| 1. Managing the risk of ruin. Do not risk so much on any one trade that 10 losing trades in a row will destroy your account. risking 1% to 2% of your trading capital per trade is a great baseline for eliminating the risk of ruin. 2. Only trade with a positive risk/reward ratio. Only take trades where your possible reward is at least two or three times the amount of capital you are risking in the trade. 3. Always trade in the direction of the prevailing trend. Always trade in the direction of the flow of capital for your specific time frame. Shorting rockets and catching falling knives is not profitable in the long run. 4. Trade a robust system. Back test and study your trading method, system, or style to ensure it is a winning system historically. The key is that it had bigger winners than losers over the long run in the past. 5. You must have the discipline to take your entries and exits as they are triggered. You must take your entries when they trigger, your losses when they are hit, and your profits when a run is over to be a successful trader. 6. You must persevere through losing periods. All successful traders were able to overcome their losing periods to come back and make the big money. If you quit you will not be around for the opportunity to win big. 7. If you want to be a winning trader you must follow your trading plan not your fear and greed. Emotions will undo a trader more than anything else. Trading too big is due to greed, missing a winning trade due to no entry is a sign of fear, traders must trade the math and probabilities not their own opinions or emotions. |
Archives of “three times” tag
rssMy Time at Lehman
I started at Lehman Brothers on June 1st, 2007 as a first year analyst. It was my first job out of college. Dick Fuld, the CEO at the time, publicly discussed “the road to two-hundred,” in which he would not retire until the stock reached $200 per share, almost three times the price when I arrived. Everyone at the firm believed this as though it were a fact – that there was something special about Lehman Brothers stock – it always went up.
I joined Lehman for a few reasons. The first was personal. My mother worked on Wall Street and passed away when I was a teenager. I felt, somewhat misguidedly, as though following in her footsteps would bring me closer to her. The other reasons were simpler. I had been interested in the stock market as a kid (though I went to work trading bonds and credit derivatives), I wanted to make good money, and I thought maybe, just maybe, it would be a bit of fun. (more…)
15 Facts About China That Will Blow Your Mind
1.) By 2025, China will build TEN New York-sized cities.
2.) By 2030, China will add more new city-dwellers than the entire U.S. population.
3.) China already consumes twice as much steel as the US, Europe and Japan combined.
4.) If the Chinese, one day, use as much oil per person as Americans, then the world will need seven more Saudi Arabia’s to meet their demand.
5.) There are already more Christians in China than Italy, and China is on track to become the largest center of Christianity in the world.
6.) Chinese are far more likely to believe in evolution than Americans.
7.) Chinese internet users are five times as likely to have blogs as Americans.
8.) China has 150% more soldiers than America does, plus a high tech ‘Kill Weapon’ the U.S. can’t deal with.
9.) China still hasn’t rid itself of Europe’s medieval plague.
10.) 40% of Chinese small businesses went bust or almost went bust during the world financial crisis.
11.) China executes three times as many people as the rest of the world COMBINED… and uses mobile execution vans for efficiency.
12.) China averages 274 protests PER DAY.
13.) When you buy Chinese stocks, you are basically financing the Chinese government. Eight of Shanghai’s top ten stocks are state-controlled arms of the government.
14.) 50% of counterfeit goods come from China.
15.) The majority of Chinese drink polluted water.
Eleven Rules
Rule #1
Be data centric in your approach. Take the time and make the effort to understand what works and what doesn’t. Trading decisions should be objective and based upon the data.
Rule #2
Be disciplined. The data should guide you in your decisions. This is the only way to navigate a potentially hostile and fearful environment.
Rule #3
Be flexible. At first glance this would seem to contradict Rule #2; however, I recognize that markets change and that trading strategies cannot account for every conceivable factor. Giving yourself some wiggle room or discretion is ok, but I would not stray too far from the data or your strategies.
Rule #4
Always question the prevailing dogma. The markets love dogma. “Prices are above the 50 day moving average”, “prices are breaking out”, and “don’t fight the Fed” are some of the most often heard sayings. But what do they really mean for prices? Make your own observations and define your own rules. See Rule #1.
Rule #5
Understand your market edge. My edge is my ability to use my computer to define the price action. I level the playing field by trading markets and not companies.
Rule #6
Money management. Money management. Money management. It is so important that it is worth saying three times. There are so few factors you can control in the markets, but this is one of them. Learn to exploit it.
Rule #7
Time frame. Know the time frame you are operating on. Don’t let a trade turn into an investment and don’t trade yourself out of an investment.
Rule #8
Confidence and conviction. Believe in your strategies and bet wisely but with conviction. There is nothing more frustrating than having a good strategy work as you expect, yet at the end of the day, you have very little winnings to show for your efforts.
Rule #9
Persistence. It takes persistence to operate in the markets. Success doesn’t come easy, and if it does, then I would be careful. Even the best strategies come with losses, and they always seem to come when you get the nerve to make the big bet. Stay with your plan. If you have done your home work, the winning trades will follow.
Rule #10
Passion. In the end, trading has to be about your bottom line, but you have to love what you do and no amount of money is worth it if you aren’t passionate about the process. No matter how much success you enjoy, in the markets you can never stop learning.
Rule #11
Take care of yourself. No amount of money is worth it if your health is failing or you have managed to alienate yourself from family and friends in the process.
Creative Responsibility
“What good can come from comfort? It’s not going to be art. I think there’s a false ideal out there, to some people — maybe younger people — they might think “I could be an artist and I don’t have to work.”
“But I think calling yourself an artist, you have to work three times as hard as someone with a punch-clock job. Because if you punch in, you have a responsibility at your job, but you can also do what you’re told, and work the machine, whatever you’re doing, do whatever is already there for you… do what’s expected of you of that job.
“But if you are an artist and you have to create something from nothing — there is nothing on this canvas, nothing on this tape, we have to create something that didn’t exist before — that’s ultra-responsibility, super-responsibility isn’t it.”
– Jack White (via Conan O’ Brien)
Traders and investors bear a “creative responsibility” in respect to creating something from nothing… starting with a blank canvas (portfolio) and producing profitable and worthwhile results over time.
This notion reflects the craftsmanship embedded in the investment process… trade selection… methodology and process design…
As an active market participant, do you see yourself as an artist too? How do you embrace the creative responsibility that comes with such?
11 Rules For Better Trading
Trading in the markets is a process, and there is always room for self improvement. So as we start the new year, here are my 11 rules that help me navigate the markets. By no means is this list exhaustive or exclusive.
Rule #1
Be data centric in your approach. Take the time and make the effort to understand what works and what doesn’t. Trading decisions should be objective and based upon the data.
Rule #2
Be disciplined. The data should guide you in your decisions. This is the only way to navigate a potentially hostile and fearful environment.
Rule #3
Be flexible. At first glance this would seem to contradict Rule #2; however, I recognize that markets change and that trading strategies cannot account for every conceivable factor. Giving yourself some wiggle room or discretion is ok, but I would not stray too far from the data or your strategies.
Rule #4
Always question the prevailing dogma. The markets love dogma. “Prices are above the 50 day moving average”, “prices are breaking out”, and “don’t fight the Fed” are some of the most often heard sayings. But what do they really mean for prices? Make your own observations and define your own rules. See Rule #1.
Rule #5
Understand your market edge. My edge is my ability to use my computer to define the price action. I level the playing field by trading markets and not companies.
Rule #6
Money management. Money management. Money management. It is so important that it is worth saying three times. There are so few factors you can control in the markets, but this is one of them. Learn to exploit it.
Rule #7
Time frame. Know the time frame you are operating on. Don’t let a trade turn into an investment and don’t trade yourself out of an investment. (more…)
Six trading lessons from speculator Jesse Livermore
Stock operator’s reminiscences useful in today’s market
If you ask traders to choose the most influential trading book, more than likely, they’ll mention Reminiscences of a Stock Operator by Edwin LeFevre. This book describes the experiences of one of the world’s greatest stock speculators, Jesse Livermore.
Many of the anecdotal lessons included in the book are well known to experienced traders. For example: the market is always right; don’t over-trade; never argue with the tape; use stop losses, and always trade with the primary trend of the market.
Almost anyone can learn the mechanics of trading. It’s the psychological pitfalls that make trading one of the most challenging activities. No matter your skill level, it’s important to remember and obey the rules of engagement — another word for discipline.
With that in mind, this book contains dozens of important lessons. Here are a few of my favorites:
1. Learn how to lose
Livermore (speaking through the fictional character of Larry Livingston) complains how he’s made a series of trading mistakes that cost him a lot of money, although he wasn’t completely wiped out. The losses, he admits, were painful but educational:
“There is nothing like losing all you have in the world for teaching you what not to do,” he says. “And when you know what not to do in order not to lose money, you begin to learn what to do in order to win.”
After going broke three times in less than two years, Livermore has this advice: “Being broke is a very efficient educational agency.” He says that you learn little from your winners because they often take care of themselves. It’s the losers that will teach you lessons to last a lifetime. And as long as you don’t make the same mistake twice, you always have the opportunity to trade another day. (more…)
Conquering Your Negative Trading Emotions
The trader has two emotions that must be controlled in order to become successful. I call them ‘the two sides of a coin’ and they are commonly known as FEAR & GREED.
The beginning or new trader will first encounter FEAR. There are two types of FEAR. The fear of losing money and the fear of being wrong.
The fear of losing money usually derives from a trader risking money that should be used for the rent, food, children’s education etc. ‘Scared money’ will render one incapable of pulling the trigger when a trade setup comes along. The only way to overcome this paralysis is to be well capitalized with funds that you can risk.
The fear of being wrong is simply that part of all of us that feels that to make a wrong decision is reflective on our personal competency. The cure for this is to simply realize and accept that losses are part of this game. Think about this? A baseball player needs to hit the ball once for every three times at the plate and this will get him into the Hall Of Fame. Whenever you feel the fear of being wrong, just remind yourself that… “My approach for trading has both historically and real-time produced over (number)% winning trades.” This will give you the confidence to step up to the plate and keep swinging. Also tell yourself that the only way to earn the big money is to get into the game. Have confidence in your trading system that when properly executed, it will make much more money than it loses.
So, why is GREED the flip side of fear?
Greed is caused by the fear of not making enough money. Traders who are greedy are often the exact opposite of the ones who are fearful. They have no fear and usually are very aggressive traders, which can get them into big trouble fast. Greed will usually lead to overtrading, failure to follow the trading rules, and not applying the system consistently. One of the biggest problems when greed sets in is the inability to know when to take profits. These traders are so bent on making a killing that they are never satisfied. If they have significant profits they don’t even think about cashing out, as they want more. This often leads to the inability to see the trade turning against them and they will allow winning trades to turn into big losing ones. (more…)
Eleven Rules for Traders
Trading in the markets is a process, and there is always room for self improvement. So as we start the new year, here are my 11 rules that help me navigate the markets. By no means is this list exhaustive or exclusive.
Rule #1
Be data centric in your approach. Take the time and make the effort to understand what works and what doesn’t. Trading decisions should be objective and based upon the data.
Rule #2
Be disciplined. The data should guide you in your decisions. This is the only way to navigate a potentially hostile and fearful environment.
Rule #3
Be flexible. At first glance this would seem to contradict Rule #2; however, I recognize that markets change and that trading strategies cannot account for every conceivable factor. Giving yourself some wiggle room or discretion is ok, but I would not stray too far from the data or your strategies.
Rule #4
Always question the prevailing dogma. The markets love dogma. “Prices are above the 50 day moving average”, “prices are breaking out”, and “don’t fight the Fed” are some of the most often heard sayings. But what do they really mean for prices? Make your own observations and define your own rules. See Rule #1.
Rule #5
Understand your market edge. My edge is my ability to use my computer to define the price action. I level the playing field by trading markets and not companies. (more…)
11 Trading Rules
Rule #1
Be data centric in your approach. Take the time and make the effort to understand what works and what doesn’t. Trading decisions should be objective and based upon the data.
Rule #2
Be disciplined. The data should guide you in your decisions. This is the only way to navigate a potentially hostile and fearful environment.
Rule #3
Be flexible. At first glance this would seem to contradict Rule #2; however, I recognize that markets change and that trading strategies cannot account for every conceivable factor. Giving yourself some wiggle room or discretion is ok, but I would not stray too far from the data or your strategies.
Rule #4
Always question the prevailing dogma. The markets love dogma. “Prices are above the 50 day moving average”, “prices are breaking out”, and “don’t fight the Fed” are some of the most often heard sayings. But what do they really mean for prices? Make your own observations and define your own rules. See Rule #1.
Rule #5
Understand your market edge. My edge is my ability to use my computer to define the price action. I level the playing field by trading markets and not companies.
Rule #6
Money management. Money management. Money management. It is so important that it is worth saying three times. There are so few factors you can control in the markets, but this is one of them. Learn to exploit it.
Rule #7
Time frame. Know the time frame you are operating on. Don’t let a trade turn into an investment and don’t trade yourself out of an investment.
Rule #8
Confidence and conviction. Believe in your strategies and bet wisely but with conviction. There is nothing more frustrating than having a good strategy work as you expect, yet at the end of the day, you have very little winnings to show for your efforts.
Rule #9
Persistence. It takes persistence to operate in the markets. Success doesn’t come easy, and if it does, then I would be careful. Even the best strategies come with losses, and they always seem to come when you get the nerve to make the big bet. Stay with your plan. If you have done your home work, the winning trades will follow.
Rule #10
Passion. In the end, trading has to be about your bottom line, but you have to love what you do and no amount of money is worth it if you aren’t passionate about the process. No matter how much success you enjoy, in the markets you can never stop learning.
Rule #11
Take care of yourself. No amount of money is worth it if your health is failing or you have managed to alienate yourself from family and friends in the process.