guide to Elliott Wave Trading-Book Review

  
  Education
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First, what Visual Guide to Elliott Wave Trading by Wayne Gorman and Jeffrey Kennedy (Bloomberg/Wiley, 2013) is not. It is not an Elliott wave primer. The authors direct the reader who knows nothing about wave patterns to the classic presentation by Frost and Prechter, available free online.

Instead, this visual guide shows how to actually use Elliott waves in trading, both as a stand-alone tool and, more perfunctorily, in combination with technical indicators. It also includes two chapters on incorporating Elliott waves into options trading strategies

Many of the Elliott waves the author illustrate (and naturally the illustrations are abundant) are of the “real world” vs. the “textbook” variety. That is, they are tricky to decipher even in hindsight. This difficulty has led many critics to claim that Elliott wave theory is useless in real time. In fact, the authors admit that “under the Elliott wave model, there is usually more than one valid wave count at any particular time” and that “sometimes these wave counts point in opposite directions.” (p. 195)

For the trader in doubt (who is not pursuing an option strategy that can profit under more than one scenario), Gorman and Kennedy provide visual cues—usually familiar patterns such as channels and wedges, sometimes Fibonacci levels—that help the trader make sense of the waves. The chapter titles in Part II (“Trading Examples”) point to some of these cues: “How Zigzags and Flats Set Up a Trade for the Next Impulse Wave,” “How a Triangle Positions You for the Next Move,” “Riding Wave C in a Zigzag,” and “Using Ending Diagonals to Trade Swift and Sharp Reversals.” (more…)

Trading – a game of probability

  
  Education
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A big part of trading is a probability game. The market can move any directions and many times against all logic and fundamentals for a period of time. 
An edge in trading is the ability to have winning probabilities on your side.
Most people cannot distinguish between luck and skill when it comes to forecasting the market. At the best, I am right 70% of the time on fundamentals, 50% on the timing of the trade but I am making money on >80% of the trades.
I acknowledge I do not know how to predict the market timing with certainty. The process of trading is replete with errors and thus one has to cater for it.
Apparent randomness in the market is so complex that it cannot be managed with my finite mind. 
So here are some ways that help me to handle the random behaviour of the market: (more…)

Focus on You

  
  Education
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It is never the system or author writing the trading book that fails.
It is YOU! It is your lack of focus.
Focus on yourself and then you can focus on trading successfully.

Trading is at least 98% psychological. It’s a mental state of mind based upon your beliefs of what may happen. Books, systems and technical indicators can only take you so far! You must accept and understand that the market is all in your head. It is you versus the other trader. If you don’t understand YOU, how will you ever understand other traders; thus taking advantage of market moves based on their mental state of mind and their underlying beliefs.

Many investors, both novice and experienced, drift from book to book to book and system to system to system, never understanding why they produce inconsistent profits. They are confused, looking at too many things, complicating the entire process while ignoring the essentials to success.

Keep it simple.

Why complicate things when simplicity works; especially when it comes to trading? We know that trading may be the most difficult endeavor that any human may attempt to undertake.

Thousands of different systems work in the stock market so we can conclude that it is the user that ultimately fails because of lack of concentration and motivation to stay the course. Wall Street is not for drifters and most people can’t play the game profitably because they never sharpen their own mental skills while applying basic money management techniques. They focus on the wrong set of skills.

We all see people come and go every day: rags to riches to rags. They are motivated for weeks, months and sometimes years but most fizzle away after they fail and can’t figure out what they are doing wrong. Some investors copy a system from a so-called guru and may find success for a while but they don’t tailor it to their personality, integrate it with their investing style and focus on their mental state of mind, therefore, it will become obsolete and they will fail. Working hard to become successful in the market is fine but understand that working smarter will always take you further.

Our goal as traders and investors is to understand the crowd and anticipate how they will act and react based on the thoughts we had, prior to focusuing on the proper skills, when we were just one of the sheep (waiting to be slaughtered)!

Focus on what is important and the success will follow.

Stop focusing on iffy stochastics, Bollinger bands, MACD, ADX, earnings releases and bogus news stories. Yes they can aid you to success but the main focus is on you!

Personally speaking, I require specific fundamentals, price, volume and basic daily and weekly charts to succeed but they are secondary tools. They can help me make money as long as I am focusing on the overall picture which is my mental focus and my emotional balance.

I know I am getting all “Dr. Perruna” on you but it is true.

Once your conscious mind understands how the beliefs of the crowd work, your subconscious mind takes over and intuition kicks in and you start making some of the best decisions of your life by flawlessly following your system.

As Jesse Livermore said:

“Wall Street never changes, the pockets change, the stocks change, but Wall Street never changes, because human nature never changes”

Why? Because humans never change!

Once you understand this and learn to trade other humans, you will become successful. Yes, you will need some of the tools mentioned above but don’t focus your attention in this area. Focus when investing by mastering the beliefs of the crowd and you will always be one step ahead.

How to know when to exit your position?

  
  Education
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This started as a quirky post but quickly turned into something probably more useful. I admit the post is based on personal experiences. Luckily, I do not make these mistakes any more….at least not very often ;). Enjoy!

1) It is time to sell when…..you find yourself using extra technical indicators on charts to justify holding your position that you didnt use to get into it in the first place!

2) It is time to sell when…..you find yourself going to yahoo message boards to see if someone has some positive news that you don’t know!

3) It is time to sell when…..you find yourself justifying to yourself holding a position for fundamental reasons when you entered it for technical reasons!

4) It is time to sell when…..when you listen to an ” Idiot expert” on Blue Channels  or Joker Analysts Websites  to chart a stock checking for entry when you are already in it!

Let me know if you readers have any other such fun “indicators” and I shall add them.

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